Britain’s borrowing costs have surged in recent months. Although much of this is driven by global factors, the UK’s performance has been particularly bad. One way to get borrowing costs down is to improve expectations about future UK growth: if lenders expect us to grow more quickly, they will be less concerned about our ability to repay our debts, and willing to lend to us more cheaply.
The Chancellor, Rachel Reeves, is reported to be preparing to back airport expansions at Heathrow, Gatwick and Luton, approve the Lower Thames Crossing, and use a Special Development Order to approve a Universal Studios theme park. The government has also announced that it will allow developers to offset environmental impacts by paying into a national fund instead of, say, building a £100 million tunnel to protect some bats from speeding trains. This is precisely what one of us recently said they should do to fix this problem.
These are promising moves and, if they happen, they show real seriousness about the situation Britain is in. But they can only be the start of a much bigger package of reforms.
One of the big problems with many ‘wishlists for growth’ is that they either (a) assume away political constraints, and propose ideas that would be politically very costly, without really explaining how a government is meant to be able to do them – or (b) they take political constraints as being so overwhelming that they rule out anything that is remotely controversial, dismissing moves that involve political battles that are winnable, with acceptable costs for their substantial benefits.
Labour is in an interesting position politically: its massive majority means it can probably pass any legislation it wants, but its position in the polls means that it has to be very careful about how voters view what it is doing. Since it likely needs to deliver economic growth for political reasons, we suggest that it should focus on politically low cost win/wins – involving small compromises to share some of the benefits with the people who would otherwise oppose them the most – and fights worth having – ones that take on small political costs, against relatively narrow interest groups, in exchange for large economic rewards that the electorate will eventually reward them for.
Win/wins
Introduce 100% business rates retention for strategic infrastructure
Most business rates – the property tax paid by businesses – go into a central pot in Whitehall and are redistributed outwards. This means that local authorities get little benefit from allowing valuable new developments to be built in their areas. Allowing councils to retain the full business rates bills paid by new infrastructure of specific kinds – we suggest prisons, data centres, and energy infrastructure like pylons – would give them a direct financial benefit from allowing them to be built in their areas. This could make cash-strapped local authorities significantly more willing to approve and fight for these projects: the business rates bill of a large data centre on the scale of Stockley Park would cover the entire adult social care overspend of a council like Havering.1 They should get these rates permanently, and this should not apply to projects that have already been approved or completed. (More.)
Pass the Street Votes secondary legislation
These allow residents of low-density streets to create a plan allowing the street to evolve into “gentle density”-style terraces or mansion blocks, potentially adding hundreds of thousands of new homes to London and other unaffordable towns and cities in Britain. Such a plan could create enormous value for the residents of the street – in many cases over £500,000 per plot. Analogous schemes in other countries have increased housing output by 30%-50%.
The primary legislation for this was passed last year, and the secondary legislation is reportedly all but finished. It just needs one final push from the Secretary of State to be put into effect. This may well be the easiest and highest value item on this whole list. (More.)
Put residents in control of renewal of their housing estates
This allows the tenants of housing estates (most of whom are often social tenants) to vote on redeveloping their estates more densely. These redevelopments add thousands of new homes to centrally-located housing estates, with most being privately-sold or -rented. The revenues from selling or renting the new homes are partially used to pay for new and better homes for the existing tenants.
Many of the housing that would be replaced was built quickly and cheaply by local councils, and need replacing for the sake of safety and basic tenant welfare. But we could use regeneration to make them more energy efficient too. If every council house was replaced by a new home built to the highest energy efficiency standards, it would cut London’s annual carbon footprint by nearly 1 million tonnes – equivalent to taking almost half a million cars off the road. The average billpayer would save almost £800 a year on their gas and electric bills.
So far thirty such ballots have been held, and all have been passed by tenants, often by astonishing margins: one project near Canary Wharf would add 1,252 homes, including an extra 116 properties let at social rents, and was approved by 93% of the vote on a 91% turnout of residents.
Right now, these ballots still face the problem of local authority planning committees blocking them even when residents enthusiastically support them. For example, the aforementioned project was initially blocked by Tower Hamlets council, before being overturned by London Mayor Sadiq Khan. To minimise this risk, the government should set out a clear expectation of planning permission being granted (at Ministerial level if necessary), so long as the projects comply with simple rules it sets out governing the impact these projects may have on neighbouring areas, and as long as they have been endorsed by a majority of residents. Residents should also be able to trigger ballots themselves that would oblige their housing association to look for developers who might be interested in renewing their estates. (More.)
Fights worth having
Clear the infrastructure approval backlog
Since Labour took office six months ago, its ministers have failed to approve major infrastructure projects, delaying development by a collective 1,093 days. These are:
The Lower Thames Crossing,
The Luton Airport expansion,
Hinkley National Rail Freight Interchange,
West Burton Solar Farm,
North Lincolnshire Green Energy Park,
Cambridge Waste Water Treatment Plant.
This list does not include the Aquind Interconnector, a massive power cable to France that would allow us to sell off excess wind power when the wind is blowing and buy French nuclear power when it isn’t. This has been awaiting a decision for almost a year and a half since the previous government’s refusal of permission was overturned by the High Court, and is now being reviewed by the Ministry of Defence.
Ministerial delays should not be seen as a normal part of the planning process. In Labour’s first week in office, Ed Miliband swiftly approved three solar projects delayed by the last government. The lesson is clear – when the political will is there decisions can be made on time. We’re hopeful about reports that the Chancellor plans to endorse some of these – there should be no further delays and approval should be granted at the earliest possible opportunity. (Incidentally, while there are good questions to be asked about how much public money should go to these projects – if at all – the planning system is not the place for them.)
Make nuclear faster and cheaper
Britain’s industrial electricity costs are the highest in the world, and this is making our deindustrialisation much worse than it needs to be. Our chemicals industry has contracted by 37% in the last three years. One of the underlying causes of the British industry’s eye-watering electricity bills is our failure to build new nuclear power stations as we closed our coal and other fossil fuel power plants. Even more importantly, we face a narrow window of opportunity for the UK to build the infrastructure needed to host some of the world’s AI infrastructure, and that requires gigantic amounts of constant, dependable electricity that only nuclear power (or fossil fuels) can provide.
Britain’s one nuclear project under construction, at Hinkley Point C, is set to be the world's most expensive. Sizewell C, the next in the pipeline, will be cheaper but still would be more expensive than any project ever built outside Britain. It doesn’t have to be this way. Nuclear used to be cost-competitive with coal, but excessive regulations based on misinformed fears around radiation have massively pushed up costs.
To cut costs and speed up approvals for new nuclear reactors, the Government should begin with five things:
First, it should speed up approvals by removing the redundant ‘Regulatory Justification’ requirement, which requires that every single new reactor design has to independently prove that its benefits outweigh its costs. This creates enormous legal costs and delays for new plants – it can take over two years for a decision to be made – and duplicates the already-onerous reviews done by the Generic Design Assessment, environmental permitting, planning system, and the Nuclear Site Licensing process. (All of these should be improved as well, but Regulatory Justification could be gotten rid of tomorrow.)
Second, it should automatically approve reactor and plant designs that have been classed as safe by regulators in other OECD countries. This would create the prospect of nuclear reactors that are safely in operation in places like South Korea, built for a sixth of the price per MW of our own, being built here. And once a design has been approved, that should be it: a regulator should not be able to require further tweaks unless it can prove that there is a catastrophic risk it has missed. This should reduce the endless tweaking and tinkering that currently goes on that create delays and costs for trivial ‘benefits’.
Third, it should be possible to have SMRs on a wider set of sites such as former industrial or coal mine sites. They should not be limited to particular locations, and should allow for developers showing that they can be operated safely and suitably on any site.
Fourth, it should submit existing safety regulations to cost-benefit analysis, and scrap anything whose estimated cost outweighs its benefits. Bafflingly, this has never happened: there has never been an attempt to estimate whether the regulations and rules we impose on nuclear power stations actually generate more benefits for society than the costs they create. The only constraint is a rule of thumb that safety regulations whose costs can be shown to outweigh their benefits by a factor of ten to one are ‘grossly disproportionate’.
Fifth, it should bring the Office for Nuclear Regulation under the direct supervision of HM Treasury or No 10 Downing Street, with its head reporting directly to the Chancellor or the Prime Minister’s office, not to civil servants. Under the status quo, the regulator reports to the Department for Works and Pensions, which is probably not prioritising rapid approvals and technological progress as much as we want it to. It should be given a new mandate to focus on speed and certainty in its approvals, while maintaining a specified level of safety, not a mandate to increase safety to ever-higher levels. Its performance should be judged by the number, cost and speed of delivery of new nuclear power plants in Britain.
These proposals are only a start: we will need to do much more to make it inexpensive and quick-to-build nuclear in Britain. But they are a start. (More.)
Allow airports to auction off landing slots created by new runways
The government is reported to be planning to approve a major expansion of airport capacity including a proper second runway (the existing one can only be used in emergencies) at Gatwick and a third runway at Heathrow. It is important that the right to use this new capacity is auctioned off, not given away to airlines for free as is the current plan. This is for three reasons:
The right to take off and land at Heathrow once a week is worth tens of millions of pounds. This scarce resource should go to the most high-value uses, for which there is greatest passenger demand. This will enable greater competition on the most high-demand routes, and ensure that the extra flights that run will be most highly-utilised by passengers, minimising their CO2 emissions. British Airways has 52% of all landing slots at Heathrow, and the airline with the second-most landing slots, Virgin Atlantic, has only 4%; slot auctions may allow competitor airlines to grow and force BA to improve its offering and/or lower its prices.
The runway expansion should be self-financing. Giving away the landing slots for free (or charging a flat rate for them) hands over what is potentially a highly valuable asset to airlines for less than it is worth. Only an auction can reveal how much the slots are really worth, and may deliver far more returns than expected. The 3G spectrum auctions raised ten times more than was anticipated.
Heathrow must have a strong incentive both to keep costs down (which it will if it has to pay for the project) and to maximise the value of the project (which it will if it can retain most of the value created). Anything else risks the project repeating the mistakes of HS2, where costs have overrun gigantically because the body delivering the project is not on the hook for the losses it makes, and so has very little incentive not to let them rise and rise.
Incumbent airlines will kick up a fuss at having to pay for something they’ve been getting for free, but their main arguments – that it’s too complicated and would harm smaller airlines – don’t stand up to scrutiny. Small airlines barely get a look in under the status quo where new entrants can only gain slots by buying them on the secondary market (e.g. from their incumbent competitors) or as part of a reserved allocation when new slots become available.
Naturally, there will be some concerns about the climate effects of expanding runway capacity. But many of these flights will pay a carbon price for their emissions. Another good way to address this would be for the government to collect some of the funds raised by the auction and spend them on R&D for technologies that would reduce the CO2 emissions of air travel worldwide. One option here is carbon removal, which, if costs can be brought down enough, would be a way to fully offset the CO2 emissions from air travel (and other industries where fossil fuels will not easily be replaced). The advantage of this approach is that any technological improvements we can contribute towards can be applied to emissions worldwide, even if other countries are less realistic than Britain about the need to avert climate change. (More.)
Roll back anti-development housing regulations
Because the planning system is such a significant barrier to development, we’ve become used to thinking of it as the only thing stopping us from building the homes we need. It’s not.
We have a whole system of other rules that impose huge costs on new housing developments that can end up making some developments unviable, some smaller than they would be otherwise, and some worse quality because so much of the cost has to go on compliance. Even if you get past the planning system, you face these regulations.
New ‘second staircase’ rules require new buildings over 18 meters tall – about six storeys – to have at least two staircases. Already some developments have been halted as a result, while others have had to undergo drastic redesigns – leading to fewer homes built, because the second staircase takes up so much more of the building’s floor area. The Government’s own impact assessment found the rules are grossly disproportionate, with the costs being 294 times greater than the benefits. These are made worse by other rules, like the London Plan’s ‘dual aspect’ regulation, which requires that new flats have windows that face in more than one direction, which rules out the most common floor plan used in places that already have Second Staircase rules.
Other building regulations – the rules that dictate the essential things that new buildings must have – have gone way beyond their original intent as providing basic safety and essentials, like grounded electrical wiring and flushing toilets. Now, the guidance has been expanded to mandate all sorts of other policy goals the government has, as well as including wildly excessive new safety rules. Rich developers can sometimes pay hugely expensive consultants to bypass the guidance; but many more marginal projects fail at this stage. Rules to stop people from falling out of windows now drive developers to raise windowsills to 1.1 meters above the floor, which produces small, squat windows that people cannot look out of when they are sitting down; sash windows have been de facto prohibited in the name of ventilation, even though these are extremely effective at ventilating; and limits on ‘glazing ratios’ – the ratio between floor space and window coverage – have been imposed to prevent overheating on sunny days, in the name of reducing air conditioning use. Rules like these now abound in the building regulations, which should be simplified and restored to their original purpose of providing basic levels of safety and customer assurance.
Biodiversity Net Gain rules, introduced last year, require new developments with 10 or more homes to increase the biodiversity of an area by 10%. The policy has been a mess in practice, pushing up the cost of building and creating mountains of unnecessary paperwork since, unsurprisingly, the concept of “10% more biodiversity” is nebulous. It’s also just not the case that we should want every new development to increase biodiversity: more housing, particularly in the places where improving biodiversity is hardest (e.g. within inner cities) is a good thing and should go ahead even if it won’t increase biodiversity. At the very least, the ability to discharge your BNG obligation by buying ‘credits’ for schemes delivered off-site should become the norm rather than the ‘last resort’ it currently is.
Unachievably high ‘affordable housing’ mandates. While housing being affordable as a goal is incredibly important, and subsidised housing as a means may be desirable, the current system puts the costs of building those subsidised homes onto new, private sector housing developments, which undermines its own aims by making new private sector housing more expensive to build. The affordable housing requirement is now as high as 40% in many cases – that is, 40% of a new development’s homes have to be given away at below-market rates – and the government says it wants a 50% mandate in some of its New Towns. Sometimes these mandates mean that some developments do not happen at all – so no affordable or private sector housing gets built. Even when developments do go ahead, affordable housing mandates mean fewer homes overall get built. Study after study has found that new homes at the top of the market spark moving chains that eventually free up space at the cheaper end of the market. 40% and 50% mandates are far too high, and counterproductive for the goal of making good quality housing available to all Britons.
All of these rules sound nice, meaning that getting rid of them will be politically painful. They are basically ‘landmines’ left by the previous government, even if they were not intended as such. But here Labour’s political fortunes and the country’s actual needs are identical: we likely cannot build the 1.5 million homes Labour has promised during this Parliament without repealing or neutering them. (More.)
Use Special Development Orders to revitalise Britain’s cities
The Secretary of State for Housing has a little-known, little-used power to issue Special Development Orders that grant permission for certain kinds of buildings in specified areas. These can cut through our existing regulations, like the Town and Country Planning Act, like a hot knife through butter, and could be used in targeted ways to upzone parts of our cities and their surrounding areas. In and around London, for example, we could issue Special Development Orders to allow building up to eight stories within fifteen minutes’ walk of a tube or railway station around London (subject to a design code), to establish the Cambridge New Town and extend other cities like York (again, with design codes), and to densify the cores of cities like Birmingham, where decades of postwar neglect have left parts of those cities derelict and underdeveloped.
Intriguingly, the government is reported to be planning to use a Special Development Order to approve the Universal Studios theme park, which may be testing the waters for broader uses like these – but it should be preparing now to use these powers to their full potential. (More.)
Stop statutory consultees from gumming up the planning system
Developers seeking planning permission are required to consult numerous expert bodies such as the Environment Agency and Historic England, known as Statutory Consultees. The logic is that this could preempt problems that would otherwise cause delays at the eleventh hour.
The problem is that we’ve massively expanded the list of statutory consultees and what we ask of them, which has been compounded by many lacking the resources to respond to every request quickly. The result? Major developments are delayed. In one case, a plan to convert an office block beside a cricket club into apartments has been delayed – because the developer’s risk assessment of the speed of the club’s cricket balls was challenged by Sport England for not being “produced by a qualified consultant.”
To fix this, three things need to happen. One, there needs to be a complete and total shutdown of the creation of new Statutory Consultees. Two, the number of Statutory Consultees should be cut back – Sport England is an obvious candidate for removal. Third, the government should legislate to create a rule of positive silence: a failure of a Statutory Consultee to respond to a request within 21 days should count as consent being given. (More.)
Protect infrastructure projects from spurious legal challenges
The right to challenge the government in court, especially on compulsory purchase orders to protect your property from expropriation, is an important one. But that right must be balanced against the need to prevent people using bogus legal challenges to tie up projects in legal red tape. A number of major road projects, including the £1bn A428 Black Cat to Caxton Gibbet, have faced year-long delays because of unsuccessful and spurious legal challenges. National Highways reports that these legal challenges add between £66 million and £121 million per scheme it undertakes.
One issue is that we give litigants multiple bites at the cherry. They get two opportunities to bring their case to the High Court and another to take it to the Court of Appeal. This is grossly disproportionate and, as the independent Banner Review into inappropriate legal challenges found, unnecessary for justice to be done. And the problems here are compounded by the fact that the Aarhus Convention, to which the UK is a signatory, protects failed litigants from being counter-sued for legal costs. The forthcoming Planning and Infrastructure Bill is an opportunity to change the law so people suing major infrastructure projects only get one bite – allowing us to get spades in the ground faster. (More.)
Streamline copyright for AI development
AI models like ChatGPT and Gemini are developed using massive data sets, and further progress will likely require even more. Legal uncertainty around how and what data can be used to train new AI models threatens to make the UK a deeply unattractive place to build an AI business. This applies as much to smaller sectoral players that we should be trying to foster – in legal services or medicine, for example – as it does to the frontier AI labs like Deepmind and Anthropic.
For over a decade, the UK has exempted non-commercial (e.g. academic) text-and-data mining from copyright so long as the data was accessed legally (e.g. if you train an AI used for non-commercial purposes on Disney Plus, you still need to pay for your subscription). But there is no such exemption for commercial uses, so for-profit AI startups have to obtain licenses from the owners of copyrighted material to train their models on that material.
This rule creates massive ‘transaction costs’ for AI companies. It is not actually the cost of the license that is the problem, but the time spent bargaining and transacting with the hundreds of thousands of different rightsholders. The time and resources put into this are deadweight losses that benefit nobody (though obviously rightsholders prefer this wasteful system to one where they don’t get paid).
The best short-term solution to this is the one proposed in Matt Clifford’s AI Opportunities Action Plan: allow training without a license unless the rightsholder explicitly requires one. This is the EU’s approach, and while we think we should aspire to be better than the EU on tech regulation, it’s a lot better than the status quo. Instead of announcing yet another consultation, as the government has done, it should adopt Clifford’s proposals immediately and, in the medium-term, aim to set up an API standard for contract terms that reduces transaction costs between AI companies and rightsholders, so dealings between them can be fast and inexpensive. (More.)
To be clear, there are many other things we think the government should do to get growth that we haven’t listed here, because we think they’re politically off the cards for this government right now. What we list here are policies we think are just about within the political window of action for this particular government, or sufficiently close to it that it is worth trying to pull it there.
Britain urgently needs a credible plan to get economic growth. This isn’t “just” about people’s living standards or the quality of public services anymore: British government borrowing costs have been rising this year as financial markets have become increasingly pessimistic about the British economy’s prospects (and hence the government’s ability to repay its debts).
Though, of course, we can’t fix this overnight, markets are forward looking. If the government can make a clear and credible commitment to a genuinely pro-growth plan it could rapidly improve the UK’s cost of borrowing, as markets change their expectations of the future of UK growth. And once the policies come into effect, the growth uplift could change the government’s – and the country’s – fortunes for the better.
Further Reading:
Foundations: Why Britain has stagnated – Sam Bowman, Samuel Hughes, and Ben Southwood
Back to what we’re good at: A plan to get Britain building again – Britain Remade
An earlier version of this said the entire overspend of an average district council, which was a transposition error (Havering’s social care overspend is about the same as the average district council’s entire overspend). Sorry for the error.