The Energy Industry is the Most Foreign Owned Industry in the UK

It was announced last month that the Chinese brand Shein is in talks to purchase Missguided from the British-owned Mike Ashley’s Fraser’s Group. If the deal goes ahead, it will be the latest in a growing trend of emerging Chinese giants extending their reach across Europe through the takeover of major British names. While it is not always readily apparent, nearly 200 British brands are in fact owned by Chinese companies, ranging from Heathrow Airport to Superdrug. Even Greene King’s boozers, quintessentially British though they may seem, are owned by one of Hong Kong’s richest families.

Last month’s news is not particularly prominent because of the brands involved, but most of the UK public simply does not appreciate quite how common it is for an apparently British corporations to be owned and controlled overseas. UK industries as a whole have a surprisingly high incidence of foreign ownership, and it is a trend that has been growing steadily, or in some cases sharply, over the past few years.

We at Moneyzine.com investigate, looking in detail at the pattern that is emerging in each of the UK’s key industries:

The Energy Industry Has the Greatest Proportion of Foreign Ownership

The industry sector with by far the greatest proportion of foreign ownership is electricity, gas, steam and air conditioning. In 2020, 618 companies were owned by overseas individuals or entities, a figure which represented almost 12% of the market. What is perhaps even more significant, however, is that in the space of just a year that number jumped up to 798 companies. By 2021, these companies accounted for more than 15% of the sector – a phenomenal 29% year-on-year increase.

Back in 2017, when Theresa May was the Prime Minister there was outcry when it was revealed that China had acquired a 33% state in the Hinkley Point C nuclear power station. The project was threatened with delay, and while it has since quietly gone ahead, what many don’t realise is that the project – heavily subsidised by UK taxpayers – was largely overseen by EDF Energy UK: a company 100% owned by the government of France.

The UK may have won nature’s lottery with its oil and gas reserves in the North Sea, coupled with the huge potential for hydropower from its encompassing coastlines, in many cases the benefits of those resources are going straight into the pockets of overseas investors. Scottish Power may evoke images of wind farms spinning away in the Highlands, but in truth the company is 100% owned by Iberdrola, which is listed in Spain and which counts BlackRock and the Qatari Investment Authority as its principal shareholders.

Similarly, many in the UK would be surprised to discover that the parent company of British Gas, Centrica, counts among its key shareholders the Bank of New York Mellon.

While investment in the UK is undoubtedly a good thing, this sector is particularly vulnerable to profiteering. While the present energy crisis undoubtedly has its roots in the situation in Ukraine, those struggling to pay their bills this winter will be bound to ask how Scottish Power generated a £576m revival in profits last year. This 58% increase in pre-tax profits was fuelled by Ofgem’s decision to allow suppliers to retrieve outstanding profits, with Centrica also recording record operating profits for the 2022 financial year: £3.3bn, and up from £948m in 2021. In the midst of a deep cost of living crisis impacting the lives of most of the UK population, questions are bound to be asked about whether overseas firms should be allowed to profit from rising energy prices.

Are Energy Firms Paying UK Taxes?

The UK government charges companies a windfall tax of 35% in respect of profits made from the extraction of UK oil and gas. If a foreign-owned company has a UK office they are also liable to pay UK corporation tax, which is 30% for energy companies, and there is a supplementary 10% charge on ring fence profits. In theory this should take the total tax charge to 75%, which sounds healthy for the UK revenue, and Iberdrola, Centrica and EDF all have offices within the country so would be liable to pay these rates. However, these companies invest significantly in tax advice, because they can significantly reduce the amount actually paid by backing out losses or investments. As a result, Shell and BP did not pay a single penny of UK tax in the last financial year.

Mining and Manufacturing Also Have Significant Foreign Ownership

The mining and quarrying industry is not far behind the energy sector. In 2020 there were 149 foreign-owned companies in this field (13.30%), but by 2021 this number had grown to 162 (14.48%) – a year-on-year increase of 9%. This comes on the back of foreign investors admitting that they are most interested in investing in Britain’s mining and healthcare markets.

The manufacturing industry follows next, and although the year-on-year increase is not quite as stark it is nonetheless material at 3%. In 2020, there were 4,505 foreign-owned manufacturing companies (3.37%) and by 2021, this had increased to 4,657 (3.48]%).

The information and communication sector had a year-on-year increase of 7%, with 320 new foreign-owned companies launching in the United Kingdom, a number which brought the total up from 5,020 (2.39%) to 5,340 (2.79%).

Industries with Smaller but Meaningful Foreign Ownership

While water supply and sewerage is by its nature localised, many would be surprised to know that a significant number of water supply companies are owned overseas. Wessex Water, for example, is owned by the Malaysian owned YTL Corporation, while Northumbrian Water is 80% owned by a company registered in the Cayman Islands and owned by Li Ka Shing, the same Hong Kong family behind the Greene King pubs and Superdrug. In 2020, there were 156 water supply and sewerage companies operating within the United Kingdom (accounting for 1.94% of the market), this number had increased to 167 (1.98%) by 2021. This year-on-year increase equates to 9%.

The wholesale and retail trade industry, which also includes the repair and retail of motor vehicles and motorcycles, had 8,148 foreign owned companies in 2020 (2.09% of the market), inreasing to 8,192 in 2021 1.96%). These 44 new companies represent a year-on-year increase of 1%.

Administrative and support services also have a meaningful number of foreign-owned players in the market, at 3,753, or 1.60%, in 2020, which increased to 3,897, or 1.76%, in 2021, with the addition of 144 new companies; a year-on-year increase of 4%.

Professional, scientific and technical activities saw a similar year-on-year increase of 5% between 2020 and 2021, with 6,304 foreign-owned companies in the sector now operating on British soil, representing 1.48% of the industry.

When purchasing property in the UK you might not expect your estate agent to be foreign-owned, but in fact 1,533 of Britain’s real estate businesses were held overseas in 2021, representing 1.41% of the market with 5% year-on-year growth.

Industries with limited foreign ownership

We have established that many companies operating in the UK are owned and controlled from abroad, there are still some particular industries which foreign investors have manifestly failed to crack. In all of the following sectors, foreign-ownership accounts for less than 1%.

Taking first the transport and storage industry, the incidence of foreign ownership in 2021 was just 0.89%, despite a year-on-year increase of 5% relative to 2020.

In the education sector, only 0.74% of companies are foreign owned. We do query, however, whether it will stay this way for long, as many Chinese investors are now seeking to purchase British schools, and this could in part explain why the industry experienced significant year-on-year growth in foreign ownership (of 9%) between 2020 and 2021.

In the agriculture, forestry and fishing industry, there are just 107 foreign-owned companies, representing just 0.67% of the market and competing against 16,181 UK-owned companies in the field. It seems that things might be set to stay this way, because between 2020 and 2021, just one foreign-owned company joined the sector – a year-on-year increase of less than 1%.

The human health and social work industry sector shows a similar pattern to education. While at present foreign-owned companies account for just 0.67% , the year-on-year growth between 2020 and 2021 was highly significant at 11%. It is, however, important to recognise that the two dates correspond with the coronavirus pandemic, when new testing centres were opening daily. It is therefore hard to ascertain whether these figures point to a genuine trend, but with foreign investors keen to invest in our health care industry we could very well see a continuing rise in the future.

The arts, entertainment and recreation industry, which has a very small incidence of foreign ownership at 0.62% saw no significant rise between 2020 and 2021, with just two new companies setting up.

The accommodation and food services industry on the other hand saw a 7% year-on-year increase between 2020 and 2021. While just 0.55% of this sector is foreign-owned, the QHotels brand, Accor, Best Western, The Four Seasons and Hilton are all high profile UK companies with overseas owners.

The construction industry is the sector in the United Kingdom with the lowest proportion of foreign-involvement. 2020-2021 saw a year-on-year increase of just 1%, and only 0.47% of the industry is owned overseas.

The Future of Foreign Investment in the UK

There is no doubt that foreign investment in the UK is growing and this comes with both the good and the bad.

“It is encouraging to see that overseas money and investment is still pouring into the UK. This is particularly important in the aftermath of Brexit – clearly the wider world still believes that the UK is firmly open for business. At the same time, overseas owners do not always face the same pressures to prioritise UK interests, and the government needs to ensure that consumers are treated fairly and that the treasury does not lose out”.

Jonathan Merry, Business Expert at Moneyzine.com