DIT urged to boost knowledge of UK’s regional strengths

Department must work with BEIS and DLUHC to better drive inward investment, NAO says
The Department for International Trade's Old Admiralty Building headquarters Photo: Andrew Milligan sumo via Flickr

By Jim Dunton

31 Jan 2023

The Department for International Trade needs a greater understanding of the UK’s regional strengths and competitive advantages to aid its work driving foreign investment, the National Audit Office has said.

The public spending watchdog said foreign direct investment projects supported by DIT had contributed to a forecast £7bn in gross value added to the UK economy in 2021-22 – a 128% increase on the figure for 2019-20.

However, the NAO's latest report said that the total inflow of foreign direct investment into the UK in 2021 – which includes investment not supported by DIT – was half the amount it had been in 2012. It gave a figure of $26.7bn for 2021, not adjusted for inflation.

According to the report, the proportion of FDI projects supported by DIT outside of London and the South East increased from 46% in 2019-20 to 57% in 2021-22.

But the report said there were regional variations in the benefits that the department’s FDI projects realised. The NAO said the department estimated that the FDI projects it supported led to 3.1 new jobs for every 1,000 people aged between 16 and 65 in the North East, but only 0.5 jobs per 1,000 people in the South West.

The NAO said that while DIT had made progress in presenting a coherent UK offer to investors, it needed to coordinate its work more closely with the Department for Business, Energy and Industrial Strategy, and the Department for Levelling Up, Housing and Communities, as well as with local authorites, devolved nations and other local bodies.

In particular, the NAO said that DIT had yet to develop a “UK wide overview” of local strengths, including skills, infrastructure and supply chain opportunities, and how it will market these to attract further investment.

“Devolved administrations and trade associations we consulted consider that it would be helpful for DIT staff engaging with investors to have a greater understanding of the relative strengths and competitive advantages of the nations and regions of the UK,” it said.

“Devolved administrations also told us there was scope for DIT to clarify how its UK-wide trade and investment hubs will support investment across the UK.”

NAO head Gareth Davies said increasing inward investment was critical for UK productivity and would support economic growth and – as a result – the amount of money available for public services.

“Success in attracting greater investment in part relies on knowing UK strengths compared with its competitors,” he said.

“Better understanding across the UK’s nations and regions can help present a coherent offer to prospective investors, and improving coordination across Whitehall could reap rewards.”

Davies added: “Doing more of what works – and stopping what doesn’t – is critical for success, so evaluating economic predictions against outcomes can help DIT refine its approach.”

The NAO said DIT should assess how actual economic benefits from inward investment projects, such as the number of jobs created, compare with its forecast at the outset. It said the analysis would help the department improve its future forecasting and understand its impact on economic growth.

Elsewhere, the report said DIT needs to improve its processes for reducing the risk of government involvement with controversial companies.

“DIT’s current approach to due diligence is disjointed and the level of screening varies across teams,” it said.

“It is currently reviewing its sanctions screening process and considering how it should record issues and share them.”

The report recommended DIT develops stronger processes for identifying and tracking the risks of aiding controversial companies that may be involved in illegal or unethical activities or firms that are subject to sanctions. “Processes should be proportionate, integrated and used consistently across DIT and the Office for Investment,” it said.

In response to the report, DIT said it is increasing its ability to provide bespoke support to high-value investors, which includes an “elite” offer led by the OFI and ensuring it is able to showcase the right opportunities to prospective and current investors.

It added that it is also building “proportional and efficient” services for simpler requests and prioritising the “investor lens” in its policymaking and engagement. 

Investment minister Lord Dominic Johnson said inward investment created nearly 85,000 jobs last year.

“This figure – a 10 year high – is a direct result of teams across the UK working with departments, devolved administrations, organisations and businesses to secure significant investment into every part of the UK,” he said.

“We’re pleased the NAO recognises the good work of our Office for Investment, who ensure global investors can have high confidence in the economic stability, commercial openness, innovation and expertise we offer businesses looking to invest on our shores.”

The NAO said DIT estimated it spent £80.5m on supporting inward investment to the UK in 2021-22 and had 634 full-time-equivalent staff focused on the work.

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