Britain invests less than all other G7 nations as a percentage of GDP. Only 18.6%3 of our £3tn GDP4 is invested in new fixed capital, well below the G7 average of 20.7% and the OECD average of 22%.5
This shortfall is overwhelmingly driven by weak private sector investment. UK corporate investment stands at just 11.1% of GDP, compared to 13.8% across the OECD. In France, business investment is 12.0% of GDP, in Germany 11.9%, and in Italy 10.7%.
Investment, or ‘Gross Fixed Capital Formation’, is spending on long-lasting assets that generate future economic output, most of that is new plants, machinery, equipment and infrastructure. However, not all of it is physical. In 2025, just under third of investment went into intellectual property, primarily research and development and software.
For physical investment, the largest component was housing, which accounted for 26% of total investment. Non-residential buildings and structures made up a further 23%, while ICT and other machinery and equipment accounted for 13%. Transport investment, including roads, railways, and vehicles such as vans, lorries and trains, made up 6%.6
Several governments have taken steps to address Britain’s weak private investment. Before 2023, the UK had some of the least favourable tax treatment of business investment among advanced economies. To rectify this, in April 2023, the government introduced “full expensing” on a temporary basis, allowing firms to immediately deduct the full cost of capital investment, excluding buildings and structures, rather than writing it off over many years. This policy was later made permanent, with cross-party support.7 As a result, the UK’s tax system for business investment has shifted from being one of the least competitive in the OECD to one of the most.
However, the private sector’s ability to invest is severely constrained by the planning system. Its effects are both direct and indirect.
The direct effects are substantial. Just under half of investment in 2025 was in buildings and land. This represents billions of pounds of British public and private investment spending that is subject to the planning system and any restrictions. Similarly, a significant share of public transport investment is impacted.8
There are also important indirect effects. Tax incentives to invest in people, machinery, IT systems and vehicles are welcome. But without buildings to house workers and machinery, or roads for those vehicles to operate on, many of these investments do not go ahead. Planning constraints also contribute to high energy costs, further reducing the attractiveness of investment across the economy.
In contrast to weak private sector investment, UK public investment is broadly in line with its peers. At around 2.88% of GDP on average from 2015-2023, it sits slightly below the OECD average, though this largely reflects higher investment rates in Eastern European economies benefiting from catch-up growth and EU funding.
Compared to large Western European economies such as France, Germany and Italy, UK public investment is unremarkable. These countries invest an average of around 2.92% of GDP, placing the UK firmly in the middle of the pack.
Transport is the clear exception to Britain’s otherwise weak investment spending. The UK spends a higher share of GDP on transport infrastructure than most European countries, including countries such as France and Germany that have significantly better roads, railways and urban transport systems.
Most countries that outspend the UK are former communist economies with historic under-investment in infrastructure, which are now investing heavily to catch up with Western Europe.
However, Britain’s above-average investment in transport does not result in above-average outcomes. For example, France has 28 tram systems,9 over 7,300 miles of motorway,10 and over 1,700 miles of high-speed rail,11 compared to just 7 tram systems,12 2,300 miles of motorway,13 and 68 miles of high speed railway in the UK,14 despite our economies being a similar size. Yet Britain still spends around 12% more on transport investment as a share of GDP. If Britain could match French outcomes, we would have trams in Leeds, Bristol, and Liverpool; motorways connecting Sheffield and Manchester; and a HS2 that makes it to the North of England.
Our fundamental problem is value for money. When Britain invests in public transport, it pays more and receives less.
Case Study: HS2
HS2 is the most prominent example of how Britain's cost premium doesn't just waste money but stops infrastructure being built at all. Conceived as a high-speed line linking London, Birmingham, Leeds and Manchester, it was cut back to London-Birmingham as costs spiralled, leaving the North without the railway it was promised. In scale it is unusually large, but in terms of its disastrous implementation it is fairly typical. Removing HS2 from our sample reduces the UK rail premium from 93% to 79%.
Originally conceived as a £30 billion high-speed railway linking London, Birmingham, Leeds and Manchester,15 it has since been scaled back to just the London–Birmingham section and is projected to cost between £87.7 billion and £102.7 billion.16
In an effort to bypass the complexities of the planning system, HS2 was taken through Parliament via a bespoke “hybrid bill” process. This failed to control costs. As the bill progressed, it accumulated an expanding set of requirements. The Colne Valley Viaduct, a two-mile bridge through parkland northwest of London, was required to be of “international significance”, “a sympathetic and imaginative design”, and “a suitable symbol of the country’s future high-speed network”.17
Another example is the Chiltern Tunnel. This is an 8 mile long tunnel under the Chilterns to the north west of London. There is no engineering or rail related reason for this tunnel to exist. Instead it was initially designed to pre-empt environmental concerns. No weight was placed on the fact that the much wider M4 motorway is at points less than 3 miles away. However the initial 8 mile long design was not sufficient for the local council and the local MP who campaigned for years to get the length increased. While plans to make it 15 miles long (which would have cost another £485 million18) were unsuccessful; they did succeed in adding an extra 2 miles to the tunnel at a cost of at least £46 million.19 These costs are all pre-project estimates, at present no final costs are available. However in general tunnels cost 2 to 5 times as much as constructing a train on the surface. Combined the total bill for the Chiltern Tunnel and the Colne Valley Viaduct came to £1.6 billion.20
As with many UK projects, a wide range of agencies and quasi-governmental bodies had significant influence over the design, often without clear accountability for cost. One widely cited example is the “bat tunnel”, a mitigation measure that cost around £115 million in 2023 prices.21 Local councils and local residents have also added significantly to costs. In Wendover, to avoid use of a residential street by one truck a day for a 12 week period, councillors engaged in a lengthy process (all at taxpayer’s expense) proposing schemes that ultimately resulted in the destruction of hedgerows and farmland.22
Poor project management compounded these problems. HS2 has been criticised for “gold-plating”, for example, designing the railway to run at higher speeds than comparable European lines, turning a proven model into a bespoke engineering challenge.23 Strikingly, the Stewart Review into HS2 struggled to identify who made some of these key decisions24, exemplifying the poor project management that has been part of the project throughout.
Finally, the project became highly politicised. While periods of consistent ministerial oversight improved decision-making,25 more often political intervention led to design changes, delays in approvals, and a reluctance to confront rising costs. Each of these added further expense.