Removing the obstacles to growth
There is strong evidence that planning restrictions, high taxes, and complex regulation all act as drag factors on enterprise and productivity in the UK. Each operates in a slightly different way and interacts with others.
Planning restrictions constrain both housing supply and commercial development, which limits labour mobility and entrepreneurial clustering. The UK’s land-use planning system, especially in England, is among the most restrictive in the OECD.
Empirical studies find that tight planning rules push up housing costs, making it harder for workers to move to high-productivity cities. They limit commercial space, reducing business density and innovation spillovers. They encourage capital to flow into property rather than productive investment.
The result is that there are fewer start-ups in dynamic regions, weaker agglomeration effects, and slower diffusion of innovation.
The tax burden and structure impede enterprise. The level of taxes matters, but so does their design. Both currently weigh on enterprise incentives. The UK’s overall tax-to-GDP ratio is near its postwar high (about 37%), not extreme by European standards but high for its historical norm.
The key distortions include Corporation Tax uncertainty. Frequent rate changes reduce investment predictability. Business rates tax physical property regardless of profitability, penalizing investment in premises and retail. High marginal effective tax rates on work and entrepreneurship hit at middle incomes, especially through withdrawal of benefits.
The result is reduced investment appetite and risk-taking, especially for SMEs and start-ups.
The regulatory complexity acts as a burden. The UK ranks well in ‘ease of doing business globally, but entrepreneurs often face heavy compliance and uncertainty costs.
Planning and environmental regulation results in delays for new developments and infrastructure. Financial and employment regulation complexity hits smaller firms hardest. Post-Brexit divergence causes uncertainty, with shifting standards and customs processes. Regulation that is unpredictable or excessively detailed tends to suppress experimentation and scale-up activity.
The result is lower business formation and scaling, particularly in housing, green tech, and manufacturing. Reform does not necessarily mean scrapping protections or slashing taxes across the board. The goal is smart regulation and efficient taxation.
In housing and planning we need more flexible zoning, with local incentives for development. This could free up labour mobility and business space. With taxes, we should simplify their structure, stabilize rates, and shift from property-based to profit-based where possible. This would encourage productive investment. Regulation should emphasize outcome-based rather than prescriptive rules
Planning restrictions, tax design, and regulatory complexity all reduce opportunity for enterprise in the UK by raising costs, deterring mobility, and dampening competition. We all know that, but there are vested interests that support all three, and it would take a determined, radical government to overcome them. The present one is unlikely to do so, but the next one might.
Madsen Pirie