Fixing the UK Economy

Britain’s current economy is not primarily the result of bad luck or temporary shocks. It instead reflects a set of self-imposed structural constraints: an overly restrictive planning system, weak transport links, and chronic underinvestment in capital and skills.

To understand the full scale of Britain's current economic predicament, it helps to look back into the past. In the 1960s, GDP growth averaged 3.5%, unemployment stayed below 3%, and real household disposable income per head grew by 25% across the decade.[1] Since the global financial crisis of 2007-09, UK productivity growth has been at its lowest rate in 250 years, and GDP per capita growth has averaged just 0.46% per year since 2008, compared to 2.34% in the preceding fifteen years.[2] We were once described as a "goldilocks" economy of high growth and low inflation, but now, our preferred description is what many economists are now calling a relapse into the "British disease", a term coined in the 1950s to describe low investment, low productivity, and slow growth relative to European peers.[3] The question is no longer whether we have a structural problem, but why it has persisted for so long, and what can realistically be done about it.

Over the past decade, our economy has been trapped in a pattern of 'stagflation': annual GDP growth has averaged 1.44% and an especially sluggish recovery since the COVID-19 pandemic has led the UK's economy to fall behind all other G7 economies. This is not the result of one shock, but of deep structural barriers within our energy, housing, transport, and infrastructure systems - 'a stifling web of planning rules, bureaucratic regulations, taxes and self-imposed energy poverty' which has steadily eroded our capacity to grow.[4]

The biggest structural constraint which fundamentally caps our long-term growth potential lies in the simple issue that our overly restrictive planning system makes it frustratingly hard to build new homes or business facilities. The stifling of firms and high streets across the country 'prevents investment, increases energy costs, and makes it harder for productive economic clusters to expand'.[5]

Housing prices have soared to almost 10 times the average household earnings due to a lack of housing in desirable areas, becoming a significant constraint on productivity and labour mobility.[6] Rising house prices and rents place pressure on households and limit labour mobility, as people are unable to move to areas with better job opportunities due to the struggle to get onto the housing ladder.

As these symptoms are self-imposed, however, this also makes them solvable. Deregulation of housing laws tends to be the first solution; unfortunately, these usually lead to poor-quality, unattractive housing to meet quotas. Reform is preferable to deregulation - this strategy revolves around an Accelerated Planning Scheme, which incentivises small developers in tandem with local communities to buy underused land across the country and provide a clear route to housing, provided that they comply with countrywide standardised building regulations (vetted by a public authority), thereby streamlining the red tape surrounding most housing projects and preventing NIMBYism by giving locals equity in these developments.

A further dimension of planning reform concerns the Green Belt. An estimated 93% of Green Belt land was undeveloped in 2022, with 65% used for agriculture, yet large portions of it constitute what planners now call the "grey belt": scrubland, disused car parks, former industrial sites, and other low-value parcels that provide little ecological or recreational benefit.[7] The government's December 2024 update to the National Planning Policy Framework formally introduced this grey belt concept, reclassifying underused Green Belt land so that development there is no longer considered "inappropriate", provided that 50% of new homes are designated affordable.[8] Early results are promising — by February 2025, over 86 planning appeal decisions had already cited grey belt land in their reasoning, with one early estimate suggesting as many as 300,000 new homes could ultimately be unlocked through this reclassification alone.[9]

Another critical bottleneck lies in energy. From 2004-2021, the industrial price of energy tripled in nominal terms, and since Russia's invasion of Ukraine, prices have only further increased, with the UK now having the highest electricity prices in the developed world.[10],[11] These issues are primarily due to our reliance on natural gas: since Russia's invasion of Ukraine, gas prices and subsequently energy prices spiked by 47% in London.[12] This is certainly one of the most prevalent issues faced daily in the UK — every firm and household relies on energy, and high prices reduce the money that can be spent on nearly anything else, leading to cost-of-living crises and shutdowns.

With the current unreliability of renewables like solar and wind energy, the clearest path to diversifying our energy supply and reducing costs is nuclear energy. Our most recently commissioned nuclear power plant was Sizewell B in 1995, so building more is imperative for reducing our energy costs — nuclear power is one of the safest, most efficient energy sources and by far the most energy-dense.[13] By reducing our reliance on natural gas, nominal energy prices fall in the long run, meaning households and firms will have more disposable income and profits to spend and invest, allowing for greater economic growth.

A legitimate concern about nuclear is the time and cost it takes to build. Hinkley Point C stands as a cautionary tale in this regard. However, Small Modular Reactors (SMRs) offer a faster, cheaper alternative. Developed by Rolls-Royce and backed by the government's Great British Energy programme, each 470MW SMR unit is designed to be built in four years, a fraction of the timeline for traditional nuclear plants, using factory-built, standardised components that drive costs down as production scales up.[14] The government selected Rolls-Royce as the preferred bidder to develop three SMRs in June 2025, committing £2.5 billion to the programme, with a target of connecting to the grid by the mid-2030s.[15] Rolls-Royce projects that a full fleet of SMRs could contribute £54 billion to the UK economy and support an average of 8,000 skilled jobs per year.[16] Renewables remain part of the energy mix — but without grid-scale storage solutions, they cannot yet provide the reliable base power that industry demands. SMRs fill that gap while the grid modernises.

What tends to come as a result of our housing issues is the trend we now see developing: a huge divide between London and the rest of the UK. It can be argued that London essentially operates as a micro-state within England, generating 22% of its GDP with only 12.5% of the population, and is nearly 8 times bigger than the next biggest city (Birmingham).[17] As a result of this, the UK is almost completely reliant on London for industry, causing a brain drain from the rest of the country as people flock to find better jobs, leaving many areas deprived. These imbalances mirror the structural inefficiencies seen in the energy and housing sectors.

This regional imbalance can be addressed in two ways — the first being investment into other major cities by allowing them to sprawl and expand, similar to other European cities. As of now, 'bureaucratic, regulatory and cost barriers make investment in fixed capital… burdensome and long-winded'.[18] By allowing local businesses in important cities like Manchester, Oxford and Cambridge to flourish, we can exponentially increase investment in non-London cities and recover the UK economy from its current low-investment state, where we handicap ourselves by transferring more than £60 billion annually to subsidise regions beyond London and the Southeast.[19]

One of the reasons London is so successful compared to the rest of the UK is its extensive public transport network; this blueprint needs to be copied to other cities. Reliable, fast transport infrastructure allows people to access a wider range of jobs, and businesses to access a wider labour pool. Efforts have been made, most notably with the HS2 network, but its initial costs have astronomically increased, with each mile of HS2 costing more than 8 times more than each mile of France's comparable high-speed line.[20] If we pre-designate transport corridors and let private transport companies partner with local authorities to secure land, even 'a 10 percent increase in commuting speed increases the size of the labour market by 15-18 percent'.[21] This solves both the productivity and employment issues faced by the UK, fostering growth.

To rebalance our regional economies, we should move past isolated city investments and build a new growth engine that links our renowned "Golden Triangle" of Oxford, Cambridge, and London to the industrial strength of Birmingham and Manchester. While our Golden Triangle excels in research, its economic potential is weakened by restrictive planning laws and a lack of incentive to sprawl. By strategically linking these anchor cities with pre-designated transport, we can create a globally competitive mega-region that fuses research and innovation with raw resources and infrastructure.

Alongside physical infrastructure, the human infrastructure of skills and labour markets presents an equally pressing challenge. The UK faces a severe skills gap, most acutely in the sectors most central to our growth agenda. The Construction Industry Training Board estimates that around 252,000 additional construction workers will be needed between 2024 and 2028.[22] By 2035, over a third of the current construction workforce will retire, yet only 20% of the sector's workers are under 30, and fewer than half of apprentices currently complete their training.[23] Without essential investment in vocational education and apprenticeships, the government's housing targets become structurally impossible to deliver, regardless of how many planning permissions are granted. The housing crisis and the skills crisis are, in this sense, the same crisis. A better-connected mega-region linking Oxford and Cambridge to Birmingham and Manchester is only valuable if workers across those cities have the technical skills that industry demands. This requires an increase in apprenticeship completion rates, expanded construction skills hubs, and coordination between Skills England, local authorities, and major employers, which provides the substance for greater freedom in planning permissions.

Britain's growth strategy must also take full account of our greatest economic asset: services. The service sector accounts for over 80% of UK GDP and 83% of employment, having grown from 70% of output in 1990 to over 80% today.[24] Financial services, legal, consulting, technology and creative industries are where Britain genuinely leads the world — London remains the second-largest financial centre globally. Yet the same structural failures that constrain our manufacturing and construction sectors also limit services. High housing costs price workers out of city centres where service firms cluster. Overloaded transport networks limit the labour market catchment area for firms in Birmingham, Manchester, Leeds and Bristol. Office expansion is hampered by the same planning red tape that blocks housing. The result is that a sector which should be powering growth is artificially constrained. Ensuring that service firms can expand, attract talent, and access a wide regional labour pool is not a separate agenda from housing and transport reform; by solving one, we can solve both.

In the current political climate, protectionism and high tariffs seem like a good way to protect UK businesses, but they make us a less effective trade partner, particularly for our greatest strength in the form of service exports, again not allowing for long-term economic stability.

None of these structural reforms are costless, and they require a fiscal approach that goes beyond short-term stimulus. Tax cuts or quantitative easing may increase consumption temporarily and boost GDP, but they tend to decrease effective government expenditure and risk increasing inflation in the long run, which ultimately reduces productive capacity. Instead, the UK needs patient, long-term public investment coordinated alongside private capital. The National Wealth Fund (which absorbed the UK Infrastructure Bank in October 2024) has up to £27.8 billion of public capital to deploy through equity, loans and guarantees, aiming to crowd in larger volumes of private investment in clean energy, advanced manufacturing, transport, and digital infrastructure.[25] For every pound of public capital committed, the goal is to attract significantly more private investment alongside it. Channelling this patient capital into the planning, energy, transport, and skills reforms outlined previously is what transforms a set of individual policies into a proper national growth strategy.

The UK economy cannot be fixed quickly. It requires systemic overhaul of many key sectors. Our problems blocking economic growth lie in self-imposed barriers and restrictions. This means that securing affordable, reliable power, reforming planning laws, reducing our reliance on London, and connecting regional economies through transport networks are priorities. Closing the skills gap is the essential enabling condition that makes all of it possible. Financing these reforms through patient, long-term capital rather than short-term stimulus is what makes them sustainable. If an effective long term plan that takes all of these steps into account is produced, these reforms would both raise productivity and disposable incomes as well as rebalance opportunity across the country, restoring confidence in Britain's ability to grow.

Bibliography:

[1] House of Lords Library — The UK Economy in the 1960s: https://lordslibrary.parliament.uk/the-uk-economy-in-the-1960s/

[2] The Conversation — Whether it's a 'productivity puzzle' or the 'British disease': https://theconversation.com/whether-its-a-productivity-puzzle-or-the-british-disease-the-uk-economy-has-been-underperforming-for-decades-272480

[3] Economics Help — UK Post-War Economic Decline: https://www.economicshelp.org/blog/218187/economics/uk-post-war-economic-decline/

[4] Onward LTD — The Turnaround: Rebuilding Britain's Economy: https://ukonward.com/reports/the-turnaround/

[5] UK Foundations: https://ukfoundations.co

[6] Financial Times: https://on.ft.com/47ylpcv

[7] House of Commons Library — Green Belt (SN00934): https://researchbriefings.files.parliament.uk/documents/SN00934/SN00934.pdf

[8] Gov.uk — Proposed Reforms to the NPPF: https://www.gov.uk/government/consultations/proposed-reforms-to-the-national-planning-policy-framework-and-other-changes-to-the-planning-system

[9] Red Brick — Grey Belt: The Underestimated Game-Changer for Housing: https://redbrickblog.co.uk/2025/04/grey-belt/

[10] Gov.uk — Gas and Electricity Prices in the Non-Domestic Sector: https://www.gov.uk/government/statistical-data-sets/gas-and-electricity-prices-in-the-non-domestic-sector

[11] Gov.uk — International Domestic Energy Prices: https://www.gov.uk/government/statistical-data-sets/international-domestic-energy-prices

[12] EuroNews — Three Years On: How Russia's Invasion Reshaped Energy Prices: https://www.euronews.com/business/2025/02/24/three-years-on-how-russias-invasion-reshaped-energy-prices-across-europe

[13] Energy Education — Energy Density: https://energyeducation.ca/encyclopedia/Energy_density

[14] Rolls-Royce SMR — Official Site: https://www.rolls-royce-smr.com/

[15] Gov.uk — Rolls-Royce SMR Selected to Build Small Modular Nuclear Reactors: https://www.gov.uk/government/news/rolls-royce-smr-selected-to-build-small-modular-nuclear-reactors

[16] Rolls-Royce — SMR Programme Economic Benefits: https://www.rolls-royce.com/media/press-releases/2025/15-09-2025-rr-welcomes-action-from-uk-and-us-governments-to-usher-in-new-golden-age-of-nuclear-energy.aspx

[17] Britain Explained — Why London is So Different to the Rest of Britain: https://britainexplained.com/why-london-is-so-different-to-the-rest-of-britain

[18] Onward — Rebuilding Our Economy, Chapter 15: https://ukonward.com/reports/rebuilding-our-economy/#chapter-15

[19] Onward — Rebuilding Our Economy, Chapter 1: https://ukonward.com/reports/rebuilding-our-economy/#chapter-1

[20] Britain Remade — Why High Speed Rail Projects Like HS2 Cost 10 Times More in Britain than France: https://www.britainremade.co.uk/why_high_speed_rail_projects_like_hs2_cost_10_times_more_in_britain_than_france

[21] Order without Design, Alain Bertaud

[22] CITB / Lexology — Solving the UK's Construction Skills Gap: https://www.lexology.com/library/detail.aspx?g=670e63f5-f33f-4f05-9678-5f7a8af2fe3c

[23] PfP Thrive — The UK Construction Skills Shortage Report 2025: https://www.placesforpeople.co.uk/pfp-thrive/insights-tools/the-uk-construction-skills-shortage/

[24] House of Commons Library — Service Industries: Economic Indicators: https://commonslibrary.parliament.uk/research-briefings/sn02786/ and Industries in the UK: https://commonslibrary.parliament.uk/research-briefings/cbp-8353/

[25] National Wealth Fund: https://www.nationalwealthfund.org.uk