The Harrington Review of Foreign Direct Investment

In March 2023, Lord Harrington was tasked by the UK government to review the UK’s approach to attract Foreign Direct Investment (FDI) in an effort to enhance the competitiveness of the UK (financial) market and to come up with recommendations as to possible improvements to promote FDI. The focus of the review lied on the exploration of methods, mechanisms, and frameworks aimed at attracting significant FDI into specific sectors highlighted by the Chancellor of the Exchequer as crucial for the UK’s growth. These sectors include „Green Industries, Advanced Manufacturing, Life Sciences, Digital Technologies, and Creative Industries“.
Having engaged with over 200 financial institutions, sovereign wealth funds, and companies, Lord Harrington came up with a corresponding review report which includes the following key recommendations to attract more investment into UK growth companies:
(1) Development of a clear business investment strategy by the UK government: The UK government needs to set up a clear business investment strategy. This strategy must set measurable and clearly identifiable goals and targets to attract FDI (e.g. increase of employment by xy%). As institutional investors play a key role in FDI, the government should closely engage with and consider the needs of these investors in the formulation of its strategy. Also, the strategy should be „visible“, foster trust of investors, and provide stability to businesses.
(2) Shifting the government’s focus: Lord Harrington recommends that the government shifts its focus on accountability, coordination, and cooperation. Specifically, Lord Harrington suggests a revamp in government structure, which would involve the assignment of additional powers to the Investment Minister to enhance its visibility, authority, and accountability and to ensure he has got a strong voice in decision-making processes as regards FDIs. Also, the Minister would have to regularly provide an update to the Cabinet. Additionally, the report suggests the establishment of a new cross-government Investment Committee to drive a unified approach to investments, facilitate rapid decision-making, and hold departments accountable for implementing the Business Investment Strategy as outlined under (1).
(3) Engaging with local or regional authorities: According to Lord Harrington, the government should engage with local authorities, including metro mayors, to build upon their success in the establishment and promotion of local businesses. It should also seek cooperation with „sub-national Investment Promotion Agencies“ with guaranteed investments over a minimum of 5 years.
(4) Entrusting the Investment Committee with significant, FDI-related tasks: The new Investment Committee should be commissioned to develop further proposals to the government as to how FDI could be promoted. These improvements should encompass the taxation framework of companies operating in the UK (which shall be clear, simple, and straight forward), the planning process for high-valued investments, the funding or subsidization of high-valued investments, regulations as regards high valued investments, and the availability of UK bank accounts to foreign investors.
(5) Improving the effectiveness of the Office for Investment: The office should be empowered to actively seek strategic investments by foreign institutional investors and to utilize the collective knowledge and resources of various government departments. Furthermore, the Office should be entrusted to engage with financial institutions to ensures that institutional investors have access to diverse funding options. Moreover, the Investment Minister, with the office’s support, should be authorized to engage in personalized negotiations to attract high-value investments. To ensure clarity and efficiency, an internal ‚playbook‘ should be established by the office to specify the „process and procedures for securing the most strategically important investments, including expectations of the Office for Investment, central government departments“, and other stakeholders.
(6) Setting up a new Business Investment Facility: The government should set up such facility whose key objective should be to attract and support potential investors while streamlining processes and decision-making to encourage investment in various sectors. Any application from a potential investor should thereby be processed within 60 days. Furthermore, the Investment Minister, under the oversight of an Investment Committee chaired by the Chancellor, should have the authority to approve disbursements from the facility up to a certain threshold.
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As these are only the key recommendations outlined in the document, please refer to the original text for more detailed, comprehensive information.