Post Brexit FDI opportunities for foreign investors
Each year the British Monarch reads a statement prepared by Her Majesty’s Government at the opening of a new session of parliament. This statement details the legislative programme for the year ahead. The speech read yesterday – which you can find here – shows Boris Johnson is determined to strengthen the bonds that tie together the four nations of the United Kingdom; and start exercising powers hitherto reserved to the EU.
Much of the agenda is designed for domestic consumption and to maintain power but it also foreshadows post Brexit FDI opportunities for foreign investors. Britain wants inward investment which furthers its strategic priorities, subject to national security concerns being ameliorated.
For further information on the UK’s new FDI regime in the National Security and Investment Act 2021, see my previous post here. Also, a foreign investor who wants to understand the UK’s global priorities can read the UK’s recent report “Global Britain in a competitive age – The Integrated Review of Security, Defence, Development and Foreign Policy”.
See below the sectors which may provide Post Brexit FDI opportunities for foreign investors in the years ahead, and other points to highlight –
Infrastructure
The UK is creating a new UK Infrastructure Bank (UKIB) – based in Leeds – to deploy £12 billion of equity and debt capital and £10 billion of guarantees which is expected to support more than £40 billion of infrastructure investment overall, particularly in the green economy and transport.
Transport
Delivery of transport infrastructure, especially in ways which improve connections between the four nations and boost economic growth in Northern England is a key priority. Rail infrastructure and bus services are being prioritised for investment. Although this is a domestic priority, it is an area where foreign investors should be welcome.
Green economy
Meeting the UK’s 2050 net zero carbon emissions target will lead to significant investment throughout the UK with regional initiatives. The UK Government plans £12bn investment to drive a green industrial revolution which is expected to harness three times as much private sector investment. Any FDI in this sector of the UK economy will be pushing at open door. This has already been signposted in the Energy White Paper.
Telecoms
The Government is prioritising telecoms investment to ensure the long-term security and resilience of the UK’s telecoms networks and infrastructure in the Telecommunications (Security) Bill; and the protection of consumers in the Product Security and Telecommunications Infrastructure Bill. The UK will continue to take measures to minimise the threat of what it has described as ‘high risk vendors’, e.g. Huawei and ZTE in the 5G network and seek to inoculate the UK from cyber risk. This will be an area which will be challenging for investors from some overseas nations but the UK approach is unlikely to differ from the approach taken by those nations themselves.
Free ports
Free ports have been championed by the Government and the National Insurance Contributions Bill will provide National Insurance (tax) contributions relief for employers in the eight new freeports being planned. Freeport employers will be able to claim this relief on all new hires for three year from April 2022 up to earnings of £25,000 per annum. This will be a financial benefit to foreign investors who create employment in these new economic zones.
Pharma & Healthcare
The UK is keen to build on its traditional strength in the pharma and healthcare sector which has been a success in fighting the Covid-19 pandemic. The UK intends to double down on the life sciences sector with the aim of making the UK ‘a global science superpower that attracts the best people and businesses from across the world’. This will include further investment to build self-sufficiency in vaccine manufacturing to reduce reliance on imports. This could be a sector which provides opportunity for FDI, particularly in partnership with big UK companies like Astra-Zeneca.
Downstream oil & gas
The UK experienced operational and economic strain on all downstream oil operators during the pandemic. This highlighted fragility in UK self-sufficiency and is being addressed in a draft Downstream Oil Resilience Bill. Despite the UK’s green energy transition, it is estimated by the UK Government that demand for oil-based road transport fuel will still be over 50 per cent of the current volume in 2035. The UK is therefore taking steps to guarantee security of fuel supply by building resilience in the downstream oil sector, including companies involved in the refining, importing, distribution and marketing of oil products. This will be a sector where foreign investment or divestment will be carefully scrutinised but opportunities will arise if the investment contributes to UK self-sufficiency.
Housing
The Government is trying to streamline the property planning approvals system in a new Planning Bill. This should be positive for developers who build affordable homes which are in short supply. Foreign investors/developers in the residential housing market should however note the UK Government’s intention to eradicate ground rents in long leasehold properties in the Leasehold Reform (Ground Rent Bill). This has been a significant cause of complaint where new homes have been acquired from developers with rents which do not represent the actual cost of services. In addition a new tax on residential property development will raise £2bn to carry out remediation works on unsafe cladding on tower blocks under the Building Safety Bill. Foreign investors in the UK residential sector should take note.
Defence
The UK is increasing investment in the defence sector. However, FDI will clearly be screened carefully so opportunities will be challenging unless the investors are from NATO countries.
Service sector
A professionals Qualifications Bill will offer potential opportunities to overseas professionals to have their qualifications recognised in the UK. In particular a new system will give recognition to overseas trained architects. This replaces the current system which prioritises EU professionals in the professions. This will enable the UK to encourage immigration in professions where the UK experiences shortages.
Government procurement
A new UK Procurement Bill will consolidate and simplify complex EU procurement rules in line with the UK’s international commitments under free trade agreements signed since leaving the EU now that the UK has acceded to the WTO’s Government Procurement Agreement. Foreign investors wanting to supply the UK Government will need to wait until the UK has published its new system to see if it will be an improvement on the current EU procurement rules which have been criticised in the past as favouring global suppliers.
State subsidy regime
The UK is also (finally) breaking cover on its post-EU state subsidy proposals with the proposal for a Subsidy Control Bill. This will enable the UK to meet its international commitments on subsidy control, including its international commitments at the WTO and in free trade agreements signed since leaving the EU. It is also expected to lead to somewhat higher state subsidies than under the EU state aid scheme.
