Harrington Review of UK FDI… The Deluded Fisherman

The deluded fisherman sat on his boat, head in his hands, wracked with envy as his competitors landed all the big fish. If only he could just change something…

Reviewing FDI attraction but explicitly ignoring taxation and talent, is like trying to catch bigger fish by focusing on the colour of your bait box - while your rod and reel are broken; there’s no bait in the box; and the water has been poisoned and polluted.

This week has seen the Autumn Statement by the UK Chancellor, Jeremy Hunt, set key tax and spending priorities in the run-up to the next general election in 2024/25. It coincides with the Government’s acceptance ‘in principle’ of headline recommendations of the Harrington Review into the organisation of UK inward investment.

For FDI nerds, this was going to be a big deal. I waited in eager anticipation; followed the speeches live; and rushed to download the full review. When I saw it was 124 pages my heart raced and I thought we were about to see some substantial change. I’ll never learn! Two hours later with my eyes straining, I had read through looking for meaty morsels but was left hungry and disappointed.

Here’s the Harrington Review and the Government’s response.

https://www.gov.uk/government/publications/the-harrington-review-of-foreign-direct-investment

You can make your own mind up, but I have the following takeaways: 

A Missed Opportunity

The review misses an opportunity to reshape the UK’s inward investment landscape in a way that recognises the vital role played by local and regional teams. Reading the Harrington Review, you could be forgiven for thinking that investment promotion was something only ever done in Whitehall. There is little or no mention of the dozens of local teams from Inverness to Cornwall who have been delivering inward investment throughout the couple of decades and have more experience and insight than a tower-block of civil servants in SW1. No acknowledgement that best practice FDI actually exists already in the UK, in Belfast, Glasgow, Cardiff, Leeds, Manchester, Liverpool and Bristol.

Paying brief lip service to the Deeper Devolution Deals in Greater Manchester and West Midlands does little for the 50 million people outside the UK’s largest three conurbations. However successful the Big 3 are, the majority of UK foreign direct investment lands outside, in places like Brighton and Basildon; Telford and Torbay; Somerset and Stafford; Wrexham and Warrington.

Given the links between the Department for Business & Trade and Local Enterprise Partnerships is now pretty much dead, there is an opportunity to fill the void and create something more sustainable and effective. There was no mention of the depleted resources that local teams face with post-Brexit given that so many were reliant on ERDF matched funds and little understanding of how hollowed out the IPA landscape has become over the last decade.

The government response does include a commitment “to work more closely with local and regional stakeholders, and those in the nations, to improve the UK’s investment offer and commits to exploring the development of a framework for how national and sub-national investment promotion bodies will work together to deliver a more coordinated and effective UK investment promotion offer.”

The recent review into Destination Management Organisations by Nick de Bois (https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1011664/2585-C_The_de_Bois_Review_ACCESSIBLE__for_publication_.pdf) has created a new simplified structure for visitor economy and tourism promotion in England with logical tiered hierarchy and strong relationship links that share best practice and incentivise improved performance. You could have changed the words ‘DMO’ and ‘visitor economy’ for ‘IPA’ and ‘inward investment’ and most of the conclusions and solutions would work just as well. 

Instead, we are left with a patchwork of under-resourced IPAs, mostly under the leaking umbrella of local authority funding while additional resources go to create more capacity, more committees and more strategies in the centre.

So what of the actual changes which the government has accepted:

- New Strategy

There will be a new Business Investment Strategy in 2024 (just in time - maybe - for the general election which is likely to see a change of leadership with its own thoughts on a new strategy!). This is another problem with not having an arm's-length national IPA like most competitors. No strategic vision is ever possible if the government departments that run inward investment are in a permanent cycle of change and reorganisation. The attraction of inward investment should not be a point of political debate, similar to the attraction of more tourists. It would really benefit by being outside of Whitehall’s direct control. Inward investors want consistency - Ireland’s IDA was established in 1949, Singapore’s EDB in 1961. The UK model can’t make it to double-figures without massive reorganisation, let alone sixty or seventy years. 

- Another Government Committee

I understand the desire to avoid departmental silos and to get buy-in and expertise from a range of different sources, but the proposal to establish a cross-government Investment Committee to oversee the development of the new strategy doesn’t fill me with confidence that a proactive, professional, devolved, tech-savvy and agile approach will result. 

- ‘Concierge Service’

Call me old-fashioned but I thought business concierge was exactly what an IPA does? Surely a concierge approach would seek to go the extra mile to surprise and delight potential targets, acting as a ‘single front door’, ‘one-stop shop’, ‘hand-holding’ service. It would anticipate barriers and be proactive in finding solutions - like the hotel concierge that can always get you tickets for a sold-out show, or knows how to get the best table at a top restaurant. If staff at Office for Investment and Department for Business & Trade are not providing potential investors with concierge services, what are they doing?

The Chancellor said: “To ensure the door is held wide open to those that want to invest in the UK’s future, the government is taking steps to boost foreign direct investment, through supporting the Office for Investment to strengthen its concierge offer to strategically important investors.”

A ‘concierge service’ should be visible at the front door. The fact that the UK has not had a functioning inward investment website for several years means that the front door is hanging off its hinges. https://www.great.gov.uk/international/ is a national embarrassment, it reeks of government fudge and fails to champion the real assets of the UK’s offer. 

All of this is a real shame because within the machinery of government inward investment teams are so many fantastic people. Experienced practitioners that know how to win projects, but they are being let down by the never-ending restructuring and renaming.

- Bigger Office for Investment

The UK IPA hierarchy is already top-heavy with too many people sitting behind desks in London while local and regional delivery teams are starved of resources. It’s not like the money isn’t available. Every year £60 million is spent on the ‘GREAT Campaign’ to advertise cheesy slogans around the world that ‘Sport is GREAT’ and ‘Food is GREAT’... just imagine the impact of just 10% of that £60 million being devolved to rebuild IPA capacity around the country. 

A headline recommendation accepted by the government is to “beef up” the Office for Investment. This may be useful if that means additional resources trickling-down to the regional level, but dropping a few new recruits into the regions is not going to have the same impact as having strong, local IPAs that have the capacity to deliver projects at the coalface.

- ‘Contestability’

The Harrington Review mentions ‘contestable’ or ‘contestability’ 19 times in the report. It calls for the Office for Investment to use the same evaluation methodology as London & Partners to report on its own effectiveness. For guidance here’s an explainer.

https://files.londonandpartners.com/l-and-p/assets/evaluation_methodology_2021.pdf 

While a new look at evaluation is refreshing, if it leads to parachuted in OfI consultants with clipboards to question the value and cost-effectiveness of projects across the country, then it’s likely to strain relations between central government and local teams.

- CRM and Tech Tools

“Government needs a modern, cross-government CRM system to enable effective coordination of its interactions with investors. This new system must include agreement of process and responsibilities as well as new software and should be implemented as a priority.” This was the Government’s response to calls for a new CRM system and the adoption of more effective tools. 

The UK inward investment process is one of the least tech-savvy in the world. Competitors are mastering ChatGPT while the UK struggles to maintain a basic website. From technically poor quality webinars (I endured a dozen during international trade week) to the most basic of promotional websites, the UK is poorly served. The Great website is anything but and the calls for a new national CRM system should send shivers down the spine of anyone who’s ever experienced public sector IT procurement. 

- Regional Competition

The Harrington Review calls for “Clearer local strategies and promotion, to create differentiation and to avoid competition between regions”. The national FDI teams have always tried to encourage a nice, inclusive framework where each part of the UK has its own unique proposition to minimise what has been called “wasteful competition.” This is fruitless and folly. Businesses actually want competition between locations; it’s healthy and drives innovation and creativity. 

And crucially, if central government isn't paying for regional and local delivery teams, then there’s nothing to stop any town or city spending its money however it likes and doing whatever it takes to win new investment. 

I’m not advocating a Barnsley investment office in the US or that Shropshire County Council leads an automotive trade mission to China (yes, both of these things happened in the past) but if there’s no structure, and no devolved funding, then don’t be surprised when local mayors and district councillors show up in exotic places.  

(Herd of) Elephants in the Room

Let’s look at the issues which have been explicitly “out of scope” and therefore excluded from the Harrington Review:

- Taxation? Taxation? Taxation?

The taxation of business profits is a fundamental driver of FDI. You can’t hike corporation tax by six points and not expect to have a negative impact on inward investment. That’s why Ireland’s inward investment leaders have fiercely lobbied to protect the 12.5% rate which has been the key driver of its FDI success since 2003.

Here’s a reality check. The uncomfortable truth is that IPAs play a relatively marginal role compared to major drivers like tax, talent and technology. As well as infrastructure, opportunity, supply-chains… the world’s most perfect IPA is not going to compensate for structural disadvantages.

The Harrington Review cites best practice IPAs like IDA Ireland and EDB Singapore, both fantastic agencies, but they have created the most investor-attractive environment possible through their tax and talent policies. Ireland’s 12.5% corporate tax rate is almost as famous as its Guinness; and Singapore slashed its rate from 26% in 2000 to 17% in 2010 where it has remained ever since. Businesses want lower taxes but they also want consistency to plan for the long-term. The UK currently offers neither. 

- Talent?

So skills were also supposed to be out of scope of the Harrington Review too… that’s a shame seeing as it’s consistently the number one question every inward investor asks. To his credit, on this point Lord Harrington disregarded the scoping remit and has included a lot of useful feedback on the importance of skills and visas. The government’s response though only included a vague promise to look at “a range of skills-based options that can be used to secure the most strategically valuable investments”.

Having departed a single market of 450 million people, what is the impact on recruitment and retention of talent? Where is the pipeline? Where’s the talent attraction strategy? 

Final Thought

I make no apologies for taking a negative view of this week’s announcements but it’s a view based on 30 years of watching and working with every level of IPA in the UK (and many best in class ones overseas). A view grounded in frustration and disappointment over failures to deliver real change in economic opportunities around the UK. While I applaud the latest Investment Zones and Free Ports announced, this too feel like repackaging old initiatives that didn’t particularly work either.

What wealth-creating entrepreneurs and inward investors want, above all else, is a clear and consistent approach - at national, regional and local levels - with attractive, competitive propositions professionally delivered. It’s not rocket science.

Whilst this week represents a missed opportunity, I imagine it won’t be long before we’re reviewing and reorganising again sometime soon.