This page focuses on the challenge of increasing business investment in local economies and provides links to our relevant resources. We also provide links to external content. We will be updating this page when we add new resources or as government policy is announced.
What is business investment and why does it matter?
Investment in machinery and equipment, premises, or in intangible assets such as software, branding, or research and development can help businesses increase output, improve productivity or both. Business investment in an area is therefore a key driver of productivity and local economic growth.
Businesses which invest to expand their operations may create employment. Investments to raise productivity may translate into higher employment and wages, although ‘labour saving’ investment may have the opposite effect. Investment in intangibles like research and development may create new employment opportunities, particularly for higher skilled workers. Any business investment which involves increasing wages or creating employment directly can also have multiplier effects which indirectly create new employment in supply chains or in non-tradable sectors in a local area.
- Our blogs on understanding GVA and on understanding productivity discuss economic output and productivity in more detail and explain their importance for local growth.
- Our blog on making sense of services describes how GVA and productivity differ across service sectors.
The UK policy context
Relative to other OECD economies, the UK has seen persistently low business investment since the early 2000s and especially since the 2008 financial crisis. Because of this and given the importance of business investment for growth, it is a major focus of economic policy in the UK, and raising investment is a key ambition of the new Government. The National Wealth Fund for instance will aim to support increased business investment to help the government deliver its missions on growth and clean energy.
It has been suggested that local government will play a key role, including by working with the National Wealth Fund, and developing local growth plans that support economic growth in their areas linked to an overarching national industrial strategy.
- For more on the policy context and how low UK business investment is related to lower growth and productivity, read this Centre for Economic Performance election analysis article on growth and productivity written ahead of the July 2024 general election.
Our resources
