Lumpy London, Scottish spread

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Foreign investment is mainly landing in London

  • Foreign investment into the UK is showing signs of slowing up, and as uncertainty grows, it is ever more concentrated on London.
  • A new report shows Scotland has done better than other parts of the UK in spreading economic benefit beyond the cities and into towns and villages.
  • Universities play a large part in drawing foreign investment, and may explain a recent surge in the number of projects going into Scottish core cities.

The strong sense of political crisis in the disunited kingdom is raising important questions about the lumpy spread of economic prosperity.

The Brexit vote in 2016 came as a shock to many in London and some university cities, as England’s provincial towns blew a loud raspberry at the ruling class. The rejection of Europe was particularly strong in coastal England.

This has been widely interpreted as the result of feeling marginalised or left behind, if not by globalisation then by London and a perceived elite.

Inequality between earners has not grown as much as people tend to think, at least in recent years. But inequality by region may seem a different matter.

This was an issue directly addressed by Boris Johnson in his Conservative Party conference speech, arguing that “talent, genius and chutzpah” could be found all around the UK, if only other areas could do more of whatever London does in productivity. I cast a sceptical eye over that claim last week.

In Scotland, every council area – some by a narrow margin – voted to remain in the European Union. So there hasn’t been so much analysis of where the million Scottish Leavers were located, and why they voted as they did.

Attractiveness of nations

But a light is being shone on economic development by a new report, published with the start of the week by business consultancy EY.

It suggests that Scotland has spread the benefits of inward investment more widely and fairly than England. That might explain why the Scottish raspberry was more subdued.

The report is focused only on Foreign Direct Investment (FDI), where foreign-based companies open an office or factory in a different country from its headquarters. It only tells part of the story of economic development, but quite an important one. Foreign investment is where many of the best quality and most productive jobs come from.

EY’s other annual survey of the attractiveness of the various nations and regions of the UK has shown for several years that Scotland has been performing better than others, with the exception of London.

The capital massively dominates FDI. EY says it has had 5,875 FDI projects since 1997, while the next highest city destination, Manchester, has had 419.

Including London, south-east England has won 48% of inward investment projects in the past 22 years.

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Uncertainty around future relations with the EU has seen more focus on London

And with the uncertainty around Britain’s relations with the European Union, a continuing flow of inward investment has focused even more on London, primarily in sales and marketing operations.

As the metropolis’s numbers held up, other large cities saw a 10% decline last year in the number of projects attracted. More peripheral areas, which have tended to depend on the arrival of manufacturing plants, were down 23% last year.

While established inward investors take stock, most ominously the car-makers, Brexit uncertainty is taking its toll in the number of newcomers and new projects. Overall, the number of projects coming to the UK was down 13% last year, says EY, while the EU as a whole saw a decline of 4%.

The market share of FDI into the EU remains strong, but declining. In manufacturing, the fall last year was 35%. In the EY survey, 42% of business figures in the FDI business expect Britain’s attractiveness to decline in the next three years.

The kind of projects going beyond large cities include logistics, manufacturing and research centres. The university sector is one part of the British economy that is well dispersed, and it is a magnet for both researching and making products.

Village factories

Scotland has fared better than others. It has a less obvious coastal problem: offshore energy and tourism have done well. Its new towns have continued to be magnets for foreign investors.

And while England has trialled and changed models of devolved power and devolved economic development agencies, Scotland has stuck to what it was already doing relatively well.

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The spread of the energy industry could have something to do with Scotland’s success

The result is a healthier geographical spread, and less lumpiness in the concentration of economic benefit.

Out of 1,473 FDI projects identified by EY, 558 went to Scotland’s core cities. Medium towns (probably including the new towns) drew in 330, smaller towns 184, so-called communities attracted 91 and villages 112.

Only south-east England came close to touching Scotland’s success at bringing foreign investors into its villages.

Scotland also scored relatively highly on getting a balance across manufacturing plants, research centres and sales and marketing offices.

Economic magnets

Why the difference? The report isn’t so clear. Perhaps policy-makers can claim to be good – or at least relatively good.

My hunch: the transport infrastructure is better in some ways than the English regions, or less congested, helping smaller towns and the periphery function well.

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Sam Mellish

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The University of Glasgow: city-based universities are economic magnets

It seems there is more to keep skilled workers from being drawn into the big cities, so investors can go there with confidence in the available labour pool.

There’s also the factor that the spread of the energy industry has something to do with it – oil and gas as well as renewable power.

But viewing the more balanced picture since 1997, it’s clear there has been a big surge in the number of projects going to Scotland’s core cities in the past four years.

That may have to do with the strength of city-based universities, acting as economic magnets and dynamos.

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