Britain faces $1.3 trillion investment challenge for economic growth

A new report has underscored that Britain requires an additional £1 trillion (approximately $1.3 trillion) in investment over the next decade to stimulate economic growth.

The report, released on Friday by the UK financial services lobby group Capital Markets Industry Taskforce, highlights the ambitious goals set by the newly appointed Prime Minister Keir Starmer, who aims for an annual growth rate of 2.5%. This target has not been consistently achieved since before the 2008 financial crisis.

To achieve an even more robust growth rate of 3%, an annual investment of £100 billion is necessary, focusing on critical sectors such as energy, housing, and venture capital. Nigel Wilson, the report’s lead author and former head of Legal & General, emphasized the urgency of the situation. “We’ve underinvested in the UK for such a long time, there’s a massive gap between the other G7 countries and ourselves,” he remarked, adding, “We have the long-term capital in the UK, it needs to be reallocated.”

The report details that the British economy specifically needs an additional £50 billion each year for energy investments to meet net-zero targets, along with £30 billion for housing and between £20 to £30 billion for venture capital initiatives.

To facilitate this investment influx, it suggests that the government should implement incentives, including potential tax reductions on shares for retail investors.

In a related note, a separate report from think tank New Financial highlights that UK pensions currently allocate a “significantly lower” proportion to domestic and unlisted equities compared to their counterparts in other developed markets. This report suggests that UK pensions could potentially double their allocations while still aligning with the standards of the pensions industry in advanced economies.

The UK government is already taking steps to review the pension system, aiming to increase domestic investment in startups. UK pensions minister Emma Reynolds stated at a recent CMIT conference, “UK pension schemes could play a greater role in UK capital markets than they currently do.” She also pointed to the successful investment strategies of Canadian and Australian pension schemes in growth companies, expressing her eagerness to learn from those models: “I am particularly keen to learn from them.”

With these insights, the pressing need for strategic investment in the UK economy has never been clearer, as the nation grapples with the challenges of fostering growth and bridging the investment gap.