The Demos think tank has called on the Labour government to boost public investment by £27 billion to attract private sector capital and revitalise economic growth.

The UK currently lags behind other G7 nations in terms of private investment, with British businesses investing significantly less than their French and German counterparts.

According to Demos, UK businesses invest £3.12 for every £1 of government spending, compared to £5 in 1997. This stark contrast highlights the need for increased public investment to stimulate private sector activity. Demos recommends an overall investment increase of £112 billion annually to move the UK to the middle of the G7 pack.

Labour leader Sir Keir Starmer and Chancellor Rachel Reeves have set an ambitious target to raise Britain’s growth rate to 2.5 per cent over the long term. The Bank of England forecasts a GDP growth of just over 1 per cent annually for the next three years, indicating a pressing need for robust economic intervention.

Despite Labour’s commitment to enhancing public-private partnerships, Starmer’s recent decision to scale back a £28 billion green infrastructure investment plan has drawn criticism. Even with the original plan, public capital spending was set to decline in real terms.

The government has taken steps such as launching GB Energy, a publicly owned utility provider, and establishing a National Wealth Fund with £7.3 billion to invest in low-carbon energy projects. However, Andrew O’Brien, Demos’ director of policy and impact, argues that a more revolutionary approach is required to foster sustained growth.

O’Brien advocates for a clearer economic strategy, greater policy stability, effective tax reliefs, updated corporate governance, and new institutional frameworks. He emphasises the need for businesses to adopt a long-term perspective and make tangible commitments in return for supportive policies.

Demos also suggests reviewing business tax reliefs to strengthen investment incentives and establishing stable policy sectors over a five-to-seven-year horizon. Dr Gerard Lyons of the Centre for Policy Studies adds that Britain’s growth challenges predate Brexit and that leaving the EU provides an opportunity to pursue advantageous trade deals and regulatory improvements.

Lyons cautions against the notion that rejoining the EU would resolve Britain’s growth issues, urging a realistic assessment of the current economic landscape.