UK slips down league table of foreign investment locations

Britain has slipped down a league table of the most attractive places for foreign investment over the coming five years.

Concerns over tax levels, regulation, poor transport infrastructure and low levels of productivity knocked the UK from fourth to seventh in the table published yesterday.

It was overtaken by Finland, Holland and Ireland in the survey of 82 countries by the Economist Intelligence Unit (EIU). But the report said Britain was still a "very attractive" place for foreign investment and praised it for being one of the world's most open economies at a time when protectionism was rising across Europe and elsewhere.

Philip Whyte, EIU's senior economist for western Europe, said: "The attractiveness of the UK's business environment is threatened by sizeable macroeconomic imbalances, an increasingly complex and burdensome tax system, weak productivity and a sub-standard transport infrastructure."

The EIU report comes six months after a survey of 117 countries by the World Economic Forum blamed the burden of tax and red tape and the low educational attainment of Britain's workers for a similar fall. The WEF said the UK had the 13th most competitive economy in the world last year, a drop of two places from 2003.

The EIU said the UK's strength in capital markets, flexible labour rules and favourable attitude to enterprise was offset by a number of factors it said would "increasingly weigh on" its reputation as a business location, including: a tax regime that had become "increasingly burdensome, unpredictable and complex"; its congested and unreliable land transport infrastructure; the productivity gap with the US and European nations such as France; low productivity because of skills deficiencies among both managers and lower levels of the workforce; and relatively low spending on research and development.

The US also slipped in the rankings, from fifth to eighth.

George Osborne, the shadow Chancellor, said: "For all the rhetoric in the Budget, here is further proof that with Gordon Brown's policies Britain is struggling to compete in a more and more competitive world."

A spokeswoman for the Department for Trade and Industry said: "What matters to UK business is not a ranking in an artificial index but the economic realities of strong GDP, low corporation tax, low inflation and record employment."