General election: Want to boost UK growth? Here’s what top economists would do
With a general election set for July 4th, both parties have promised to put growth at the heart of their election pitch.
Growth was one of Rishi Sunak’s infamous five pledges while Keir Starmer has previously said growth must be Labour’s “obsession”.
So what should the next Prime Minister do to boost growth? Around 35 per cent of 17 senior economists polled by CityAM said that reforming the UK’s onerous planning regime should be the next government’s top priority when it comes to boosting growth.
The planning regime has received a lot of flack in recent years for preventing housebuilding and obstructing crucial infrastructure investment.
In its annual health-check on the UK economy, released yesterday, the International Monetary Fund (IMF) said the UK’s planning regime “is overly stringent and unpredictable”.
The Washington-based body said the planning regime hinders construction of new houses, stymies major infrastructure projects and raises investment costs for businesses.
A report published last year suggests that the UK has a backlog of 4.3m homes missing from the national housing market.
The planning regime is one of the main obstacles to increased housebuilding. The UK’s major cities are constrained both vertically and horizontally, with green belts preventing outward expansion and height restrictions stopping taller flats or office blocks in town centres.
Planning decisions are also made by local authorities rather than being rule-based, making the decisions unpredictable. In other countries, the planning system uses a rules-based zoning system where projects are approved if they meet certain criteria.
Planning restrictions also put up the cost of major infrastructure projects. The UK struggles with the highest infrastructure costs anywhere in Europe.
Labour has promised to put reform of the planning regime front and centre of it economic programme, committing to build 1.5m new homes over the course of the next parliament while also fast-tracking major infrastructure projects.
Second on the list of priorities for the panel of economists, garnering 30 per cent of the vote, was addressing the UK’s alarming rise in economic inactivity.
Figures out last week showed that the inactivity rate rose to 22.1 per cent in the first quarter of the year, up over 800,000 compared to pre-pandemic. This is largely driven by people out of the workforce due to long-term sickness.
The government has tried to tackle rising inactivity by tightening criteria on benefits and expanding access to mental health provision.
“Rising economic inactivity is a critical concern because it limits our growth potential and adds to the risk of renewed inflation as businesses struggle to find the staff they need,” Suren Thiru, economics director at the Institute of Chartered Accountants of England and Wales.
“Addressing this should be a government priority, including extending the commitment to childcare measures announced at budget 2023,” Thiru continued.