Everyone talks about growth. How we don’t have it. How we desperately need it. From the Global Financial Crisis to war-induced energy crises to trade-crashing tariffs at the clicks of American fingers, our economy seems forever at the mercy of worldly vicissitudes.
International onlookers could not be faulted for thinking that, for the past 18 years, the British economy has been suffering a Tantalean punishment. Meaningful growth perpetually stretches just out of reach, relegating chancellors of the Exchequer to feign celebration over ever-shrinking quarterly growth rates. If Britain doesn’t bounce back, Poland will overtake the UK in terms of gross national income per capita in under 10 years.
It does not have to be this way. So why is Britain’s economy so stagnant, and what can we do about it?
This is what the Adam Smith Institute asked itself in our latest research report, ‘The Growth Agenda’. We crunched the numbers and ranked a swathe of policy areas – from housing and energy to tax and trade – according to how much more they could be contributing to the economy.
We calculated that a focused programme of supply-side reforms could add 10–20% to our GDP after 10 years. That would amount to an additional £428 billion of annual output by the mid-2030s, or around £5,800 per person in higher living standards.
In our lineup of impoverishing culprits, the usual suspect came first. Britain’s quagmirish planning system is holding back over 7% in GDP. Its failure to build enough homes has driven up rents; eating away at people’s disposable income, reducing labour mobility and undermining agglomeration benefits in our most productive cities.
We assign the majority of blame to our discretionary planning system under the Town and Country Planning Act. It’s unique internationally. There are few places in the world where developers and landowners need to seek so much permission from local stakeholders to exercise their property rights. The existence of this system deters, delays and otherwise obstructs the homes we need to be built.
This is a systemic problem, so a new system is needed. We want to replace our system of local planning authorities with regulations on property, not permissions. Developers should be allowed to build on their own land, so long as they cover the cost of infrastructure and social pressures that result from their building. Alongside this, the government can pull other levers to get Britain building. Rowing back many of the burdensome Habitats Regulations, Minimum Energy Efficiency Standards and the Building Safety Regulator.
The second-biggest blight on British prosperity is our energy policy, which chokes up a further almost-5% in long-run GDP. Infamously, the UK has some of the highest industrial electricity prices in the developed world, with destructive effects on British industry and household bills.
Energy is a complex policy area. But the fundamental reason our bills are so high is that we’ve built a system that rewards sub-optimal energy production and infrastructure. We subsidise wind turbines which entrench price volatility and undermine the economics of essential backup capacity, like gas. We force all nuclear reactors to change their designs at disproportionate cost, to the point that Hinkley Point C is now the second-most expensive building in history.
Electricity can be priced better. We advocate for nodal electricity pricing, incentivising energy producers to locate where demand is highest and businesses to operate where supply exists. We also want to replace the nuclear ‘As Low As Reasonably Possible’ safety framework with a simple, one-stop framework, so British nuclear reactors stop being ‘first-of-a-kind’ every time they’re built. Alongside this, we want to zero-rate and abolish Carbon Price Support, which increases electricity prices by £1.3 billion a year.
Additional, liberalising reforms to taxation, financial regulation, labour market regulation, aviation and trade could also make meaningful contributions. None alone are transformative, but together they produce a powerful effect: a permanent increase in the economy’s productive capacity.
Getting growth back on track is essential for two reasons. Firstly, it’s a matter of survival for the British state’s balance sheet. In another report, Adam Smith Institute research calculated that the British government’s spending, if left unchecked, will lead the UK into a structural debt spiral. Health and pension costs are soaring under an aging population. But spending cuts can only take us so far. In order to meet the growing social obligations of 21st-century lifespans, we need an economy that grows enough to yield real-terms increases in tax receipts.
But it also matters to each and every British citizen. These changes could spur growth that increases real household disposable income by £6,800 a year. That’s real spending money, enough to cover the average household’s annual food, restaurant and alcohol bills. Imagine the economic empowerment that would follow! Financial security, leisure spending and fiscal sustainability are what’s at stake.
The theme that ties together all these seemingly disparate policy proposals together is disentanglement. Over time, the British state has accreted a growing mass of regulations, consultants, quotas, applications and assessments. These weigh down the engine of the British economy; it’s not that the ghost in the shell refuses to budge, but rather that it can’t. Britain needs an economy afforded the space and trust to be dynamic again.
Freeing up the British private sector is essential for raising the living standards of Britons. To all who want to make Britain better off: here is a platform to launch from.
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