The UK’s economy is being strangled by something nobody elected. It’s not interest rates, trade wars, or Brexit (though they don’t help). Instead, it’s administrative rationing—decades of contradictory policy choices that have made energy too expensive, land too scarce, and capital too hard to find. According to a new research note from Simon French, head of research at Panmure Liberum, this silent choking is the real reason UK economic growth has stalled. And unless we unblock these three critical factors of production, nothing else will fix it.
The Energy Trap: More Than Just Expensive
British businesses are paying electricity prices more than 50 per cent above the International Energy Agency average for advanced economies. Fifty. Percent. More.
But it gets worse. Since 2006, UK electricity generation has fallen by more than a quarter. We’ve strangled supply while simultaneously making what little we produce brutally expensive. Two decades of energy policy have essentially locked UK businesses out of the global cost game.
French argues the fix is obvious: stop picking winners. Enable all forms of energy production—renewables, gas, nuclear, whatever works—and let competitive pressure drive down costs. A business-friendly energy market doesn’t require ideology; it requires common sense.
The Planning System: A Self-Imposed Housing Crisis
The UK’s planning system is ‘perhaps the most longstanding of the UK’s competitive challenges,’ French says. And he’s being diplomatic. It’s actively broken.
The evidence is stark. We haven’t matched the G7 average for housing completions per 1,000 inhabitants for more than fifty years. Not five years. Fifty. The Centre for Cities calculates we’re sitting on a backlog of 4.3 million missing homes compared to European standards. That shortage has made houses a wealth store instead of a home—average prices have soared from four times annual income fifty years ago to 7.7 times today.
And it’s not just housing. The same planning quagmire pushes up infrastructure costs to levels that are near the highest in the world. Want to build a railway, a road, a data centre? Budget twice what it would cost elsewhere.
The Capital Problem: Less Money Chasing British Business
If energy and land are the visible culprits, the cost of capital is the ghost in the machine. It’s the least understood barrier to UK economic growth—and arguably the most damaging.
UK-listed companies face a significantly higher cost of capital than peers in Europe and America. Why? Because the money has gone elsewhere. Post-Brexit, UK equity funds have suffered £118 billion in outflows, according to Morningstar analysis across nine years. But the real damage is pension fund flight: domestic equity allocation has collapsed from over 50 per cent twenty-five years ago to roughly 5 per cent today. British pension funds are betting on government bonds, not British businesses.
When capital gets expensive, investment dries up. When investment dries up, productivity stalls. When productivity stalls, wages flatline and living standards slip. That’s not a theory—that’s what’s already happening.
The Bottom Line
Three things strangle UK economic growth: artificially expensive energy, a planning system that treats development as a punishment, and a cost of capital that makes raising money in London more expensive than in Frankfurt or New York. Watch this space for political willingness to fix these. Until then, expect the British economy to keep underperforming.
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FAQs
Why does the cost of energy matter for UK economic growth?
Higher energy costs make British businesses uncompetitive on the global stage. When you’re paying 50 per cent more than rivals in Europe or America, you can’t undercut them on price, you can’t invest in innovation, and you can’t grow. It’s that simple.
What’s driving the UK housing crisis?
The planning system restricts land supply while demand keeps growing. With 4.3 million homes short of what we need, prices have become untethered from reality, turning housing into an asset to speculate on rather than a place to live.
Why are pension funds pulling money out of UK equities?
Pension funds have shifted to government bonds to derisk their portfolios, partly due to market conditions post-Brexit and partly due to demographic pressures. This shift starved UK companies of investment capital, pushing borrowing costs higher and making UK growth harder to fund.
Can the UK government fix this alone?
No—it requires consistent, long-term policy rather than sector plans and state-administered financing schemes. The focus needs to be on lowering structural costs (energy, land, capital) rather than picking winners or creating new bureaucratic oversight.
What happens if nothing changes?
Keep expecting slower growth, pressure on wages, declining living standards, and higher tax rates. The fundamentals only shift when governments remove obstacles rather than try to steer the economy from above.
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Effective Date: 15th July 2025
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