Title page 1

Contents 6

LIST OF CONTRIBUTORS AND EDITORS 9

FOREWORD 11

1. INTRODUCTION 16

2. CREDIT 21

References 33

3. BUILDINGS 34

Introduction: in defence of stupid growth 34

Residential housing 40

Commercial and business premises 46

Conclusion 49

References 52

4. INFRASTRUCTURE 55

Introduction 55

Fact 1: Britain pays more and waits longer 56

Fact 2: The UK has an urban connectivity deficit 59

Fact 3: The costs of inaction compound over time 61

Fact 4: The construction sector is not innovating 63

Fact 5: Even projects which survive the planning system fail 65

What is to be done? 69

Conclusion: choosing growth 75

References 76

5. ENERGY 79

Energy is important 79

Legislating for energy suicide 81

Tangled web of subsidies 83

Hydrocarbon taxes 84

High electricity prices 86

Impact of renewables subsidies 91

Extra costs of renewables 94

Declining energy and electricity consumption 98

Impact on growth and productivity 99

Conclusions 104

Appendix: The legislative labyrinth 105

6. TAX 113

Has the British tax system undermined growth? 113

Britain's tax burden 116

The composition of British tax revenue 119

Marginal tax rates 122

Fiscal drag and tax traps 130

The tax base 132

Corporation tax and capital allowances 137

Other tax distortions 141

An international perspective 147

Conclusion 149

References 150

7. THE LABOUR MARKET 153

Introduction 153

How labour markets work 154

Increased employment regulation 157

Other labour market impacts of government policy 163

Gumming up the works: the impact of regulation 172

References 180

8. AUSTERITY AND BREXIT 183

Introduction 183

Defining austerity 184

What do the numbers say? 184

Deficits versus debt 187

A price worth paying? 188

Could looser fiscal policy have boosted growth? 188

A defence of austerity 189

Conclusion on austerity 191

The economic impacts of Brexit 192

The immediate market reaction 193

1. 'Crystal ball gazing' 195

2. 'Top down' (or doppelgänger) models 196

3. Bottom-up studies 197

A better approach 198

Conclusions on Brexit 201

References 203

ABOUT THE IEA 205

Table 1. Leeds mass transit proposals, 1991 to present 66

Table 2. Cost of subsidy schemes 93

Figure 1. Real GDP per capita, 1955-present; index, 2008:Q1 = 100 22

Figure 2. Real GDP per capita assuming no 2008/09 recession, 1955-present; index, 2008:Q1 = 100: (a) US; (b) UK 24

Figure 3. Real credit to the private non-financial sector, 1963-present; index, 2008:Q1 = 100: (a) total private sector; (b) private business sector 29

Figure 4. Office rents in 2025, Berlin = 100 48

Figure 5. Britain builds high-speed rail at several times the cost of its peers (real cost per km of track) 57

Figure 6. UK major projects spend most of their life in the planning system 58

Figure 7. Energy use per person vs. GDP per capita, 2024 80

Figure 8. Energy net imports and import dependency 85

Figure 9. International industrial electricity prices 87

Figure 10. International industrial gas prices 88

Figure 11. Share of electricity supplied by source, prices 89

Figure 12. Fuel and carbon costs and carbon share 90

Figure 13. Total cost of electricity by technology and subsidy scheme, 2025 prices 95

Figure 14. (a) Energy consumption by source, UK; (b) electricity production by source, UK 97

Figure 15. Total final energy consumption (unadjusted) by sector 98

Figure 16. Energy use per person vs. GDP per capita, 2008-24 99

Figure 17. Productivity vs. relative GVA growth by industry sector in 2008-24 101

Figure 18. UK tax burden since 2000/01 (national accounts taxes as % of GDP) 117

Figure 19. UK tax burden since 1948/49 (national accounts taxes as % of GDP) 118

Figure 20. Evolution of the UK tax mix (2000-24) percentage share of total government receipts 119

Figure 21. Blended top marginal tax rate in the UK over time 124

Figure 22. Top marginal tax rates: employment vs. capital in the UK 126

Figure 23. The rise and fall of tax neutrality (2000-26) total inflation-adjusted shelter capacity for the top 1% 134

Figure 24. UK capital cost recovery, 2000-25; NPV of capital allowances by asset class 138

Figure 25. UK corporation tax: headline rate vs receipts as a share of corporate profits; fiscal years from 2000/01 to 2025/26 140

Figure 26. Annual percentage change in UK output per hour worked 2000-25 154

Figure 27. The Heritage Foundation's Labor Freedom Index 2000-25 158

Figure 28. UK total managed expenditure in real terms and as a percentage of GDP 185

Figure 29. UK cyclically adjusted borrowing as a percentage of GDP 186

Figure 30. Total public sector service productivity (Index 1997 = 100) 190

Figure 31. Sterling narrow effective exchange rate (2020 = 100) 194

Figure 32. Real GDP per capita (Q2 2016 = 100) 197

Figure 33. Non-dwellings investment (Q2 2016 = 100) 199

Figure 34. CPI food and non-alcoholic beverages (2015 = 100) 200

Figure 35. Cumulative growth in real GDP between Q2 2016 and Q4 2025 201

Figure 36. Cumulative growth in real GDP per capita between Q2 2016 and Q4 2025 202