Government needs to continue supporting investment zones and freeports

The government needs to continue supporting investment zones and freeports following new figures analysed by Irwin Mitchell, which reveal that interest in UK businesses from overseas investors has stalled.

Analysing industry data recorded on Experian’s Market IQ database, our findings show that although the UK continues to drive significant interest from foreign buyers, the number of UK firms which were targeted in an overseas deal, such as an acquisition or management buyout, fell 14%, to 610 last year compared with 711 in 2022.

The research also shows that foreign investment in the UK is increasingly concentrated in London and the South East, with these areas accounting for 42% of deals in 2023, up from 35% in 2019.

These figures build on our findings last summer, when Irwin Mitchell published a report which examined the most attractive locations in the UK for foreign direct investment (FDI). Inner London secured top spot due to its local skills, large economically active population and many well-respected universities.

Throughout the last 12 months, the US has continued to be the most active investor in UK businesses with just over a third (34%) of completed overseas corporate deals initiated by American organisations.

Our figures show that despite the dynamic nature of global investment patterns, the enduring economic significance of London and the South East in attracting international business interest remains. Our research does however also highlight that whilst investment activity in this traditional FDI hotbed has increased, in other regions, such as the North West, the North East, Yorkshire and the Midlands, deal volumes have started to fall.

FDI refers to an investment in an enterprise operating in a foreign economy, where the purpose is to have an ‘effective voice’ in the management of the organisation. According to the latest ONS data, FDI into the UK had increased year-on-year for a decade to stand at over £2tn by 2021.

Last November, Conservative peer Lord Harrington published a report which called for a change of approach by the government in terms of attracting FDI. The report made several recommendations including more collaboration between central government, local government and public and private stakeholders.

The UK government also says that freeports and investment zones are a part of its FDI strategy. Freeports, announced in 2023, are designed to boost economic activity and the ‘levelling up’ agenda by fostering trade, investment and job creation around maritime ports and airports. Companies operating within freeports can enjoy reduced property taxes and national insurance rates.

The government is committed to establishing 13 investment zones across the UK. The expectation was that many of the zones and tax sites within them would go live in spring 2024, but so far, disappointingly, Liverpool is the only one to have officially done this, announcing details of its proposition at MIPIM.

We believe government initiatives such as freeports and investment zones could be a gamechanger for providing favourable conditions for UK-based businesses, attracting more interest and investment in the UK from abroad and levelling up the economy. The ability of the UK to attract overseas investment in relation to creating new jobs and driving innovation cannot be overlooked.

Making the UK the top investment destination in Europe, attracting new investment into communities and helping to level-up the country, is one of five key priorities for the Department of Business & Trade. Providing tailored support for each investment zone and promoting our offering in this area on an international stage, should definitely be a crucial part of this.

Bryan Bletso is a partner at Irwin Mitchell