FOREIGN investors are drawn, moth-like, to the lights of London. Ernst & Young, an accountancy firm that monitors them, calculates that 45% of all foreign direct investment in Britain in 2012 went to the capital. But the more surprising trend is in the Celtic fringe. Scotland and Northern Ireland recorded their highest tally of investment projects for more than a decade. Wales had the highest number for five years. Together with north-east England, they are the only regions outside London that attracted foreign investment disproportionate to their share of the British economy (see chart). Yet the number of projects in England’s regions outside London was about a quarter less than in 2010.
Ernst & Young blames government policy. In 2010 the coalition announced that England’s nine regional development agencies would be replaced by 39 local enterprise partnerships (LEPs), voluntary consortiums of local councils and businesses. This was done two years later. It seems to have made things worse. When reinvestments in existing projects are stripped out, the firm says, the English regions’ tally of projects in 2012 was 40% lower than in 2009. In Scotland, Wales and Northern Ireland, where devolved administrations run economic development, the agencies are undisturbed.
Some in northern England have a different explanation. Pointing to figures which show that Scotland spent £191 ($296) per head on enterprise and economic development in 2011-12 while only £73 per head was spent in the North East, they reckon that the Scots are offering more lavish subsidies to lure foreign firms.
Not so, says Anne MacColl, chief executive of Scottish Development International, the inward investment arm of the country’s two development agencies. The subsidies she offers are capped at uniform levels throughout Britain by EU state-aid rules. The extra money, she says, is spent on such things as 27 overseas offices which scout for business. Scotland is simply better at co-ordinating different arms of local and central government to deliver what inward investors want—roads for new factories, planning permissions, training packages for workforces and the like. A Scottish government minister cracks the whip at any laggards.
Ms MacColl’s team devotes a lot of time to looking after investors once they are up and running, offering help with local recruitment or supply chain problems. The agency’s senior executives occasionally visit overseas headquarters to check chief executives are happy. This aftercare pays handsome dividends. Ms MacColl says almost half of the 76 projects her outfit brought in last year came from existing investors in Scotland.
Edward Twiddy, chief executive of the North East LEP, covering Tyneside and Durham, enviously admires his northern counterparts. Still, he thinks he is catching up. He has secured £100m from the government’s £3.2bn regional growth fund, some of which can be spent on foreign investors’ infrastructure and training needs. It helps that, since April, councils have been able to keep a portion of any extra local tax revenue they get from new or growing businesses in their area: formerly the money went to the Treasury.
With budgets tight, councillors are encouraged to speed through planning permissions and try to help investors in other ways. “We can respond much more quickly than previously; we are getting there,” says Mr Twiddy. But his Celtic competitors are well ahead, and they show no sign of slowing down.
This article appeared in the Britain section of the print edition under the headline "Catching the Scots"
