Growth Commission Response to King’s Speech

The Growth Commission has issued the following response to the King’s Speech:

Wealth Creation Focus

The continued emphasis on wealth creation from the Government is commendable, but we now need to clarify what wealth creation actually entails and how it will be achieved. Key elements from the speech include:

Planning and Infrastructure Bill Summary

This bill aims to expedite and streamline the planning process to build more homes and accelerate major infrastructure projects in line with industrial, energy, and transport strategies. It includes:

• Streamlining the delivery process for critical infrastructure, including accelerating upgrades to the national grid and boosting renewable energy.
• Simplifying the consenting process for major infrastructure projects and enabling new and improved National Policy Statements to be established, with a review process every five years.
• Reforming compulsory purchase compensation rules to ensure fair but not excessive compensation to landowners, unlocking more sites for development.
• Improving local planning decision-making by modernizing planning committees.
• Increasing local planning authorities’ capacity to improve performance and decision-making.
• Using development to fund nature recovery, with the government working with nature delivery organizations, stakeholders, and the sector over the summer to determine the best way forward.

GC Commentary

The measures on planning reform align with the Growth Commission’s recommendations, highlighting the impact of planning reform on UK GDP per capita. In our budgets we outlined that if the Government implemented a range of regulatory and policy changes such as limiting time for planning permissions, i.e. if you don’t use it you lose it, sharing the gains of planning uplift resulting from rezoning agricultural land to housing, a zone based planning with a presumption that applications in line with the zoning will be accepted, more expenditure on social housing and measures to cut time to approve large nationally important transport and energy projects by 75%, there was the opportunity to create a 6.4% per capita growth by 2044 equating to around £1,063 per person.

If the government enacts these measures, the impact on GDP per capita could be significant. However, opposition from some members who adopt a NIMBY stance is concerning. Successful implementation could improve GDP per capita by 28% over the next twenty years.

Great British Energy Bill

This bill will establish Great British Energy, a publicly owned clean energy production company with £8.3 billion in funding over the Parliament. Its primary roles will include:

• Development, ownership, and operation of clean energy assets in partnership with the private sector.
• Facilitation and encouragement of clean energy production, distribution, storage, and supply.

If subsidies are provided through the National Wealth Fund (NWF), taxpayers will bear the cost of anti-competitive decisions, which could negatively impact economic growth There is also the question of the cost of any costly delays and cost overruns and who will be responsible for resourcing this. Further funding from taxpayers increases the risk of increasing Government debt or taxes for the UK public.

National Wealth Fund (NWF) Bill

This bill will establish the NWF on a permanent statutory basis, investing in industrial and clean energy projects across the UK, aligning with the UK Infrastructure Bank (UKIB) and the British Business Bank. Key points include:

• The NWF will invest in industrial and clean energy projects across the UK, aligning the work of the UK Infrastructure Bank (UKIB) and the British Business Bank.
• Investments will initially be made through the UKIB, with an additional £7.3 billion provided.
• The NWF will have a target of generating £3 of private sector investment for every £1 it invests.
• The NWF will work with local partners, including mayors, to bring together a finance and investment offer that supports the needs of local areas.

GC Commentary

The measures on planning reform accord with the Growth Commission recommendations and we have already noted that impact of planning reform on UK GDP per capita. If HMG is able to enact these, alongside Growth Commission recommendations on energy competition, then the impact on GDP per capita is significant. We are concerned that some members of the opposition have adopted a “NIMBY” response to these planning changes as mentioned above. We also mention that if the Government implements measures that will increase competition in the energy sector, which we have outlined in our budget as: continuing to implement the proposals already made by the CMA for increased competition in energy supply, removing net zero levies, approving nuclear power stations and ending bans on fracking and on North sea development (albeit unlikely as Government currently seeks to ban on North Sea Oil licenses) improving competition in the energy market, making interconnection rules more competitive, GDP per capita could be improved by 2.2% over the next twenty years.

Great British Railways

The proposal for Great British Railways (GBR) is similar to previous administration proposals. The Growth Commission recommended it be replaced by the Competition and Markets Authority’s 2015 recommendations. Previous Growth Commission budgets forewarned on the economic impact of continuing with Great British Railways and suggested a better alternative of on track competition to reduce prices. Failure to implement infrastructure proposals from our Growth Budgets could result in a net loss of 1.4% GDP per capita, which equates to £646 per person over the next twenty years.

Labour Reforms

The Growth Commission has noted the damaging impact of increasing the minimum wage to 2/3 median income. As set out in our Growth Budget we detailed that if there was not an increase in labour market flexibitlity and lowering the statutory notice period and severance pay for redundancy dismissals, Improving the labour force participation rate by making welfare encourage people to work, Eliminating restrictions on overtime work by deleting the EU Working Time Directive from the UK statute book and adjusting the minimum wage level, were not to happen, this would cost the UK economy 2.7% in GDP per capita growth by 2044.

Other suggested reforms will also negatively impact UK GDP per capita. Our model shows that labor market flexibility significantly impacts the competition pillar, accounting for 25% of it. The proposed changes would reduce UK scores by one point, leading to a 3.5% reduction in GDP per capita over five years, or 0.7% year-on-year.

Conclusion

If realized, the King’s Speech recommendations would leave half the potential growth per capita projected in Growth Commission Budgets [Link] unachieved. Planning reforms are crucial to offset GDP per capita losses from creating state-owned enterprises in rail and energy, as well as labor reforms. Success depends on overcoming opposition to planning reform, particularly from environmental movement supporters. Failure in this area will magnify the losses from other policies.