Chancellor Rachel Reeves has flown off to the Future Investment Initiative (FII) in Riyadh, dubbed “Davos in the Desert”, to attract more overseas investment into the UK. At the same time, the founder of one of the country’s biggest businesses, Ranjit Singh Boparan, has accused the Government of ignoring UK family firms in favour of private equity and overseas investors with “no allegiance” to the UK.

It’s hard to know exactly when the UK stopped believing in its own ability to fuel its future development. However, from the Nissan Car Plant’s construction in Sunderland 40 years ago, it has become an article of faith among the UK economic establishment that it has to look abroad to grow. Usually, the argument is couched in the need to access overseas capital, although why the UK cannot meet its own investment needs and continues to send hundreds of billions overseas is never discussed. The unspoken truth is that many of the British elite think that the country is incapable of building world-beating businesses without the expertise of overseas investors and managers.

Of course, the consequence of always looking elsewhere is that we have failed to keep an eye on home-grown businesses. In 2020, the Government’s Small Business Survey found that 78% of small- and medium-sized businesses with employees were majority owned by the individual or family who had set them up. By 2024, this had fallen to 73%. Based on the Government’s business population data, this means that there are around 60,000 fewer family-owned businesses today than there were five years ago. The biggest fall has been among medium-sized businesses, those which employ over 50 staff, where there has been a 12% fall in the proportion of family-owned businesses. At the same time, the total stock of business share capital and reserves owned by overseas investors has increased by £331 billion.

Unsurprisingly, research from Oxford Economics during the pandemic found that family-run firms were more likely to recruit in the UK and invest in the workforce than non-family firms. Where your owners are based, and their long-term commitment to a business, really does matter. This is why other countries take matters of ownership so seriously. The UK is a major outlier in its ownership neutrality.

UK Government policy continues to move in the other direction. Increases in inheritance tax for business property mean that more families will be put under pressure to sell their firms or face a big tax bill. Modelling commissioned by the Institute for Family Businesses indicates that could see a £9.4 billion reduction in economic activity over the next three years.

There is also surprisingly little support for succession planning for family businesses. Research by the New Economics Foundation in 2018 found that over a three-year period, 120,000 family businesses were planning to transfer their ownership to a new generation. With an ageing population, more and more businesses will be transferred in the years ahead, and more are likely to slip out of domestic ownership.

Reeves is desperate for growth, and the allure of overseas investors and private equity is obvious. They have big chequebooks at a time when money feels short on the ground in the UK. More importantly, the collapse in strategic capacity within the state means that coordinating a few big investors feels easier than working with hundreds of domestic firms which work in competitive and complex markets. However, private equity and global capital are only interested in the UK to the extent that they can extract profit and value out of investments. At a time when we need to build up our workforce and productive capacity in rocky geopolitical conditions, that feels a risky gamble. The Chancellor would be better off taking advice from Dudley than Davos in the Desert.

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Andrew O’Brien is the former Director of Policy at the think tank Demos and currently Head of Secretariat of the Independent Commission on Neighbourhoods. He writes in a personal capacity.

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