UK Economy Stifled by 'Rationing' of Energy, Land and Capital, Analyst Warns
Excessive regulation and contradictory policy choices have created an administrative rationing system that is severely holding back UK economic growth, according to a prominent City analyst. Simon French, head of research at Panmure Liberum, published a research note arguing that the government must urgently focus on "ending the rationing" of three critical factors of production: energy, land, and capital.
The Triple Threat to Economic Competitiveness
French contends that policies from successive governments have effectively rationed these essential inputs through bureaucratic constraints, leading to slower economic growth, pressure to raise minimum wages, declining living standards, and higher marginal tax rates. In economic terminology, factors of production refer to the fundamental resources required for economic activity. By artificially increasing the cost of these inputs, UK businesses face significant disadvantages compared to international rivals.
Energy: A Persistent Cost Burden
High energy prices have been a longstanding concern for UK businesses, with many warning that they deter investment and undermine competitiveness. French points out that UK energy policy over the past two decades has made electricity significantly more expensive than in other advanced economies. From the mid-1980s to the mid-2010s, UK electricity prices were approximately average among International Energy Agency economies. Today, they are more than 50 percent above that average.
Furthermore, UK electricity generation has declined by over a quarter since peaking in 2006. French emphasizes that the focus should shift toward "enabling all forms of energy production as an enabler of a competitive business environment," rather than maintaining restrictive policies that drive up costs.
Land: A Broken Planning System
The UK's planning system has severely constrained land use, particularly for housing and infrastructure. French describes this "prohibitive" system as "perhaps the most longstanding of the UK's competitive challenges." The UK has not matched the current G7 average (excluding the UK) for housing completions per 1,000 inhabitants for more than half a century.
Research from the Centre for Cities indicates a backlog of 4.3 million missing homes compared to the European average. This chronic undersupply has dramatically pushed up house prices relative to income. Fifty years ago, the average house cost four times the average annual income, making homeownership relatively accessible. By 2024, that figure had nearly doubled to 7.7 times average income.
The planning system has also inflated the cost of major infrastructure projects, making them more expensive in the UK than in almost any other major economy.
Capital: The Biggest Impediment
French argues that the cost of capital in the UK is the "least widely understood...but arguably the biggest impediment to raising the UK's trend growth performance." The cost of capital for UK-listed companies is substantially higher than in Europe and the US, reflecting multiple factors.
Since Brexit, the UK's public markets have experienced persistent outflows. According to Morningstar analysis, investors have withdrawn approximately £118 billion from UK-focused equity funds in the nine years following the Brexit vote. Crucially, UK pension funds have shifted allocations away from domestic equities toward government bonds to derisk their holdings. New Financial data shows pension fund allocation to domestic equities has plummeted to around five percent, down from over 50 percent twenty-five years ago.
A Call for Simplicity and Competitiveness
French criticizes current sector plans and state-administered financing as "a charter for lobbyists" that stretches administrative capacity to breaking point. Instead, he advocates for a simpler approach: returning the costs of energy, land, and capital to levels that make deploying these factors internationally competitive. This, he argues, is essential for reinvigorating the UK economy and restoring sustainable growth.
