There is now a broad consensus that the UK isn’t investing enough for the long term. But there is no consensus on what to do about it. Gauging what drives business investment is knotty and complex. And there is a simple policy or tax fix. To understand the challenge, let’s first explore why investment, and especially business investment, matters. Various studies from a long list of concerned institutions, including the Resolution Foundation, the Institute for Fiscal Studies and the London School of Economics (LSE), have shown that there is a direct relationship between investment (private and public) and economic growth.
One widely quoted study suggests that a 10% increase in the capital stock would raise GDP by 2%–3%. The government’s own plan for growth in 2021, Build Back Better, quotes a
