Foreign Direct Investment

Oral Answers to Questions — Treasury – in the House of Commons at 11:30 am on 23rd January 2003.

Alert me about debates like this

Photo of Mr Nigel Beard Mr Nigel Beard Labour, Bexleyheath and Crayford 11:30 am, 23rd January 2003

If he will make a statement on recent trends in foreign direct investment into (a) the United Kingdom and (b) the European Union.

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

Our year-to-year figures are influenced by a number of factors. Britain's stock of foreign direct investment is at 19 per cent. of the total—the highest in Europe and, after the USA, the second highest in the world. A detailed analysis of recent trends in foreign direct investment will be published shortly.

Photo of Mr Nigel Beard Mr Nigel Beard Labour, Bexleyheath and Crayford

Is there any implication in the figures of a preference for the eurozone at the expense of the United Kingdom among foreign direct investors?

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

I know that this is a controversial issue among some people, but we must consider a range of factors that are in play. The main influence of foreign direct investment is mergers and acquisitions. That is 90 per cent. of foreign direct investment. In the recent stock market changes, there has been very little merger and acquisition activity. Equally, the figures are affected by relative exchange rates and by what decisions are being made in the United States, as opposed to decisions being made in Asia and Japan. It is a complicated picture, which is reflected in the fact that there has been a big change in the relative position of manufacturing and financial services over the past few years. The fact of the matter is that foreign direct investment has risen dramatically over the past 10 or 20 years, but trends are at work, including the restructuring of the international economy, that must be looked at. That is why we plan to publish a full paper on this issue in the near future.

Photo of Mark Prisk Mark Prisk Shadow Financial Secretary

As the Chancellor said at the beginning of his reply, inward investment is vital for the UK economy, but to compete, we must have an attractive regulatory and tax regime. Given that, and the fact that business taxes here are already higher than in competing nations such as the United States, Ireland and indeed Germany, why are the Government raising taxes yet again with a £1.7 billion increase in national insurance contributions? Does the Chancellor not realise that this tax on jobs will simply create another burden that business cannot afford?

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

I am surprised at the hon. Gentleman. First, we have cut corporation tax from 33 to 30 per cent. Secondly, we have cut capital gains tax from 40 to 10 per cent. in most cases. Thirdly, we have cut small business tax from 23 to 19 per cent. Those are proportionately bigger cuts than have happened in the United States of America. What also surprises me is that the shadow Chancellor, speaking at a meeting only two days ago, praised us and said that our labour market was more flexible than in other European countries. How can the Opposition have two different views at once, or is that merely the basis on which they now proceed?

Photo of James Plaskitt James Plaskitt Labour, Warwick and Leamington

Foreign owners of companies in my constituency tell me that they came to the UK because of factors relating to our flexible labour market, regulatory climate and low tax regime. Does my right hon. Friend agree that while those will continue to be the dominant factors in such decisions, foreign investors in the UK will not indefinitely run a currency risk with the rest of Europe?

Photo of Gordon Brown Gordon Brown The Chancellor of the Exchequer

As I said, a number of issues will determine the future of foreign direct investment. That is why a full analysis is being carried out. It will be published as part of the euro assessment, as I announced to the Select Committee on the Treasury in our evidence at the beginning of September. My hon. Friend must also bear it in mind that one reason why the UK is attractive is not only our tax rates, but the stability of the UK economy. We have now had low inflation for a long time, and while there has been a recession in America, Germany and Japan, our economy has continued to grow. That is one of the reasons why 1.5 million more people are in work than under the Conservatives.