Lord Harrington on real estate’s role in bringing investment to the UK

In the six months since Lord Richard Harrington published a far-reaching review on what the UK needs to do to attract more foreign direct investment, property industry leaders have rallied to support his recommendations. Those backing Harrington’s 123-page report, commissioned by chancellor Jeremy Hunt, include the EG public sector forum, chaired by former government adviser Jackie Sadek, and former BNP Paribas Real Estate chief executive Andy Martin. It also struck a chord on a cross-party level, and was referenced in Iain Anderson’s report on government-business relations for Labour. While the report focuses mainly on measures for central government, Harrington is hopeful that real estate will continue to spread the word. When EG meets with him at Millbank House, it is two weeks before he is set to speak at the UK’s Real Estate Investment & Infrastructure Forum in Leeds. More than 12,000 delegates are slated to attend. It is a community the Tory peer understands well – while the former minister has had a prominent political career in recent decades, he is no stranger to commercial property. In 1983 he founded developer Harvington Properties. In 1990 he became a managing director at Leisure Syndicates International, which built and managed holiday resorts in the UK and mainland Europe. It was subsequently sold to a US company, now owned by Hilton Hotels. “With my background being in residential and commercial development, particularly hotels and holiday resorts, I have a particular affinity with the property industry,” Harrington tells EG.   Harrington’s own understanding of how crucial development is to the wider economy meant that views from housebuilders and property businesses were essential to his review, which took evidence from more than 200 companies, financial institutions and sovereign wealth funds. The pattern that emerged has cast a light on how the government’s structure has “impeded a lot of investment decisions” that would benefit the economy, he says. Change is afoot The review found that the UK is missing out on £50bn of business investment each year. Where most of the UK’s competitors have around 12% of GDP in domestic and foreign business investment, the UK’s equivalent is 10%, reflecting a £50bn difference. To bridge that gap, Harrington proposes changes to “disorganised” and “risk-averse” government systems through a new business investment strategy centred on five key growth areas: green industries, advanced manufacturing, life sciences, digital technology and creative industries. The review ultimately aims to put investment at the heart of each level of government. The most important part that real estate can play in supporting the strategy for future FDI, says Harrington, is in realising that “things are changing in this country”. “Whichever party is in power, I think there will be a move towards policies that help investment, and I would ask [real estate] to take advantage of it,” says Harrington. “I’m very conscious with property that, although self-evidently real estate itself is fixed, the pounds and dollars and euros that property companies have can go anywhere in the world. It’s for government to make it attractive to do it here.” Industry figures in contact with the government are also urged to support the review and to “continually” bring it up with their connections. “I’m not making a party point, but so few politicians come from a real estate development background that they don’t really grasp how significant it is to the development of the economy,” says Harrington. Balancing votes – the currency of politics – with projects that are in the national interest is an added conundrum. “A lot of politicians understand the housebuilding point but don’t see commercial development in quite the same way,” he says. “Yet, if we are to really get the economy moving, we need to develop a lot of clusters, which will involve very significant planning permissions, and government nationally has to realise that sometimes these will have to be implemented against the will of local people. That’s something that politicians have to grasp.” A united front Keen to cast the net far and wide for his review, Harrington has also extensively engaged with the local government community, including the District Councils’ Network. “I have found invariably that a lot of the district councils are too small to be able to take larger strategic decisions,” he says. While some can “do a lot” for foreign investment, such as Stevenage, lauded as one of the “best examples” of speeding up planning for a major project where there was the “will and resource” to make it happen, there are several that lack the scale to get involved in investment matters. Harrington worries that “some of the democratic organisations are too small”, although he praises the metro mayor model for giving foreign investors a “focus” and a name for those areas. As for public-private partnerships, Harrington says they have “got to be the future” to unlock and develop internationally competitive clusters that incentivise investment. “History has shown that it can’t be done by the public sector alone,” he says. “Also, there isn’t the money. But there are many examples of where you need private involvement and the public sector to kick it off.” The government’s investment zones programme, launched at last year’s Spring Budget, will be a “good conduit” for such partnerships, Harrington says. “All this stuff of one party in the past saying ‘public sector good, private sector bad’, or [vice versa] – it’s old stuff, it does not reflect [reality],” he adds. “I say to colleagues on the more right-wing side of the Conservative Party that if they really believe that government, national or local, should not be involved in business, that’s extremely naive, because our competitors are doing it. “I also say to people on the left of the argument that the public sector is very bad at development. It can’t compete. The kind of people who go into it are not the kind of people going to the private sector. There’s a lot of future development of a joint nature, and that’s true nationally as well as locally.” Investment’s one-stop shop Despite the gap between itself and other countries, the UK has performed strongly in attracting FDI in recent years, securing £78.8bn of inflows from overseas investors creating capacity through offices, factories or similar in 2022, outpacing Spain (£37bn) and Germany (£26.6bn). Renewables projects accounted for nearly a third of the UK total. The challenge, says Harrington, will be to retain that lead. “It’s a cliché, but the world is changing,” he says. “Other countries are getting their act together and offering a slick and agile service to investors.” The ideal is to provide a modernised, “one-stop shop offering” that packages up incentives for overseas businesses and investors. That could entail allocating money for innovation, together with identifying suitable sites around a cluster with planning permission; organising the skills portion, where a technical or further education college would design sector-based skills initiatives for apprentices; ensuring grid connections; and arranging visas for qualified staff. He highlights the lack of a central government position that can coordinate all of those. “Outside the EU, we’re not market makers – we’re not big enough,” he says. “We are market takers. That’s not a bad thing, but we’re a small country of 60m people, so you have to do what your competitors are doing. We have to change and develop this sort of system to attract foreign investment.” Harrington cites evidence from companies having to “troop around different government departments, often with different policies”. “Things have to evolve,” says Harrington. “It’s like a business. If my hotel business had remained the same, it would have gone bankrupt. Government is not different in that way.” Among the review’s outcomes, the government is forming a ministerial investment group at secretary of state level. It aims to convene in early June, chaired by the chancellor. The group seeks to drive progress on FDI across departments in line with the review’s five priority sectors. Its brief includes assessing the UK’s pipeline, what the barriers are and how to remove them. Harrington also observes growing momentum from the Department for Business and Trade and the Department for Levelling Up, Housing and Communities on promoting investment-ready, place-based propositions to investors, following recent devolution deals. He indicates that there has been “a lot of cross-government work” on building a “pipeline of investible opportunities to take to market”. While Harrington notes that HM Treasury and the Department for Business and Trade have taken steps to improve cross-government accountability for investment, there has been no progress from Number 10 on appointing a senior investment minister to take on a joint Cabinet Office, HM Treasury and Department for Business and Trade role. Harrington is urging Number 10 to implement the proposal, adding that Lord Dominic Johnson’s junior investment minister role at the DBT should be elevated to the job to “send a powerful signal to investors as to how seriously the government takes this”. On the whole, however, Harrington is encouraged by the response to his review. At this year’s UKREiiF event, he is keen to convey that the government – and the opposition – are listening to investors. “I’ve seen a change in attitude, and I believe that the government will reorganise itself in a way that is more friendly to investors,” he says. Leeds leads the way As someone born and raised in a working-class area of Leeds, where his father was a market trader, Harrington describes witnessing the turnout at last year’s UKREiiF as a moving experience. “They’ve done a phenomenal piece of redevelopment there, I was so impressed with it,” he says. For Harrington, aged 66, the conference gives him optimism, as he sees people coming from “all over the world to a place by the canal in south Leeds”, where in the past “you wouldn’t walk there and remain with your wallet”. He recalls how, growing up, secondary school leavers “who had anything about them” tended to move to London for opportunities. “In my youth, it was a dump,” he adds of Leeds. “These industrial cities in the north of England were basically [in] their 19th century glory, be it in steel, textiles or shipbuilding – Newcastle, Glasgow, Manchester, Leeds. It was all declining, and the cities looked like it. It took a whole generation for them all to redevelop, but they have. It’s impressive, and it gives me optimism for this country.” Hosting some of the metro mayors at a UKREiiF dinner event last year at the Ivy Asia therefore led to a profound moment for Harrington, upon the discovery that the restaurant overlooked where his father’s market stall was once located. “I was quite emotional about it,” he says. “Admittedly, it was a long time ago, but I thought, there is hope.” Photo © Tayfun Salci/ZUMA Press Wire/Shutterstock