Conclusion

Although there were few areas of complete consensus, it is possible to draw out some key conclusions and policy prescriptions suggested by the responses. Below are some key themes:

1) Planning Reform is the Right Priority

Respondents agreed that building more housing is essential, and that this ‘supply side’ action is far preferable to the previous government’s demand-side solutions to the housing crisis. As one respondent said:

“public spending to either replace or incentivise private expenditure is a significant mistake in areas where the private sector is being hamstrung. Subsidising demand without enabling supply only results in increased spending and higher prices. The previous government's "help to buy" schemes are a perfect example: people already want more houses and businesses need more premises – subsidising this demand is unnecessary."

Respondents were keen to encourage the government to apply this approach beyond housing to infrastructure, energy and building more generally. 

“The current system demands more than just building a road, a development, or an energy plant; it requires navigating extensive paperwork and obtaining consent from an endless list of stakeholders. These projects are delivered, but at several times the cost. It should come as no surprise that we can't afford to build as much as we would like. We demand that every piece of physical infrastructure is accompanied by intangible infrastructure that costs several times more. Consequently, the high expense of physical infrastructure is unsurprising – we are not accounting for all the costs.”

These responses imply that the new government should look beyond housing to other areas where the UK struggles to build. Not least because other physical infrastructure - particularly transport - has a compounding effect on the economic benefit of new housing. 

2) The Nuclear Option

The responses imply that the government should give a lot more political and financial attention to nuclear energy, particularly compared to other renewable sources of energy. Respondents also tended to agree that this should be a ‘first 100 days’ priority, due to potential political backlash, alongside planning reform. One respondent argued:

“The focus must be on scaling up nuclear fission as rapidly as possible. Anything else is a huge distraction, and ultimately cannot be done without cheap energy. It would be a huge mistake to allow anything else to take up political capital when the sole focus of any industrial strategy should be on closing the huge and entirely self-imposed gap in energy costs with other countries, particularly the US.”

Nuclear is seen as undervalued by policymakers, potentially due to the longer timelines in building nuclear and the high cost of previous projects. However several respondents pointed to learning lessons from South Korea, which manages to produce nuclear energy at a quarter of the cost of that in the UK, and their state-owned nuclear energy company (KEPCO) has a track record of building nuclear projects in other countries. 

Nuclear has a particular advantage over wind and solar due to its reliability. While wind and solar are highly weather-dependent, and therefore intermittent, nuclear can provide a base-load of energy which is better suited to industry and running data centres (which is essential for AI). Nuclear plants can also be built closer to population and industrial centres, reducing transmission costs. There is some evidence that nuclear power is cheaper on a system-level basis, which could make nuclear energy a more promising option for boosting economic growth than other renewable sources.

The more general point, however, which several respondents mentioned, is that the UK’s high energy costs are a key driver of its underperformance, particularly relative to the US. Furthermore, demand for electricity is likely to continue to rise, as households switch to electric vehicles and heat pumps, and due to demand from AI and data centres. 

Interestingly, the high levels of support for expanding nuclear power were not matched by high levels of enthusiasm for ‘green tech’, which was rated by respondents as highly overrated. This suggests that respondents wanted to see a greater focus on ensuring the energy system delivers for the wider economy rather than as a direct growth opportunity.

3) The Role of High-Skilled Migration

The UK’s ability to attract top talent is seen as a definite strength, which risks being neglected by the government. However respondents were keen to distinguish between high and low skilled migration in terms of economic benefit. One respondent said: 

“The UK attracts more highly qualified migrants than any other part of Europe and is the preferred destination among many Europeans, even when compared to the US... This advantage makes it significantly easier to attract highly qualified individuals who will go on to develop the innovations of the future. 

The quality of UK higher education… continues to outperform its European counterparts… Given the UK's natural advantage in attracting talent, it should always be in a position to outperform its peers [in terms of growth]. The fact that it does not is indicative of how much we have allowed the country to decline by standing still.”

Another said: 

“A generous immigration policy is in my view essential to growth, and migration is underrated as a tool to achieve that given the political challenges in advocating for it. Migration is not a substitute for a high-skill UK population, though, and so immigration policy should not be viewed as a substitute for education investment."

As well as distinguishing between high and low skilled migration in terms of economic benefit, respondents acknowledged the political difficulties with expanding migration. Highly skilled migrants bring multiple economic benefits, including skills and know-how in high-demand, high-productivity sectors; entrepreneurialism; and - in the case of students - funding for struggling universities. There was a general sense among respondents that these benefits risk being overlooked in the bid to bring down overall numbers of migrants.

4) Pro State Capacity, but Nervous about Sector-Specific Industrial Policy

When asked about sector-specific industrial policies, many respondents implied they would prefer that the state focuses on improving the regulatory environment rather than providing subsidies, tax-breaks, trade protectionism or other kinds of sector-specific support. This desire for deregulation - or at least, better and clearer regulation, cuts across several sectors. As one respondent said:

“Our costs to build rail infrastructure are far too high. Our energy market is badly regulated. We should switch to nodal power and make innovation with SMRs and low-cost Korean standard designs much easier. Our planning system is one of the worst in the world.” Another said: “I would avoid a fiscal approach to industrial strategy as much as possible, with the exception of nuclear energy. Instead, it would be better to take a deregulatory approach, akin to the innovation sandbox for fintech that the FCA ran, instead of spending public money.”

Some respondents were concerned about the state’s ability to identify the best sectors and opportunities, and the risk of being captured by corporate interests. As one respondent said:

“No one knows which sectors will be the growth sectors of the future. It is a fool’s errand to attempt to do so. We should be focusing on wider drivers.” Another said “Sectoral approach is not sensible. Need to focus on reducing costs for business in general.”

This view was not held by everyone. A couple of respondents highlighted geothermal energy, autonomous vehicles and biotechnology as industries they see as particularly promising, and potentially worthy of greater state support.

One former civil servant, who worked on industrial policy, said: 

“The government simply does not have enough data and evidence to do industrial strategy well at all. It is often based on whim and gut instinct rather than solid analysis. Officials are too easily swayed by the stories told by industry representatives about how crucial and important it is for their industry and company to receive support, though these claims are rarely meaningfully demonstrated. 

Often, elected officials will agree to support companies, who then demand that civil servants justify these decisions. This results in increasing tensions between industry and government when impartial civil servants cannot objectively demonstrate that a particular intervention is desirable. In summary, picking winners is not something the government has ever been able to do reliably.”

When we asked specifically which sectors’ growth potential is overrated/underrated, respondents cited ‘green tech’ is being highly overrated, with sectors such as life sciences finance underrated. Others criticised the way that the Government assesses the economic benefit of policies. Some concerns raised included: 

• A lack of dynamic modelling, where the Green Book’s benefit-cost ratio (BCR) calculation does not consider the effects of agglomeration, behavioural changes and spatial economics when calculating the worthwhileness of an investment or policy. 

• Similarly, a lack of consideration of the dynamic and deadweight costs of taxation to raise funds for new projects.

Some respondents caveated their responses on government spending, saying that the main issue isn’t the amount of spending but efficiency and value for money. As one individual put it:

“We spend a lot on transport but get very little from it; nuclear built as it is now would be anti-growth, but if costs reduced to Korean levels would be pro-growth, etc. Lots of this is about getting state spending better-spent, not just spending more. Though decades of under-investment in some things may justify both investing more and fixing costs.”

At the same time as expressing scepticism towards sector-specific interventions, in our question on funding, respondents expressed support for higher spending on some sectoral interventions, most notably AI infrastructure. This suggests that some respondents were not necessarily against the principle of sectoral interventions, but were sceptical that the government will successfully deliver a sector-based industrial strategy.

5) Spatial Economics and Rethinking ‘Levelling-Up’

Respondents generally agreed that cities are the engines of growth in the 21st century economy.

“A 20th-century model of setting up an auto factory in the North East will not be enough to generate sustained, long-term economic growth in those regions. Their success came from the natural resources that fuelled growth at that time; today's growth is fuelled by the expansion of cities and agglomeration in places where people want to live. Trying to force people to live elsewhere would be a costly fantasy.”

Some argued that we should focus on strengthening London’s unique position - London was generally seen as an underrated strength of the UK.

Several respondents highlighted the imbalance in growth and productivity between London/Southeast and the rest of the UK, but had differing views on the policy implications. While this regional imbalance is recognised as a problem, many respondents were keen to emphasise that the largest economic gains were likely to come from areas of agglomeration signalled by high house prices, such as London, the Southeast and other major urban areas. Several respondents cited the importance of economic geography. One respondent said that this was important because…

"labour markets remain too localised - people need to be able to move around more easily to access jobs in towns and cities other than those in which they live.

Life sciences are constrained by our inability to grow Cambridge and Oxford, both in terms of lab space and housing. It is a mistake to think we can simply persuade the industry to move to Hull because there's space there: it is the Golden Triangle that competes with Switzerland and Massachusetts, not the UK as a whole. The same is true of financial services, AI, and other sectors. Agglomeration means our cities hold the potential for increasing growth in these areas; expanding them is crucial to achieving that growth. 

Another pointed to the risks of drawing the wrong conclusions from regional imbalances, saying “over-dependence in London seems to imply that London's success is at the cost of failure elsewhere. This view is wrong.”

Some argued for a focus on ‘second-tier’ cities., As one respondent said:

“looking at GVA/worker or other labour productivity measures, the UK's underperformance in levels is particularly striking in its second cities. London is highly productive by any measures, but the productivity of non-London large cities is much lower than comparable sized cities in the US or much of Western Europe.”

And another said: “UK's second cities are what underperform significantly compared to European equivalents”

6) Great at Discovery, Bad at Adoption

Several respondents challenged the notion that the UK ought to spend more on R&D and scientific discovery, citing that the UK is in line with its peers for R&D spending on revised figures. However, there was general agreement that the UK struggles to (a) adopt new discoveries and technologies in its wider economy, and, relatedly, (b) turn discoveries into billion dollar companies. 

The reasons for this are varied, but one factor is likely to be the UK’s ‘cost disease’ caused by issues in planning and regulation, as mentioned earlier. As one respondent said:

“The UK's problem lies in making it extremely costly, for the reasons mentioned above [on planning and regulation], to embed technology in actual structures, machinery, and equipment. The idea of the Lower Thames Crossing has already cost more than the longest physical tunnel in Europe in Lærdalsøyri; innovation and R&D won't solve that problem.”

Respondents agreed that supporting university spinouts should be a top priority, but some were sceptical of the government’s efforts so far to do this. One respondent proposed reforming the Catapults system, saying:

“The government should immediately change the Catapult funding model, redirecting funding at those Catapults that work. A simple solution is to strictly apply a formula that gives Catapults core funding of 0.5x the income they leverage from the private sector for projects. This would release several hundreds of millions of pounds for Catapults that have a proven (purchased) utility for industry.”

Several respondents were sceptical that the main barrier to adoption is access to finance, even though this is often cited (understandably) by spinouts seeking to raise capital. Instead, they argued that a lack of capital should be seen as a symptom rather than a cause. One respondent said:

"it is true that the UK lacks capital compared to places like the US. But there is a major risk in getting things the wrong way around, thereby making things worse. Our problems are not a matter of there being insufficient capital. If anything, the UK is one of the best places in the world already for being able to invest, and to attract investment from abroad. Rather, capital is in short supply because of underlying issues making it difficult to create profitable opportunities here with which to generate returns. Attempting to mess with capital markets, including pensions, the stock market, or through forcing savings are likely to cause major problems that are very difficult to anticipate. The temptation to "fix" them should be avoided like the plague. If reforms to planning, energy and infrastructure are done well, then issues with capital or financing will evaporate away entirely."

Another respondent drew a more general lesson from this, saying:

“I think lots of arguments about "not enough FDI" or "not enough exports" are identifying a symptom not a cause. If we had better investable opportunities then we'd have more investment. If we had things worth buying then we'd have more exports.”

7) Huge, but Thus Far Wasted, Potential

Respondents were asked to compare the UK’s economic performance to that of peers - particularly, the US and Western European countries. There was a general sense among most respondents that the UK has strong potential which is poorly leveraged. One respondent said:

“UK potential, given its geographical, linguistic, and research advantages is especially far from being met. For a country with the population of the entire US eastern seaboard from Maine to DC, and with major agglomerations like London, Cambridge, and so on, I see no intrinsic reason that it should not be on par with the US for per capita GDP.”

Similarly, another said:

“In terms of exceptional universities and talented individuals, it seems like the UK has more of the preconditions for success than other European countries which makes its relative underperformance more disappointing.”

Or, as another put it more pithily: “We have fantastic fundamentals and all our ills are self-imposed”.