The £25 billion increase in payroll taxes has proven to be unpopular among American investors. With US confidence in the UK falling from 7.8 in 2021 (out of 10) to 6.2, many investors are showing signs of uncertainty in the UK economy.
What does it mean to you?
Investment coming from externally (outside of the country) into the UK is called Foreign Direct Investment, FDI. More specifically, we call this inward FDI. Higher inward FDI can contribute to economic growth since the investment can be used to increase productivity, consequently output.
Foreign investors can improve the domestic cost of living. It has proven on numerous occasions that work-life balance leads to better productivity; therefore, if firms start to invest in their assets, it can lead to an improvement in labour productivity.
Over the past decade, foreign investments have been a factor that the UK has been lacking. If so, many foreign companies are buying discounted UK companies since many of them are badly run.
Due to the increase in employer taxes, many investors have fallen out of favour for the UK, especially American investors. Given the uncertainty over global trade, it is imperative for the UK to retain competitiveness.
This is another problem for Reeves since the upcoming budget is guaranteed to have a tax rise, one way or another. If US confidence in the UK continues to fall, it certainly will lead Trump to kick the bucket and start raising tariffs.
What to look out for
- Over the next couple of months, given that the UK has signed a trade deal with the US, will any US companies be willing to invest in the UK?
- How does the trade deal affect the UK trade surplus with the US? Is it improving or staying stable?
- Will Trump have a say over investor confidence? Will he try to spur Americans to invest like he did with Tesla, when he bought one of Musk’s cars?
Econ Oddities 
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