Boxnote: UK infrastructure and growth public policy
Summary
Since the Global Financial Crisis, the UK has struggled to produce the kinds of growth rates commonplace in the 1990s and early 2000s. In 2023, the Financial Times described the ‘British disease’ – the fact the UK appears to be the ‘sick man’ of the developed world. Explanations for the ‘British disease’ tend to fit into the broad buckets of political instability, regulatory uncertainty, skills shortages, and taxation. These are enormous themes which cannot be adequately explored in the length of a Boxnote. Instead, the following briefing focuses on one prevalent and much-debated issue: insufficient infrastructure investment. It explores why it is a problem, the barriers to overcoming it, and emerging policy ideas to address the issue in the long-term.
Introduction: ‘The British Disease’ – the UK’s growth problem
1. Two startling data points to illustrate the so-called ‘British disease’ leap out:
i. If the long-term GDP per capita growth trend between 1991 and 2007 had continued until 2023, Britons would be almost 30% better off than they are today.
2. Meanwhile, inequality between the different regions of the UK remains stark. London and the southeast of England are now far ahead of other regions in terms of gross value added (GVA), a measure of economic output. This is typically explained by the huge gulfs in productivity between regions. London is 26.2% more productive than the UK average, and even the difference in productivity between London and other cities is much higher in the UK than in comparable economies. For this reason, regional inequalities are growing. This is despite a highly publicised strategy deployed by the previous Conservative government to “level up” the UK.
3. Even the most optimistic growth estimates do not expect Britain to make up this lost ground anytime soon. The simple and unavoidable fact is that the UK is not as wealthy as it used to be, and is falling behind its global peers. This is the “British disease” – and it is creating myriad economic, social and political problems.
The infrastructure problem
4. The UK has suffered from weak infrastructure investment for decades, despite its position as a leading global economy.
5. According to the 2024 EY Mind the (Investment) Gap report, the UK will face an infrastructure spending shortfall of at least £700bn by 2040. Another £1tn could be added to this 2040 shortfall if the infrastructure project cost overruns of the last decade are replicated, which is a plausible scenario without action. This gap means lost economic output and structurally lower GDP.
6. The problem of low infrastructure investment disproportionately affects UK regions outside of London. Infrastructure spending per capita is over three times higher in London than in the East Midlands and Yorkshire and the Humber. Londoners also experience 2.5 times the national average on transport infrastructure spending.
7. On housing specifically, the UK has a lower housing supply than comparable European countries. The UK would need to build 3.4 million additional homes to match the EU average. France and the UK have almost identical population sizes, but France has around 7 million more homes. In much of Britain, especially London and south-east England, homes are increasingly hard to afford, with price growth outstripping that of wage growth since the mid-1990s.
8. A major underlying issue is cost of development. The UK is burdened with significantly higher construction costs than its European peers. For example, according to think tank Britain Remade, the average cost for a flat road in the UK is £8.45m per km, compared with a European average of £5.77m per km and £4.22m per km in France. The reasons behind this are explored below. Put simply, the issue is that building roads, rail, energy infrastructure and housing is more expensive for private investors and the government than it could (or should) be, and less attractive as a result.
9. Several studies point to the impact of infrastructure and housing supply on economic growth. A lack of one or both stifles labour mobility, prevents the agglomeration effects from growing cities and other centres of high economic activity, and increases wealth inequality, in turn dampening consumer spending.
10. The infrastructure debate ties into the UK net zero debate. Much of the current emphasis is on expanding the UK’s renewable energy infrastructure. Over time, the focus will shift to greening transport and the built environment. Labour’s decision to make net zero infrastructure investment a major pillar of its policy platform shows this is taking root in national politics.
Planning costs and bureaucracy
11. There is almost universal agreement among think tanks and policy influencers that the UK’s planning system is a significant barrier to home and infrastructure building, much of it relating to what many now argue is excessive environmental regulation. In simplistic terms, cutting the amount of bureaucracy and associated legal advice involved in planning would reduce time and therefore cost for bigger projects.
12. Recent – and now notorious – cases of the impact of environmental regulation have highlighted the problem:
i. The HS2 ‘bat tunnel’, which is projected to cost £100 million, to create a ‘safe flight corridor’ for bats.
ii. The planning documentation for the Lower Thames Crossing, which ran to 360,000 pages and as a process cost £297 million – more than twice as much as it cost Norway to plan, build and complete the longest road tunnel in the world.
iii. The environmental impact assessment (EIA) for Sizewell C ran to 44,290 pages and involved 2,229 written questions at the examination stage.
13. Housing shortages in the UK (above) stem largely from the postwar planning system introduced by the 1947 Town and Country Planning Act. This legislation significantly curtailed private development by giving local authorities the power to block projects, while removing financial incentives to approve them. It also introduced strict controls like green belt protections and nationalised value uplift from development permissions, severely restricting urban expansion.
14. These constraints have created a deeply skewed housing market. The lack of housing supply in economically vibrant areas prevents people, especially those on middle or lower incomes, from moving to places with better job opportunities.
15. The broader economic impact is significant. The UK's most productive cities are constrained in both population growth and business expansion due to a lack of space for homes, offices, labs, and factories. The inability to accommodate workers and scale businesses undermines national productivity and limits the country's potential to lead in emerging global industries.
Response of HM Government
16. The previous Conservative government made initial attempts to speed up planning for infrastructure projects, but this was at the tail-end of the Parliament and had limited impact. Labour made planning reform a core element of its economic strategy in the 2024 election campaign, with Sir Keir Starmer summarising the party’s approach to housing and planning policy as: “How, not if”.
17. Following the election, further details of this strategy were announced. Deputy Prime Minister and Housing Secretary Angela Rayner addressed Parliament on 30 July 2024, outlining a series of reforms which aim to tilt the planning system in favour of “builders, not blockers”.
18. As this parliament reaches the end of its first year, it is becoming increasingly clear the Labour government is staking a great deal of its mission to improve economic growth by creating new infrastructure and housebuilding. Other potential levers such as targeted tax cuts or tax simplification, de-regulation or investing in human capital are not being pursued with any noticeable rigour at the time of writing.
19. In March 2025, the government introduced the Planning and Infrastructure Bill, which aims to simplify the planning system, reduce regulatory burdens and speed up the development process.
20. The key provisions of the Bill are:
i. Reforms to nationally significant infrastructure projects (NSIPs). The Bill seeks to streamline the consenting process for NSIPs by simplifying consultation requirements and mandating regular updates to National Policy Statements. These measures are designed to reduce delays and provide greater certainty for infrastructure developments.
ii. To balance development with environmental protection, the Bill introduces Environmental Delivery Plans (EDPs). These plans allow developers to contribute to a Nature Restoration Fund in lieu of on-site environmental mitigation, aiming to reduce compliance costs and accelerate project timelines.
iii. Expand the scope of development corporations, enabling them to undertake urban extensions and develop both brownfield and greenfield sites. This change is intended to facilitate large-scale developments and urban regeneration projects.
iv. Adjustments to the compensation framework for land acquired through Compulsory Purchase Orders, with the aim to make land acquisition more affordable for public projects.
v. To address community concerns regarding new energy projects, the Bill introduces measures for households near new or significantly upgraded electricity transmission infrastructure to receive benefits, such as discounts on electricity bills.
21. To support this, the government has also launched the National Infrastructure and Service Transformation Authority (NISTA), a new body that merges the National Infrastructure Commission and the Infrastructure and Projects Authority. NISTA is tasked with overseeing and improving the delivery of large-scale public infrastructure across the UK, with a focus on long-term planning and coordination.
22. On housebuilding specifically, the government has committed to constructing 1.5 million homes in England over the next five years. This marks a return to more ambitious building targets, supported by new planning reforms and the reintroduction of mandatory housing targets.
23. The Government has also committed to creating the long-trailed “Oxford-Cambridge Arc”. The strategy, first conceived nearly a decade ago, is designed to improve infrastructure and build new towns along the stretch of south England in between the two cities. It was shelved in 2021 because of local opposition, but Chancellor Rachel Reeves has reignited the plan, arguing it could deliver £78bn to the economy by the early 2030s. However, as pointed out by L&G Chair John Kingman, “there are worrying signs the government is thinking quite small [with the corridor], when it should be thinking huge”.
24. The opposition to the Ox-Cam Arc is an example of one of the most difficult challenges to delivering new infrastructure and housing: ‘Nimby-ism’. An acronym for “Not in my back yard”, a ‘nimby’ is shorthand for someone who opposes a development in their neighbourhood or local area because of the disruption of construction and the likelihood of making an area busier and/or more densely populated. Nimbys tend to dismiss the economic growth arguments for new building as a result. Virtually all political parties are, or have been, highly sensitive to nimbyism. While it may make sense politically at a local level to block developments, in aggregate stalling developments does not help economic growth at a local or national level. It requires political will and a tolerance for political risk to override nimby campaigns, something previous governments have shied away from. The calculation is whether the economic growth uplifts from building projects outweigh local (and sometimes national) controversy.
The wider policy debate
25. Given the scale of the challenges and their perceived urgency, the policy debate on this subject is lively. Numerous think tanks, campaign groups, and individual commentators have weighed in on the debate. It is technical and detailed in places, but a few key themes are evident, which are summarised as follows:
26. The planning system makes building too slow, too risky and too easy for local authorities and/or campaign groups to block. The Centre for Cities has argued this is because planning is largely ‘discretionary’ or ‘judgement-based’ on a case-by-case basis, rather than ‘rule-based’. It suggests a remedy is to introduce a national zoning code with local designations, so any building proposals meeting the published rules get automatic permission (‘by right’).
27. Another set of ideas relates to altering incentives for people living near proposed developments in such a way that they actively welcome development. One such idea is ‘street votes’: residents of a given street or neighbourhood can vote to adopt a simple local design code that lets them add things like an extra floor or a small garden flat, bringing gentle densification. Another idea, specifically for large, strategic sites in urban areas, is publicly backed development corporations, which make land viable for development, sell it to developers, then plough the proceeds into local roads, parks and affordable home. A third idea is releasing appropriate ‘green-belt’ development – namely small, well-connected plots nearest train stations so growth happens where services and infrastructure already exist.
28. On infrastructure projects specifically, the Centre for Policy Studies recommended a series of legal tweaks to speed-up planning consent. First, existing guidance should be streamlined to arrest the continual escalation of documentary requirements placed on applicants. Secondly, a genuine “one-stop shop” should be instituted by empowering the Secretary of State to grant all associated consents. Thirdly, the scope for judicial review ought to be curtailed through primary legislation that precisely delineates “legitimate expectations” and prescribes the extent of consultation obligations. Finally, determinations on Nationally Significant Infrastructure Projects should be subject to a strict twelve-month deadline, coupled with ministerial discretion to further condense timetables. Collectively, the Centre for Policy Studies argues these measures would diminish strategic obstruction, accelerate upgrades to the energy grid and rail network, and lower the cost of energy and transport.
29. A recent Labour Together paper uses Heathrow’s long stalled third runway as a litmus test for fixing Britain’s planning paralysis. It contends that a bespoke “Heathrow Expansion Bill” passed swiftly through Parliament could reduce planning processes, cap the scope for judicial review, and let construction begin as early as 2026. By taking this fast-track route the authors claim government would demonstrate that the state can still act decisively, setting a template for other projects such as electricity transmission lines, reservoirs and transport infrastructure.
30. On housing, and specifically flats, the Centre for Cities has argued for a change in building regulations to incentivise the building of more units. A recent paper has found five relatively recent regulations (minimum flat sizes, of 37m², ‘dual aspect’, no air conditioning, dual staircases for buildings, and a flat 10% biodiversity net gain levy) have stalled many flat block schemes. The paper urges cutting the one-person space standard to 25m², scrapping the dual-aspect rule or allowing air conditioning, letting single-stair blocks rise to at least 30m and relaxing biodiversity rules for brownfield sites.
31. A prevailing culture of so-called “everythingism” – defined to bolt a wish-list of side-objectives onto any policy – has been identified by think tank Re:State. Examples cited include the fact that planning rules oblige housebuilders to satisfy sports bodies or green quotas, and HS2’s £120m “bat tunnel” shows how costs balloon while aims still fail – so the original goal disappears in red tape. This culture of piling on requirements arises because officials seek legitimacy by stitching together internal coalitions instead of relying on clear democratic mandates, which multiplies veto points, spreads responsibility and leaves projects expensive, slow and mistrusted. Re:State urges a turn to “somethingism”: state one primary aim, tackle other priorities with separate, accountable tools (e.g., give Natural England a fixed budget for bat protection) and use the fiscal headroom higher growth to fund those extras rather than cramming them into every project.
Financing: the UK Infrastructure Bank
32. Beyond a supportive planning environment, for infrastructure to be built, significant capital is required. Brexit led to the UK losing its access to the European Infrastructure Bank, and so the UK Infrastructure Bank (UKIB) was created in June 2021 in response as Britain’s development bank.
33. There was criticism of the way the UKIB was set up, which has endured. Labour said UKIB was much smaller than rival development banks, including the KfW in Germany (KfW provided funds totalling EUR 11.3bn in 2023 alone and employs over 8,000 staff). Labour also noted that the Office for Budget Responsibility did not expect UKIB’s work to increase economic growth.
34. In October 2024, it was announced that the UKIB would become the National Wealth Fund (NWF). This meant an expansion of the bank’s remit beyond infrastructure in support of the government’s industrial strategy. With additional financial capacity and an enhanced risk budget, the NWF was initially capitalised with £27.8bn “to catalyse private investment in the market”. At least £5.8bn of this capital will focus on five sectors from the Labour manifesto: green hydrogen, carbon capture, ports, gigafactories and green steel.
35. The announcement of the NWF has generated cautious optimism. As well as the significant influx of available capital, there are hopes that the NWF will also contribute to greater economic stability and infrastructure improvements, with investments being guided by an expert-led taskforce. However, it is still very much early days for this scheme - whether the NWF can provide the boost that SMEs are hoping for remains to be seen.
Devolution
36. The relative powers of local and national government across the UK’s regions have been a source of near constant political tension for decades. The extent to which the repeated rounds of devolution to nations, cities and regions since the turn of the century has been a success in economic terms is up for debate.
37. Nevertheless, devolution is continuing at growing pace under the new Labour government. The government’s recent English Devolution White Paper argues that further devolution is fundamental to achieving growth and allowing “everyone everywhere to realise their full potential”. The government aims to achieve universal coverage in England of Strategic Authorities – whereby several councils will work together, covering areas that people recognise and work in.
38. Think tank Public First has suggested more attention needs to be paid to how devolution deals are tied to encouraging and delivery regional economic growth. Public First argues greater emphasis is needed on how local leaders use devolved power to secure new investment.
39. Current devolution settlements include funding to help stimulate economic growth, with progress reviewed by the Treasury over time. However, the goals that local areas are working towards or the amount of private investment they are seeking to raise can remain opaque for investors seeking to understand what devolution means in different areas. Public First recommend that devolution deals be contingent on crowding in minimum levels of private sector funding. This would help the process by sending stronger signals to financial services firms and other investors, as well as local industry, about the role devolved government can play in each area.
The Elizabeth Line: A recent success story
40. The recent Elizabeth Line project, formerly known as Crossrail, shows that infrastructure success stories are very much still possible in the UK. Despite ultimately running £4bn over budget and opening four years later than planned, the project has already had an impressive impact across several metrics, in many cases far surpassing initial predictions.
41. As of January 2025, the Elizabeth Line has carried more than 500 million passengers at an average of over three million per week, well above the two million per week originally forecast. In late 2022, it was responsible for one-sixth of all journeys across Britain’s transport network.
42. Early economic results look extremely positive too. The route brings over 1.5 million more people within a 45-minute commute of London’s key business districts: the West End, City and Docklands. Analysis from IWG revealed that last year there had been a 23% increase in the number of visits to offices close to the nine Elizabeth Line stops since its launch.
43. According to the London Property Alliance, the line had already sparked the opening of 171 hotels, 2,666 new food and beverage outlets and 12 museums, in addition to almost 200,000 new office jobs.
44. Crucially, Crossrail was paid for through an innovative funding deal. BusinessLDN helped to broker a collaborative package between the London government, national government and the capital’s business community, under which firms were willing to pay up to get shovels in the ground. Business leaders embraced the economic benefits that better connectivity and increased public transport capacity would bring – and agreed to be taxed more to make it happen. As a result, roughly 40% of the cost was covered by London’s businesses, on top of existing tax contributions, with the remainder coming from London government, Network Rail and national government funds.
45. Crossrail is a great example of the potential for innovative funding models to deliver crucial investment in the next generation of infrastructure projects. It showed the importance of giving local leaders the fiscal freedom to prioritise investment where it is most needed, and the need to focus on potential benefits of infrastructure projects, instead of just the costs.
Conclusion: Getting Britain building again
46. The extent of the UK’s infrastructure challenge cannot be understated. It is now widely accepted that Britain has undermined its own growth prospects by failing to build quality infrastructure and housing over the last few decades.
47. There is evidence of some green shoots of serious political action to solve this problem, but only a determined and sustained strategy will begin to solve what is an enormous issue for the country.
48. The macro political environment undoubtedly sets the tone for investment of all kinds, especially expensive long-term infrastructure projects. Ask any business leader what they want from the government, and they will respond: “stability and clarity”. To deliver this, the government must focus on decisive execution, clear timelines, transparent goals and a positive attitude towards the long-term benefits of effective infrastructure investment.
49. A repeated positive theme from policy analysts is British politicians and officials are perfectly aware of what the issues are – and it is not considered technically challenging to address the problems raised in this Boxnote. In other words, there is optimism that Britain could become considerably more prosperous in a short period of time without having to undertake a dramatic or seriously destablising economic or political shift.
50. As one policy expert and former civil servant put it recently, “the fact that Britain does not build is a choice, albeit an unconscious one”. The question for the current – and future – governments is how committed it is prepared to be in unpicking the web of legislative, bureaucratic and regulatory barriers to building new homes and infrastructure. If no government can muster the relentless focus required to do this, Britain’s economy is almost guaranteed to remain in the doldrums.