IfG: productivity frustrated by structural governance weaknesses

14 Sep 15

Efforts to improve the productivity of the UK economy are being hindered by “fundamental flaws” in governance that means investment in infrastructure is insufficient to boost growth, a report has claimed.

Institute for Government research, published today, said existing political institutions were unable to tackle a range of persistent problems. As well as inadequate investment in infrastructure such as railways, airport expansion and energy generation, this has also led to a lack of affordable housing and poor skills.

Report author Miguel Coelho stated these problems could only be solved by significant institutional reform to break a cycle of short-term, unsatisfactory fixes. However, the government’s Productivity Plan had not tackled this.

“The UK economy suffers from a number of structural weaknesses that damage the country’s prospects for future prosperity,” he said.

“These weaknesses are built right into the very institutions that shape big policy decisions. Without significant institutional innovation, we risk locking the economy into a poor system of skills and infrastructure for many years to come, which will place a heavy burden on future prosperity.

“Rather than looking at the problems associated with individual projects, and looking at housing policy or transport development as separate issues, we must take a step back to consider the pressures and incentives that shape the way policy is made in these areas. Only then can we reform flawed institutions, address these deeply rooted problems, and ultimately, ensure the UK is able to realise its full potential for economic growth.”

The Political Economy of Growth and Reform report concluded there were two reforms that were most urgent.

One was to create independent institutions to take infrastructure decisions after engaging with local communities, interest groups and experts. That would make it easier for politicians to make well-informed long-term decisions.

In addition, the government needed to change the planning system to ensure the system gives less weight to current homeowners and more to a wider set of interests.

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