The UK is facing an underinvestment challenge. Over the last 15 years, business investment has not kept pace with the other nations in the G7, and the consequences of that drop-off are significant. It is estimated that underinvestment has cost the economy hundreds of billions in lost opportunities since 2006 and is of concern to businesses and government alike.
In our latest report, we’ve taken a deep dive into this investment shortfall to better understand how businesses approach the decision to invest for growth, and what might be holding them back. To consider this, we used quantitative and qualitative data inputs to answer the headline question: What are the major drivers of business investment in the UK today, and how could public policy be used to amplify these to support increased levels of investment?
The investment picture right now
The business investment picture is a complex one. From our research, we know that there is appetite among UK businesses to invest for growth – but it could be higher.
We also know that it’s not as simple as businesses lacking the finance for investment. From our findings, which are drawn from research conducted in Q3 of 2024, we know that businesses have a low appetite for borrowing to invest. Between Q3 2023 and Q3 2024, only 32% of businesses borrowed to invest, and, to avoid borrowing, over a quarter (27%) of businesses told us that they would sooner dip into their cash reserves than look to borrow to invest.
Potentially more concerning is the finding that two out of five firms are not looking to invest for growth in any way. This strongly suggests that much more could be done to inspire confidence and propel firms into investing.
What is driving investment?
Our research looked to discover what the key drivers of investment were:
- Competitive pressure
- Digital adoption and resilience
- Skills cultivation
What is putting businesses off investing?
As well as analysing what was motivating businesses to invest, our research also looked to discover what the key barriers to investment were. Four came through strongly:
- Economic climate and high interest rates.
- Political uncertainty.
- Business size: In particular, small businesses who feel like they have less capacity to invest.
- A lack of skills availability in the employment market.
Putting investment decisions in context
Looking at these drivers and barriers together, we believe they can be grouped into three 'types' of investment driver that underpin all business investment decisions:
Our policy recommendations
So, what does this mean for public policy? To increase business investment, the government needs to unlock a growth mindset among UK businesses, maximising their appetite for investment across all three categories. We have five recommendations for how this could be done:
1. Build a narrative
Government should actively advance a narrative of confidence, aspiration, and ambition, coupled with a rigorous approach to providing long-term policy certainty to boost business confidence.
2. Give businesses the tools and education they need
Government should pursue more action-oriented positioning of its own SME business support materials to inspire and mobilise smaller businesses to pursue grow ambitions – no matter how modest.
3. Proactively signpost opportunities
Local government and mayors should be tasked with delivering more proactive signposting of business opportunities within local communities. This should include the development of bespoke local action plans and the use of real-world case studies to bring to life where and how businesses can invest to realise these opportunities.
4. Make environmental and sustainability investment feel urgent
From our research, it has become clear that businesses do not currently see environmental and sustainable investment as a necessary investment driver.
If the UK is to achieve its NetZero targets and reap the potential economic benefits of transitioning, then the government should be aiming to make environmental and sustainability investment feel like a ‘necessary’ investment driver for all UK businesses.
5. Set targets for business confidence and track levels
The government should seek to establish an official measure of business confidence levels in the UK – both at a national and regional level – and hold itself publicly accountable to achieving an agreed target level for the UK economy.
Download the report
About the author
Barclays’ Group Policy Development team creates public policy thought leadership content on behalf of Barclays. Our work draws on the bank’s expertise, data and insights, and is intended to inform the design and application of public policy solutions in response to pressing economic and societal challenges.
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