Planning Reform Is the Tax Cut That Pays for Itself

For years, Britain’s growth debate has been trapped in a stale discussion of deficits, tax tweaks, and fiscal rules, as if avoiding stagnation required minor tinkering on the chancellor’s spreadsheet. Yet lasting growth doesn’t come from sugar rush stimulus. It’s driven by innovation and investment, underpinned by supportive institutions and good incentives. The problem? A fiscal watchdog like the OBR wasn’t built to model the “structural reforms” that might affect that productive capacity.

Well, on planning, at least, the OBR gave this modelling a go — and the government will be glad it did. For it estimated that Labour’s National Planning Policy Framework reforms — alongside new housing targets and the reclassification of certain green belt land as “grey belt” — will raise the UK’s GDP by more than 0.2 per cent by 2029, and by over 0.4 per cent by 2035.

That might sound modest, but it would be a big success for a narrow set of changes that didn’t cost a penny. Indeed, planning reform is like a tax cut that more than pays for itself — with extra GDP predicted to generate nearly £3.5 billion in additional revenue by 2029.

Where do those GDP gains come from? Over the first five years, it’s mainly from higher construction productivity. Easier permission means developers can shift building efforts to places where the price of new houses greatly exceeds the cost of building them. Extra development also increases the flow of housing services, meaning more housing space, in better locations. Over time, those output gains grow larger, as better-located homes allow workers to move towards more productive jobs and industries to cluster more effectively.

If anything, experts think the OBR may be undercooking this GDP boost too. Ant Breach, economist at the Centre for Cities, points out that the watchdog only examined residential development when analysing Labour’s policies. Yet the greybelt reforms and the designation of data centres as Critical National Infrastructure have already triggered, in his words, “a big boom in data centre investment in recent months”.

And there’s more reform to come. The OBR can’t yet chalk up how brownfield passports might spur urban development, or any upside of the Planning and Infrastructure Bill. Nor has it modelled expected changes to local planning committees — tweaks that could help cut through vetoes and speed up approvals.

Even on current policy, in fact, the upside of liberalisation may be somewhat bigger than the OBR presumes. Its modelling suggests current reforms will deliver 170,000 extra homes by 2029, cutting average house prices by 0.9 per cent. That price effect is consistent with the UK’s overall housing market over recent decades. Yet if more of this housing occurs in those supply-constrained, high-demand areas like London and Cambridge, then the impact on affordability and productivity would be far greater.

The hope now is that the OBR’s endorsement encourages the government to be bolder. These GDP gains, as Breach notes, come from “incremental reform within the existing system”. Imagine the upside of a more flexible regime where development closely followed market signals. In London, specifically, Britain Remade’s Sam Dumitriu identifies some low-hanging fruit: why not automatically greenlight permissions for denser regeneration on London’s postwar estates? Or pressure the mayor to rethink his damaging industrial land policy, which is constraining housing development around sites such as Old Oak Common?

Indeed, the OBR’s analysis should make the government optimistic. With the public finances shot and productivity stalled, Britain needs pro-growth policies that don’t rely on big spending, lost revenue, or fiscal gimmicks. This new analysis reminds us that obtaining faster growth doesn’t require government “missions”, just permission. The case for going further and faster on supply-side reform couldn’t be clearer.