Can we make the economy grow faster?
During the Thatcher years Britain undertook a whole series of painful economic reforms which, on balance, worked.
In the 15 years from 1994-2009 Britain’s productivity growth was the fastest of any G7 country.
But Thatcherism left a lot undone – and also created some new problems along the way. That’s why the reforms Britain needs now are not the same as in the 1980s: you can’t squeeze the same lemon twice.
If there’s a single area with the most potential for the government to do more to boost growth, it’s reforming planning and housing policy.
Our highly restrictive system of planning and land use is like a ball and chain on the economy, putting us at a big disadvantage compared to other European countries. We have got so used to our unusually restrictive system we barely notice it. But other leading economies do things quite differently.
Britain’s tight restrictions on new building mean that the cost of housing, office space, and new factories are all pushed up. Office space is more expensive in Manchester than Manhattan. House prices have trebled since the mid 1990s, because the number of new houses built hasn’t been allowed to keep pace with demand. That in turn means higher rents and mortgage payments which then push up the cost of everything else as we all have to earn more just to stay still.
Several previous governments have tried to force through development in the face of local opposition. The current government rightly wants to try carrots not sticks, and has set up incentives like the New Homes Bonus to try to persuade local authorities to allow more development. But it would be better if these incentives were actually paid out in cash form to those most directly affected by development – rather than being thinly spread across a whole local authority. Unless the focus is tightened, the reforms won’t work.
A while back the government was talking about building new “garden cities” – a great idea, but one which doesn’t seem to be being taken forward by government. There are big advantages in concentrating a lot of development in one place, allowing proper planning for infrastructure, and allowing us to create green and pleasant places to live. It can be a much better alternative to having lots of bitty development tacked on elsewhere. And it could raise lots of revenue for the government too. But even Mrs Thatcher had to fight hard to push through the redevelopment of Docklands in London and Liverpool, so it will take a strong push from central government to push through such new developments. Yesterday’s growth figures will hopefully put some rocket boosters under this idea again.
There might be ways the government could get more houses built directly. As part of its attempts to balance the budget, the government has been forces to reduce spending on new council housing. At Policy Exchange we are working on a plan to sell off the most expensive council houses in costly areas as they fall vacant, and use the money to build more social housing elsewhere. That could be one way to get a lot more housing built.
There’s lots more we could do. Government should prune back the powers of meddling town hall officials. Local plans attempt to control everything about where development can and can’t happen, right to do the type of bike stands that must appear in new development. Local authorities can also prevent the change of use of buildings. At present this makes it harder, for example, to turn empty shops into much-needed housing. The internet has reduced the need for so many shops, but Local Authorities decide that their use can’t be changed (because they know best). So we end up with depressing town centres full of empty shops and charity shops.
I’ve always wondered if we shouldn’t copy the French, Germans and Dutch, and introduce a right to build your own house? While we in Britain have a right to an allotment to grow vegetables on, people on the continent people often have the right to buy an allotment of land with room to build a house on. Local authorities are required to provide the plots of land and plumb in services like electricity and water. People then get local builders to build them a house, which makes for a competitive market in house building, with lots of small family builders.
Creating a more flexible planning system and getting the cost of housing down would provide a huge boost to the economy. And there is so much more to do. If we want to rebuild our economy, there is no better place to start than thinking about bricks and mortar.