Business investment analysis
Published 6 September 2024
© Crown copyright 2024
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1. Executive summary
This research primarily relies on Annual Business Survey (ABS) microdata, enabling a detailed analysis of investment trends at the firm level and allowing us to explore patterns across various industries and firm sizes.
The ABS is the largest business survey conducted by the Office for National Statistics (ONS), providing high-level indicators such as total business turnover, capital expenditure, purchases, and total employment costs.
We use the ABS question on capital assets (wq600) to measure businesses total investment expenditure in a given year.
We have also explored linking the ABS microdata with the Management Expectations Survey (MES) to understand how management skills can affect business investment decisions.
Our analysis only covers businesses in Great Britain, and we use ABS survey design weights to gross the sample to be representative of the non-financial business population. We also exclude firms with negative gross added value (GVA) to avoid distortion when calculating average investment intensity at the sector or economy level.
It is also important to note that we have excluded firms in the Real Estate industry due to its volatility in response rate. Further cleaning methods were applied, and we excluded firms with zero employment, as well as null turnover and null total purchase.
Early results of our analysis revealed that investment was heavily concentrated among a small number of businesses, with most of total investment in a given period coming from a few large investors.
To assess the contribution of these large investors to overall investment, we classify these “super-investors” using 2 distinct approaches. The first approach defines super-investors as firms with high levels of investment relative to their GVA. In contrast, the second approach classifies super-investors as firms with high levels of investment in absolute terms. Each methodology has its own strengths and limitations.
The research has also suggested that firms that are better managed are more likely to invest and invest more.
While there are recognised benefits of using ABS to analyse business investment in the UK, there are also some caveats to this analysis. For instance, given the ABS is a sample survey the same businesses are not surveyed consecutively every year. Larger firms are better represented since they are surveyed annually, unlike smaller firms, which are only sampled 2 years consecutively.
This presents challenges for our research, particularly in our analysis of super investors. The average results for the categories that include SMEs may be skewed due to their under-representation on the survey.
For more information, please access the link for the full methodology note.
2. Proportion of firms that invest
Number of firms that invest as a proportion of all firms with positive GVA
| Year | Proportion |
|---|---|
| 2019 | 60% |
| 2018 | 62% |
| 2017 | 64% |
| 2016 | 65% |
| 2015 | 65% |
| 2014 | 66% |
| 2013 | 54% |
| 2012 | 54% |
| 2011 | 54% |
| 2010 | 39% |
| 2009 | 39% |
| 2008 | 39% |
3. Proportion of firms that invest, by size
Number of firms that invest as a proportion of all firms in the size band, by firm size (GVA>0 firms, only)
| Year | 1 to 9 employees | 10 to 49 employees | 50 to 99 employees | 100 to 249 employees | 250 to 999 employees | more than 1000 employees |
|---|---|---|---|---|---|---|
| 2019 | 57.9% | 74.2% | 87.6% | 93.1% | 99.3% | 100.0% |
| 2018 | 60.1% | 74.4% | 87.4% | 92.8% | 99.3% | 100.0% |
| 2017 | 62.0% | 74.9% | 85.2% | 93.5% | 99.0% | 100.0% |
| 2016 | 62.6% | 77.6% | 89.1% | 93.7% | 99.3% | 100.0% |
| 2015 | 62.8% | 78.7% | 90.6% | 92.4% | 99.0% | 100.0% |
| 2014 | 63.3% | 78.1% | 89.9% | 93.4% | 99.1% | 100.0% |
| 2013 | 50.2% | 72.3% | 86.5% | 93.3% | 98.6% | 100.0% |
| 2012 | 50.5% | 71.8% | 87.3% | 91.4% | 99.0% | 100.0% |
| 2011 | 51.0% | 72.9% | 87.1% | 92.5% | 98.8% | 100.0% |
| 2010 | 34.3% | 62.2% | 80.1% | 86.7% | 91.6% | 92.4% |
| 2009 | 35.1% | 62.4% | 78.1% | 86.5% | 91.1% | 91.8% |
| 2008 | 34.6% | 63.7% | 80.3% | 86.4% | 90.3% | 91.2% |
4. Ownership comparison
Comparing the population that invest according to whether company is UK-owned or foreign-owned
| Ownership | Likely to invest | Unlikely to invest | Total |
|---|---|---|---|
| Foreign-owned | 73% | 27% | 100% |
| UK-owned | 60% | 40% | 100% |
5. Median investment by size
Median investment as a share of GVA, by firm size band (GVA>0 firms, only)
| Year | 1 to 9 employees | 10 to 49 employees | 50 to 99 employees | 100 to 249 employees | 250 to 999 employees | more than 1000 employees |
|---|---|---|---|---|---|---|
| 2019 | 1.14% | 1.44% | 2.40% | 2.93% | 3.91% | 4.88% |
| 2018 | 1.52% | 1.48% | 2.38% | 3.11% | 4.39% | 5.35% |
| 2017 | 1.59% | 1.53% | 2.23% | 3.33% | 4.49% | 5.43% |
| 2016 | 1.72% | 1.91% | 2.60% | 3.19% | 4.64% | 5.74% |
| 2015 | 1.68% | 1.78% | 2.89% | 3.38% | 4.55% | 5.81% |
| 2014 | 1.65% | 1.69% | 2.44% | 3.29% | 4.42% | 4.93% |
| 2013 | 0.14% | 0.92% | 2.09% | 3.16% | 3.95% | 5.22% |
| 2012 | 0.21% | 0.91% | 2.05% | 2.95% | 3.95% | 4.92% |
| 2011 | 0.32% | 1.08% | 2.31% | 3.02% | 4.04% | 5.00% |
| 2010 | 0.00% | 0.86% | 2.15% | 2.79% | 3.86% | 3.36% |
| 2009 | 0.00% | 0.84% | 1.79% | 2.23% | 3.62% | 3.35% |
| 2008 | 0.00% | 1.05% | 2.25% | 2.80% | 4.58% | 4.39% |
6. Mean investment as a share of gross added value (GVA)
Mean investment as a share of GVA for ‘very large’ firms (1000+ employees) (GVA>0 firms, only)
| Year | Share |
|---|---|
| 2019 | 14.95% |
| 2018 | 15.72% |
| 2017 | 16.54% |
| 2016 | 17.45% |
| 2015 | 19.66% |
| 2014 | 15.99% |
| 2013 | 20.38% |
| 2012 | 15.98% |
| 2011 | 24.02% |
| 2010 | 15.76% |
| 2009 | 98.72% |
| 2008 | 44.22% |
7. Largest investors
Share of total investment (WQ600) made by the top 10% largest investors
| Year | Share |
|---|---|
| 2018 | 94.9% |
| 2017 | 94.9% |
| 2016 | 95.3% |
| 2015 | 94.6% |
| 2014 | 94.4% |
| 2013 | 96.4% |
| 2012 | 96.4% |
| 2011 | 95.9% |
| 2010 | 94.2% |
| 2009 | 94.2% |
| 2008 | 93.8% |
8. Investment intensity
Share of total investment (WQ600) by firms with the largest investment intensity (WQ600/WQ613)
| Year | Share |
|---|---|
| 2018 | 42.2% |
| 2017 | 40.0% |
| 2016 | 49.0% |
| 2015 | 44.5% |
| 2014 | 40.6% |
| 2013 | 55.8% |
| 2012 | 55.9% |
| 2011 | 52.7% |
| 2010 | 37.8% |
| 2009 | 39.1% |
| 2008 | 38.7% |
View the full spreadsheet of data tables.
9. Methodology
Business investment is one of the priorities for the Department of Business and Trade (DBT). Understanding business investment is essential to support policymakers.
Businesses require investment to become more efficient and innovative, resulting in higher productive economy. Investment in productive capital is required to provide the infrastructure and machinery needed to take advantage of UK’s skilled labour force and business specialisms.
Strong evidence suggests that the UK has consistently performed below its peers when it comes to business investment.
The UK:
- routinely ranks in the bottom 10 per cent of OECD countries for overall investment intensity
- has the lowest share of investment in GDP among G7 countries for 24 out of the last 30 years [footnote 1]
Understanding the causes for our low investment performance is essential to improve our growth prospects. Research has shown that the UK’s weakness in investment accounts for a large proportion of our productivity gap with other countries [footnote 2].
This work has been carried out to fill the existing evidence gap in business investment research.
While it is well documented that the UK has consistently underperformed its peers in terms of investment, there is limited information about the patterns and profiles of those who are and aren’t investing. The ABS allows us to explore the business investment in more detail. By using the microdata, we can analyse and explore patterns across industries and firms of different sizes
As this is experimental research, the analysis should be interpreted with caution, as the data used is subject to revisions and the methodology is still being refined.
View the full methodology note.
9.1 The Annual Business Survey
The ABS is an annual survey of businesses covering firms in:
- production
- construction
- distribution
- services
The ABS provides a number of high-level indicators such as:
- total business turnover
- capital expenditure
- purchases
- total employment costs
They are essentially a snapshot of UK business activity and can be used to understand the level of the contributions to the UK economy from different sectors of the economy at any one time.
The ABS is the largest business survey conducted by the Office for National Statistics (ONS) in terms of the combined number of respondents and variables it covers - 62,000 questionnaires despatched in Great Britain, with around 600 different questions asked.
In Northern Ireland, the survey is conducted by the Northern Ireland Statistics and Research Agency (NISRA), and questionnaires are sent to around 11,000 businesses.
High-level results of the ABS survey are published on the ABS release page on the ONS website.
The ONS also provides access to ABS microdata through its secure data portal, the SRS, allowing accredited researchers to conduct detailed analysis. Access to the microdata is a valuable resource because it provides insights into the specific characteristics of individual firms, allowing for detailed examination of their distribution, rather than just relying on group averages.
This research primarily relies on ABS microdata, enabling a detailed analysis of investment trends at the firm level and allowing us to explore patterns across various industries and firm sizes.
9.2 Business investment measurement
The focus of this analysis is on business investment, which is composed of investment by domestic and foreign UK companies based in the UK, and ‘Greenfield’ Foreign Direct Investment (FDI) by foreign owned companies.
Business investment includes any expenditure by firms on assets used in their production process. Official statistics, including ABS estimates, mainly cover investment in physical assets like new machinery, whereas investment in intangible assets, such as training, is less well captured.
Investment drives economic growth by expanding firms’ productive capacity, enhancing their efficiency, and enabling innovation.
Consequently, business investment is typically allocated to the following activities:
- replacing assets that have depreciated beyond repair
- expanding operations, such as investing in R&D and commercialisation to enter new markets
- addressing challenges, including training to overcome labour shortages; and investing in technology and infrastructure to support hybrid working
- preparing for the future by investing in skills and equipment to accelerate automation or reduce emissions
Business investment also complements a wide range of public investment, such as those in education, infrastructure, and market frameworks.
In the ABS questionnaire, businesses are asked to report the total value spent on acquiring capital assets over the past year, minus any disposals. We use this variable (wq600) to measure their total investment expenditure, this is the best available proxy for business investment.
-
The Institute for Policy Research (2024), Revealed: Investment in UK is lowest in G7 for third year in a row, new data shows ↩
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Reenen and Yang (2023), Cracking the Productivity Code: An international comparison of UK productivity ↩