British firms not scared of Continent

The Social Chapter has not scared British businesses from investing on the Continent. New research shows that UK investment in the European Union (EU) has overtaken investment in the US for the first time, writes Diane Coyle.

There is also no evidence that the cost advantage of production in the UK rather than on the Continent is slowing down foreign investment by British manufacturers.

In the five years to 1990, new investment by UK companies in the EU was pounds 32.6bn, up from pounds 20.6bn in the previous five years and from the tiny amounts in the early 1980s, according to a report published today by the National Institute of Economic and Social Research.

Investment in the US was far higher, at pounds 46bn, in 1986-90, but fell behind, to only pounds 26.7bn, in the latest five years. There is some evidence that companies diverted their investment plans from the US to the Continent.

The value of total British investment in Europe has similarly pulled ahead, rising to pounds 71bn in 1995, compared with investments worth pounds 66.7bn in North America. The figures highlight how much UK companies have at stake if staying out of the single currency marginalises Britain in future.

The reason for this drift towards Europe is the single market programme, according to author Nigel Pain. The single market has raised the value of UK business assets in the EU by a third. The impact has been most pronounced in financial services, which would help explain why the City of London tends to favour Britain joining the single European currency.