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Aadya Bahl

December 9th, 2024

How to reform the planning system to support growth in the UK

0 comments | 2 shares

Estimated reading time: 5 minutes

Aadya Bahl

December 9th, 2024

How to reform the planning system to support growth in the UK

0 comments | 2 shares

Estimated reading time: 5 minutes

The UK’s planning system is a critical bottleneck for growth. Invest 2035, the government’s proposed industrial strategy, states that planning reform is one of the fundamental shifts needed to help companies invest in the UK. Aadya Bahl shows how planning reforms can unlock opportunities for growth.


The UK has many strengths: it is a global services superpower, home to world-class universities, and has high employment. Despite these advantages, the economy has struggled with prolonged stagnation and persistently low levels of business investment. Overcoming this economic challenge requires bold and transformative reforms, particularly within the planning system. The UK’s land use regulation constrainsbuilding on urban land and has significantly hindered business investment rates.

The Economy 2030 Inquiry – a collaboration between the Centre for Economic Performance at LSE and the Resolution Foundation, funded by the Nuffield Foundation – published its final report, Ending Stagnation, one year ago. The report identified key roadblocks to the UK’s economic potential and proposed a range of reforms across housing, transport, skills and business investment. A year on, the UK has made some progress with initiatives like the Employment Rights Bill, and upcoming planning reforms through proposed updates to the National Planning Policy Framework.


Businesses wanting to invest often face prolonged periods of uncertainty and delays in planning approvals. 

The importance of incentives in a discretionary system

The UK’s planning system is largely discretionary and focuses on case-by-case applications, prompting local communities to engage more with individual planning applications than the creation of local strategies. The absence of binding local plans creates an opportunity for political capture of decision-making. This means businesses wanting to invest often face prolonged periods of uncertainty and delays in planning approvals. Firms may be reluctant to commit resources to projects that could face significant bureaucratic hurdles or ultimately be denied approval, deterring investment.

Compounding the issue, local authorities lack adequate financial incentives to support development. Since 1990, the Uniform Business Rate has centralised revenues from business properties, creating a disconnect between local development and financial rewards for local authorities. Although recent schemes have allowed local governments to retain a portion of business rates, these remain limited in scope and continue to be subject to policy shifts.

Local voters may further complicate planning by generating NIMBY pressures and frequently blocking new development. This opposition not only limits housing and commercial projects but also impedes broader objectives like achieving net zero.

Constraints to development

Strict regulations limit the expansion of urban areas and constrain the type of development permitted within towns and cities. Greenbelts were established around several cities after the second world war to curb urban sprawl and preserve green space. While they protect certain landscapes, they also restrict the availability of land for housing and commercial developments.

These rigid planning rules constrain the housing market, limiting its ability to respond flexibly to changing demographics and causing a mismatch of supply and demand.

Numerous preservation designations and height controls on buildings also restrict urban development. For instance, in London, the construction of taller buildings is limited by preservation designations and rules preserving key views within the city.

These rigid planning rules constrain the housing market, limiting its ability to respond flexibly to changing demographics and causing a mismatch of supply and demand. This mismatch has contributed to housing shortages, higher costs and inefficient land use. Limited housing and high housing costs push workers to live further away from their workplaces, increasing the need for transport infrastructure to manage the resulting commuter flows.

Policy solutions for transformative growth

A rules-based planning system would address the unpredictability of the current discretionary approach. Implementing clear, consistent guidelines that remove much of the political discretion from planning decisions would make the system more transparent and efficient. This shift would reduce costs, expedite development, and foster a more competitive environment for housing.

There is also a need to reform the local financial reward system. Allowing local governments to retain a share of development revenues would help align the interests of local communities with economic development. This would require further devolution across the UK.


Revisiting restrictive height controls, particularly in high-demand urban areas, could significantly expand the supply of housing and office space. 

Mandatory, binding land-use plans with clearly defined growth targets would further ensure accountability. These plans should reflect functional economic areas, encompassing city centres and surrounding local authorities– reflecting worker commutes. Collaborative planning at this level would improve infrastructure and utility decisions, in part by ensuring costs and benefits are shared equitably across regions.

Revisiting restrictive height controls, particularly in high-demand urban areas, could significantly expand the supply of housing and office space. Removing inflexible height restrictions would facilitate denser developments and lower commercial space costs, encouraging business growth.

Prioritising city centres for high-value services activities would allow the benefits from productivity growth to be broadly shared throughout the city region, as those who produce value in the city centre often do not live there.

Further, allowing development on the parts of greenbelt land that have low amenity or environmental significance, particularly near transport hubs like commuter rail stations, could increase housing supply and provide new spaces for business expansion, while protecting the most environmentally valuable land.

Charting the path forward

The planning system is one of the most significant barriers to investment in the UK. Policies that balance development with conservation and align local and national priorities will be crucial for tackling economic stagnation and fostering long-term growth. The Centre for Economic Performance has also highlighted this issue in a response to the Industrial Strategy Green Paper.

The urgent need for reform is clear. On the first anniversary of the publication of Ending Stagnation, the UK continues to face a critical juncture. Bold planning reforms must form the foundation of a more inclusive and prosperous future.


This blog is based on a submission to the consultation on Invest 2035: the UK’s modern industrial strategy.


All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science.

Image credit: pxl.store in Shutterstock


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About the author

Aadya Bahl

Aadya Bahl is a Policy Officer at the Centre for Economic Performance at the London School of Economics. Her work aims to use data-driven and research-backed insights to inform policy decisions. Prior to joining CEP, she worked with Metro Dynamics across multiple projects aimed at driving inclusive growth across places, and the GM Chamber of Commerce on the Local Skills Improvement Plans. She has a Master's in Development Economics and Policy from the University of Manchester.

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