The problem with foreign investment

Does it really matter if foreign investors own our ports, airports, utility companies, commercial and high-end residential properties and swathes of local infrastructure? The government is clearly not worried.

The presence of cash-rich overseas investors in London and (to a lesser extent) in the city regions is viewed by ministers as a justifiable alternative to public investment. Why spend taxpayers’ money or seek out British investors, like local authority pension funds, when you can attract sovereign wealth funds from China, UAE, Saudi Arabia and elsewhere with the promise of government-backed financial guarantees that are off the public accounts.

But it’s not so simple. As the Smith Institute’s latest booklet ‘Britain for sale? Perspectives on the costs and benefits of foreign investment’ argues, the UK’s growing reliance on overseas investment is far from risk free. Leaving aside the fact that most of the sovereign wealth funds and some of the large investors, like EDF, are state-owned (which puts an odd spin on the government’s pledge to rebalance regional economies towards greater private ownership), it’s hard to dismiss claims that an over-reliance on foreign investment could make places less resilient and more vulnerable to global market fluctuations (as we saw with Tata Steel).

‘Perhaps there is a need to introduce a local as well as a national

public interest test with foreign investment in major projects?’

On the one hand we face the threat of a London property bubble built on ‘gold bricks’ from foreign speculators; on the other there are concerns that PFI-style deals with sovereign wealth funds around the Northern Powerhouse and Midlands Engine will lead to higher charges over the longer term. The Institute’s report shows that this is already happening in the largely foreign-owned water industry, where costs to British consumers have risen dramatically to shore up higher profits for overseas investors.

This is not to say that all foreign investment is bad or to deny that the UK plc doesn’t benefit from investing abroad, but there’s a balance to be struck. The authors of ‘Britain for sale’ point out that levels of foreign ownership are now at unprecedented levels – both in terms of company share ownership and in respect of strategic assets. The implications of this are not fully understood, especially in city regions where strategically important infrastructure is likely to be funded by overseas investors.

Perhaps there is a need to introduce a local as well as a national public interest test with foreign investment in major projects? Maybe there’s a case for introducing a sequential test whereby UK investors get first choice? At the very least there should be greater transparency and more scrutiny over who owns what and at what long term cost to the citizen.

The government says foreign investment is a win-win situation and is making it ‘easier than ever’ to invest in new local infrastructure. This clearly has benefits, but wouldn’t it be better to attract more investment in local places from our own investment funds? We want to remain an open economy, but we also want to be a resilient economy which is not over-dependent on overseas governments.