The UK’s Investment Shortfall

Why it persists, and what a sustained rise in investment would mean

On behalf of a consortium of the UK’s largest private infrastructure investors and operators – Manchester Airports Group, London Gatwick, Getlink, London St Pancras Highspeed, Eurostar and the Global Infrastructure Investor Association – Oxford Economics examined why the UK has invested less than almost every comparable economy for at least a quarter of a century, and what closing that shortfall would be worth.

The report benchmarks UK total and business investment against the G7 and OECD over 2000–2025, by component and by asset type. It finds the shortfall is broad-based but concentrated in business investment – the only component whose gap with the rest of the G7 has widened – and in long-lived physical assets rather than intangibles. Had the UK invested at the G7 average rate since 2000, cumulative investment would have been around £1.9 trillion higher, and the UK’s productive capital stock is now the smallest in the G7 relative to GDP.

Drawing on evidence from the IMF, OECD, Bank of England, OBR and National Infrastructure Commission, the report identifies three features of the investment environment that consistently set the UK apart: the burden and design of recurrent taxes on business property, the cost of delivering and operating new capacity, and policy unpredictability. Using the Oxford Economics Global Economic Model, it then quantifies a scenario in which UK business investment converges on the G7 average by 2040, all but closing the total investment gap. Real GDP ends the period 1.7% above baseline, the productive capital stock is 8.7% larger, and real household disposable income is 2.1% higher – around £1,540 per household – with the gains permanent rather than cyclical.

The report does not prescribe a programme of reform. It offers a test by which proposals can be judged: whether they raise the return each pound of investment can earn, lower the cost of delivering it, or improve confidence in the environment over the life of an asset. It was published ahead of the Autumn Budget, as the Government weighs its response to the business rates call for evidence and the implementation of recent planning, grid and energy-cost measures.

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UK Economy UK Investment

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The experts behind the research

Innes McFee

CEO

Innes McFee

CEO

Innes McFee is the Chief Executive Officer and Chief Economist of Oxford Economics, based in London. Innes is responsible for coordinating and managing Oxford Economics' global economic analysis, forecasting and consultancy activities, and overseeing its global team of over 700 professionals including over 450 economists and analysts. Innes has worked in the Macroeconomic Consulting and the Macro & Investor Services teams since joining Oxford Economics in 2017. Most recently he has led the growth in Oxford Economics’ subscription business writing and presenting to clients globally on macroeconomic, investment strategy and real estate issues.

Innes joined Oxford Economics after 6 years at Lloyds Banking Group as a Senior Economist, where he was responsible forecasts and analysis of the UK and international economy. Prior to joining Lloyds Innes was an Economic Advisor at HM Treasury. Innes has a first-class undergraduate degree in Economics from the University of Durham and an MSc in Economics from Warwick University.
Elizabeth Rust

Lead Economist

Elizabeth Rust

Lead Economist

Elizabeth Rust is Lead Economist with Oxford Economics Macro Consulting, where she leads bespoke engagements with corporates, trade associations and government clients in applied macroeconomic analysis to inform strategic planning and policy development. Her areas of expertise include global macroeconomics, international trade, logistics and supply chain, energy and commodity markets, and payments, with regional specialisms in the US, UK and European economies.

Prior to joining Oxford Economics, she was Practice Lead for Trade Analysis with Expeditors, a global logistics company, and Head of Global Economics with FrontierView. She holds a MA in international economics from Johns Hopkins University (SAIS) and a BA, magna cum laude, from Cornell University.
Thomas Warnock

Senior Economist

Thomas Warnock

Senior Economist

Since joining Oxford Economics in 2017, Thomas has gained extensive experience in constructing large globally integrated macroeconomic models for countries across multiple regions, including Kuwait, Saudi Arabia and Indonesia. Other experience includes conducting economic impact research and forecasting the economic contribution of the Travel & Tourism industry across 185 countries on behalf of the World Travel and Tourism Council, as well as carbon policy impacts on cargo flows at the Port of London and Rotterdam. Thomas has a first-class undergraduate degree in Economics with finance from Queen’s University Belfast and during his time at university, he received awards in recognition of his high level of achievement, namely graduating top of his cohort.