CapX by Joe Tetlow
With the Budget looming in a few weeks’ time, the clamour for Jeremy Hunt to splash the cash on various pet projects will grow ever louder – especially as recent OBR figures suggested borrowing last year undershot forecasts by around £30bn. MPs in the Conservative Growth Group, including former Cabinet minister Simon Clarke and Ranil Jayawardena, have launched a renewed push for a tax-cutting, deregulatory agenda to reinvigorate the economy.
Perhaps most significant, though, is the unlikely coalition of Conservative voices gathering around the need for significant planning reform. CapX readers scarcely need reminding how important this is, given the costs the current system inflicts on the economy, both in high housing costs and expensive, endlessly delayed infrastructure.
But the costs of the current system also mean the growth dividend from reform is potentially enormous. Take onshore wind – under planning rules brought in back in 2015, just a single objection can kill a project. As a result, only two onshore turbines have been built in England in the last three years. According to Renewable UK, dropping this effective ban on onshore wind could offer a £10bn boost to the UK economy and create over 6,000 jobs by 2030.
In an economic crisis driven by high energy prices, what are we waiting for? That’s certainly the question being asked by Clarke, along with former PMs Liz Truss and Boris Johnson and COP26 president Alok Sharma, all of whom backed a recent amendment to unblock onshore wind.
Nor is the opportunity for reform confined to onshore. Britain Remade, a campaign co-founded by former Number 10 energy and environment adviser Sam Richards, has found that Hornsea 3, the biggest offshore wind project in the world, is in the midst of a 30-month planning process, delaying cheap power for 3.2m homes. There are at least some encouraging signs that these complaints are being taken on board. Last week, for example, the Government announced that a new fast track system for Nationally Significant Infrastructure Projects will be piloted from September of this year.
There’s also substantial support for planning reforms to encourage the installation of solar panels. As Net Zero tsar Chris Skidmore recently pointed out, smart regulations are an important way of stimulating growth. For example, we can use building regulations to make rooftop solar the norm for all new buildings. We could also follow the France and parts of Germany by making solar panels mandatory for new car parks.
For a Conservative government accused of running out of ideas, there is plenty to take on board from within its own ranks. Next Gen Tories, a new caucus set up to campaign on the cost of living, childcare and housing, rightly points to the growing generational divide and its political and economic consequences.
A huge part of that is housing affordability. Since the 1970s, the UK has seen the highest rise in house prices among the G7 nations – twice as high as countries like France, Italy, Germany and Japan. Forty years ago, average house prices were just 1.6 times median incomes, today that figure is 8.2.
As the Centre for Policy Studies noted in a recent paper, that huge shortfall has directly contributed to spiralling house prices. Worse still, a spate of recent planning changes threatens to reduce housebuilding at the worst possible time. The Home Builders Federation forecasts that the number of new homes could fall as low as 120,000 a year – way below the Government’s 300,000 target.
Again, there is no lack of ideas on how to put things right. For instance, a new report by liberal conservative think tank Bright Blue offers a plan to speed up the delivery of new homes where development is most sustainable, such as near workplaces, shops and transport links. It follows similar work by Policy Exchange, Create Streets, and others in calling for urban densification. The example of South Tottenham, where residents have been able to add two floors to existing properties, shows that increasing the size of homes in our big cities is perfectly feasible, if there is the political will.
So while, the run-up to Jeremy Hunt’s Spring Budget is sure to be full of furious lobbying for both tax cuts and tax-and-spend policy, there’s a strong case that the biggest economic benefits lie not in shifting the tax burden, but in sensible, pro-growth deregulation that works in tandem with the Government’s environmental agenda. And with finances tight and the economic headwinds still blowing, a low-cost way of getting the economy going is just what the Treasury ought to be looking for.