Pro-growth reforms could add over £400bn to UK GDP and lift living standards by nearly £6,000 per person

• The UK can unlock a 10-20% level shift in GDP, adding at least £428bn to the economy and lifting GDP per capita by £5,800 in 2036 nominal terms, according to new research from the Adam Smith Institute.

• Reforms to planning rules could unlock 7 per cent more GDP. Reforms to energy policy could unlock 5 per cent growth. Reforms to taxation could unlock 2 per cent growth. Reforms to financial services could unlock 1 per cent growth.

• At present tax rates, this would be enough to fund a doubling in the defence budget, as well as an increase in real household disposable income of over £6,800.

• Growth is necessary to avoid fiscal catastrophe. On current trends, as shown in our previous research paper, Foreboding Fiscals, the UK is on track to see debt reach 330 per cent of GDP by 2075. 

The UK can unlock a 10-20% level shift in GDP, adding at least £428bn to the economy and lifting GDP per capita by £5,800 in 2036 nominal terms, according to new research from the Adam Smith Institute.

The new research identifies 14 policy barriers that are holding back private-sector growth in the UK. It finds that reforms to planning laws and the energy sector would deliver the largest gains, with further substantial benefits from changes to taxation, financial regulation, labour market rules, and trade policy.

Of all G7 countries, Britain has experienced the largest slump in growth since the Global Financial Crisis. When the 2008 sector-specific shock to the financial industry hit, the UK was hit harder than other major economies. In the years since, the economy has struggled to adapt, weighed down by rising regulatory burdens, high energy costs, chronic under-building, and weak investment.

The government listed economic growth as one of its top priorities, yet figures paint a different picture. New monthly figures for UK GDP reveal that growth was just 0.1% in the three months to November, after not growing for the previous three months. UK average regular earnings growth fell to 4.5% in the three months to November and unemployment sits at 5.1%.

As shown in our previous research paper, Foreboding Fiscals, the UK is on track to see debt reach 330 per cent of GDP by 2075. Britain has entered a period of high existing debt, weak growth and an ageing population. Pension and health spending rise automatically, while a shrinking workforce limits tax receipts. At the same time, real wages have remained stagnant and many Brits remain priced out of the housing market. 

The Adam Smith Institute argues that this slowdown is not inevitable. Instead, it reflects policy choices that have made it harder to build homes and infrastructure, more expensive to finance and run businesses, and riskier to invest in Britain. 

Key points:

• This paper ranks 14 different policy barriers to private sector growth by their possible contribution to Gross Value Add (GVA) for the British private sector. It also proposes concrete policy changes to reduce these barriers.

• Reforms to planning laws and the energy sector stand out as key enablers of private sector growth, with changes to taxes, financial regulations, labour market rules, and trade also able to make substantial contributions.

• We estimate that, if this suite of policy reforms were implemented in full, the government could add 10-20% to UK’s GDP (both in aggregate and per capita) over the long-term.

• This would represent an additional £428bn to GDP by 2036, or an increase in per-capita output of £5,800 in 2036 nominal terms.

Comments:

Shadow Chancellor of the Exchequer, Sir Mel Stride MP said:

“This paper is a welcome contribution to the debate about how we reverse the UK’s economic fortunes. The problems it identifies – housing, energy, excessive taxation and regulation – must be overcome if we are to deliver the growth our country desperately needs. As the paper argues, the size of the prize is colossal if we can unleash the power of the private sector to drive innovation, investment, employment and wealth creation.”

Shadow Secretary of State for Business and Trade, Andrew Griffiths MP said:

"The UK faces an unprecedented growth challenge with middling forecasts of 1-2% exposing the Government's promises as hot air. The ASI's Growth Agenda is putting forward much needed fresh ideas to break out of the failed, low-growth Whitehall mindset."

Former Chancellor of the Exchequer, Nadim Zahawi said:

“As a former Chancellor of the Exchequer, I know that our industrious, dynamic, and forward thinking nation, can only survive if it prioritises growth through deregulation and tax reform as some of Adam Smith Institute’s recommendations suggest. I look forward to studying them further carefully.”

Deputy leader of Reform, Richard Tice MP said:

“Britain is confronting a severe economic growth crisis. Today’s growth rates can hardly afford a round of drinks. Robust economic growth is essential for sustaining world-class public services and raising living standards across society.

A fundamental change of direction is required through radical reforms, particularly in planning, energy policy, and taxation. I therefore welcome the analysis presented in this paper by the Adam Smith Institute as a valuable contribution to the debate on restoring economic growth.”

Notes to editors:

For any further details on the methodology, or to arrange an interview, please contact joanna@adamsmith.org / +44 7985540467

The full research is available here.

Methodology:

We ranked reforms that could deliver additional growth for the UK economy. Each estimate reflects the best guess for the long-run uplift in GDP from a specific reform, derived from literature reviews adapted to UK circumstances. Estimates are ceteris paribus (all other things being equal) and represent the causal effect of the identified change. Most impacts are 'steady-state' and may take an indeterminate time to be fully realized; a 10-year horizon was used when a specific time frame was necessary.

The sum of all identified items is 18%. The estimated achievable uplift in reality is 10-20%. This large range is due to substantial uncertainty in each estimate (they should be interpreted as orders of magnitude, not precise point estimates) and possible overlap in the impact of many policy proposals (e.g., planning reform for industrial development aids energy infrastructure, risking double-counting). The 10-20% increase in GDP represents a level shift, but many reforms will also generate longer-run growth dividends by increasing economic dynamism.

Based on a forecast 2036 nominal GDP of £4.3tn, a 10% uplift would add £428bn to GDP. For a forecast population of 73.7 million, this equates to an increase in per-capita output (and living standards) of £5,800 in 2036 nominal terms or £4,700 in 2025 terms.