Fuelling growth: what Britain can learn from the UAE on energy and equities
The UAE’s success shows that Britain could secure more international investment if it adopted a less punishing tax structure.
Britain's economic outlook is dire. In the third quarter of 2024, the UK economy grew by a disappointing 0.1%. Most strikingly, despite Britain once being home to the world's fastest-growing and most innovative companies, the FTSE 100 only grew by six percent last year, while America’s S&P 500, seen as a barometer of US economic health, expanded by 25 percent.
The UK's failure to increase its productivity means the government will struggle in the long term to fund essential public services such as the NHS. All the while, the companies of tomorrow, that will dominate the AI and technological sphere, are not being established in the UK. Without these businesses, Britain could struggle to be part of the technological revolution, leaving its workers poorer. This context is bleak for the new Labour government, which promised to make the UK the fastest-growing economy in the G7. By talking down the British economy after being elected in July 2024, the government has missed an opportunity to reinvigorate it.
If Stamer wants his administration to succeed, he needs to get more capital flowing into British businesses and equity markets as well as create cheaper energy.
At face value, one might be sceptical of what political advice the UAE can offer the UK, but one area where the UAE is clearly outpacing Britain is in increasing foreign direct investment (FDI), an essential ingredient for economic growth. By abolishing income tax for residents and maintaining no stamp duty on the ADX (Abu Dhabi Securities Exchange) and DFM (Dubai Financial Market) listed shares, the UAE has achieved FDI inflows of $22.7 billion in 2022.
This investment has powered the development of startups, with the UAE housing three of the Middle East’s tech unicorns– start-up companies valued over $1 billion – established in 2024. Increased investment has also gone into renewable energy projects, with Korean Electric Power investing $1 billion into Abu Dhabi’s Khalifa Industrial Zone.
The UAE’s success shows that Britain needs to adopt a less complicated and punishing tax structure in order to secure international investment in businesses and equity markets. In an interconnected financial world, the British government’s talk of taking tough decisions and raising inheritance tax on businesses is not conducive to securing international capital.
The government, however, can fix this problem. As suggested by Dominic O’Connell in the Times, a starting point to securing this investment is to abolish stamp duty on shares. The ADX, for example, which has no stamp duty, has increased by 22.9% in 2022, whereas the FTSE 100 has a compound average growth rate of 3.31%.
By removing stamp duty when stocks are sold, the UK would position itself like Germany as a major European financial market to not tax individuals when they buy or sell a share. Analysts from Peel Hunt, the British investment bank, say that this would add £250 billion to UK markets, increasing the FTSE’s liquidity and popularity with pension funds and international investors.
Another approach that Britain can learn from the UAE is that of freeports, where tax incentives are given to businesses which can successfully promote growth. The city of Dubai is one of the UAE’s 46 freeports, formerly called an established economic zone, and does not charge VAT on goods made and bought in the Gulf state. Coupled with international investment, the UAE’s freeport policy has cemented Dubai as the nation’s wealthiest city, primarily through its appeal to businesses and investors.
This success is shown by Dubai’s Q1 GDP at £25 billion. Britain should follow Dubai’s example and develop its freeport policy, which was first established in Teesside in 2021.
Recently, the UK’s freeport policy has not been as popular amid scepticism that freeports act as sites of money laundering. However, by implementing freeports in cities like Birmingham, Norwich, and Manchester, the British government would encourage businesses to move from London and create jobs and growth in previously left-behind regions. The Treasury should take note.
The Gulf state’s economic development has also been aided by an abundance of cheap energy, providing an additional lesson to the UK. The UAE has enough oil - which accounts for 26.9% of the nation's energy - to last for around 300 years and it has also made significant investments in gas and renewables. Lower energy costs than Britain’s have allowed companies to grow, manufacture electronics, and expand their presence throughout the region. In comparison, British energy is one of the most expensive in Europe, averaging 78% above the EU average in 2023.
Affordable energy is a prerequisite of economic growth. Expensive energy prohibits businesses from expanding and developers from building homes. If Labour wants to build 1.5 million homes by 2029 and make the UK the fastest-growing G7 economy, it needs to find a way to bring down the UK's high energy costs.
While Britain doesn't have a volume of oil anything like the UAE, it can continue to search for and license new oil and gas fields in the North Sea, allowing a continued energy supply to the UK for up to 35 years. The Energy Secretary, Ed Miliband, has a commendable approach to renewable energy, but it will take many years for green energy to be cheaper and more reliable than non-renewable energy, making it essential to continue drilling to keep energy costs down.
By choosing not to drill, Labour is forfeiting economic prosperity. The UK would also be sensible to consider expanding the number of nuclear power stations, as currently Britain only has eight. These stations could form the basis of cheap renewable energy in the medium term.
Amid increasing market unhappiness towards the British economy and the cost of government borrowing recently rising to heights not seen since 2008, the UK government cannot afford to be complacent. Adopting a strategy more closely resembling that of the UAE's could help it get more flowing into British equities and businesses, and reduce energy costs.
Charles Aldous is a Policy Fellow at the Pinsker Centre, a campus-based think tank, focusing on Middle Eastern and global affairs. He is also a final-year historian at Durham University. The views in this article are the author’s own.
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