Brexit threatens foreign investment into the UK

Foreign direct investment (FDI) into the UK would decline if it was to exit the EU, the Organisation of Economic Development (OECD) has warned in a study published today.

According to the OECD, being in the single market makes the UK an attractive destination for foreign investors in the EU and the amount of money invested into the UK by EU and non-EU investors has increased over the years. The study shows that that around £500 billion ($ million € million) was invested into the UK by EU investors in 2014 and over £500 million was invested by those located outside of the EU.

In addition, the UK is currently the number one EU destination for FDI from foreign investors and received 34 percent of FDI inflow into the EU in 2014.

“If access to the single market was lost, lower FDI inflows would seem unavoidable…this would weaken fixed investment, reduce export capacity and hit innovation and productivity over time,” the OECD said in the study.

As a result of a Brexit, the OECD said that some UK FDI inflows could be diverted to EU countries.

According to the study, if the UK leaves the EU, financial institutions may face restrictions on current “single passport” privileges, which enable financial services to be exported across the EU from the UK, and some have already indicated that they will reconsider the size of their UK presence if Britain leaves.

In addition to restricting the UK’s access to the single market, the OECD's research suggests leaving the EU would result in three percent lower economic growth than would otherwise be the case by 2020, rising to five percent in 2030, and would cost households around £3,200 by then.

As a result of this additional cost, OECD secretary general Angel Gurría has said that leaving the EU would cause a tax-like burden on UK incomes that Britons would be paying for many years. “The UK is much stronger as a part of Europe, and Europe is much stronger with the UK as a driving force. There is no upside for the UK in Brexit. Only costs that can be avoided and advantages to be seized by remaining in Europe. No one should have to pay the Brexit tax.”

The OECD’s stance on Brexit is in line with 75 percent of private equity practitioners who expressed their desire for the UK to remain in the EU in a poll run by sister title Private Equity International last month.