One of the newly elected Labour Government’s key manifesto chapters is titled ‘kickstart economic growth.’
Among initiatives such as the establishment of a National Wealth Fund and making Britain a ‘clean energy superpower,’ the Labour manifesto highlights a ‘strategic partnership with business.’
As its external connections and position in the global economy undergoes change, foreign direct investment (FDI) is becoming ever more vital for the UK economy. But it is facing stiff competition to attract that investment from the likes of countries including the US, France, Ireland and Singapore.
On average, a £1 million FDI project into Great Britain leads to a net increase in national levels of gross value added (GVA) of around £98,000, and a net increase in employment of around 2.9 jobs.
With an increase in FDI comes substantial economic benefits, yet in the 2023 to 2024 financial year, the value of large capital investment projects into the UK, which involves overseas institutional investment into large capital projects in real estate, infrastructure and energy, was valued at just over £7bn, This is down from more than £17bn in the 2022 to 2023 financial year.
So how can this investment be boosted? One investment pattern bucking this trend comes from Guernsey, an independently governed international finance centre with close historical ties with the UK through its loyalty to the Crown.
In a report by one of Europe’s largest economic research houses, Frontier Economics, analysts found that Guernsey-based funds currently channel £57 billion of investment from around the world and into the UK economy. This is three times the estimated cost of Crossrail.
This is important partly because of what that funding is used for – infrastructure projects, financing business through private equity, and property investments. But this is also important in terms of the wider context for the UK’s inward investment, because funding through Guernsey has been growing at approximately 14% per year since 2020.
The island is a driver of financial flows into the UK and has extensive market access – giving UK investors market access to a wide range of overseas investment opportunities complemented by high-quality, cost-effective administration. This not only enhances UK’s investment portfolio, but also plays a significant role in increasing the international competitiveness of UK financial services providers, improving risk-adjusted returns, diversifying portfolios, allowing UK clients greater access to the significant expertise that international finance centres like Guernsey provide, and offering access into global markets.
Plus, Frontier Economics estimates that the social value for the UK from investment via Guernsey is worth £3-4 billion; This contributes to improved infrastructure in the energy, health and education sectors, and more extensive social housing stocks.
This value is spread across all four nations of the UK, with funds such as the NextEnergy Solar Fund bolstering investment into renewable assets and assisting in Labour’s goal to triple solar power by 2030.
Ambitious government targets like these are impossible to reach without private capital flowing into the sector. These flows need to be effective, with good governance at the heart of the strategy and any risks of greenwashing mitigated. The NextEnergy Solar fund is accredited by the Guernsey Green Fund regime, the world’s first regulated sustainable fund product. The criteria to meet the regime aligns with internationally agreed goals such as the Global Biodiversity Framework agreed in the Kunming-Montreal COP and the European Union Taxonomy for Sustainable Activities. This not only gives investors confidence that their investments align with the objective of mitigating climate change, but also gives fund managers access to trusted sustainability credentials in a market teeming with evolving regulations.
The findings also highlight that UK fund managers are generating more than £2 billion in fees from Guernsey-based funds annually. Additional tax revenue is also created for the UK, providing £7 billion in investment returns for UK investors.
Because of its strong relationship to the UK, Guernsey’s channelling of investment is unique to other financial centres. The report demonstrates that a significant proportion, namely £13 billion, of the £57 billion of investment into the UK, would be unable to be recouped in the long term if these funds were domiciled in other jurisdictions. So, if existing linkages to Guernsey were broken, £57 billion would be lost with immediate effect, and a quarter of that would never be made back.
It therefore makes sense for the UK to tap into the expertise and dynamism of the island, bolstering UK competitiveness and the generation of UK-based fees, along with the associated investment returns that generate revenue in the UK.
International finance centres like Guernsey continue to add value to the UK and remain strategically important as stable conduits to international capital. It represents a mutually beneficial collaboration and a symbiotic relationship; the success of one is the success of the other.
By Rupert Pleasant, Chief Executive of Guernsey Finance
