This is the first piece from the IEA’s new Senior Economist, Dr Valentin Boboc
The Chancellor deserves credit for honesty. Her second Mais Lecture delivered this week contained a reasonably clear-eyed diagnosis of the country’s economic maladies. Amongst them, she notes that Britain’s productivity growth since the 2008 financial crisis has been consistently weak. Planning rules have rationed housing and infrastructure, while an accumulation of regulatory barriers has steadily raised the cost of doing anything at all. It is somewhat reassuring to hear these issues spelled out clearly.
The trouble starts when the Chancellor moves from diagnosis to treatment. Her answer is the ‘active and strategic state,’ working in partnership with business to shape markets, pick sectors and steer investment. The speech is studded with a collection of new hubs and programmes, which by themselves have a questionable track record, and steers clear, for the most part, of some much-needed substantial changes on planning, taxation and the regulatory environment.
Planning reform: necessary and insufficient
The Chancellor rightly identifies Britain’s planning system as ‘a direct obstacle to investment.’ In terms of progress already made, she highlights the reintroduction of mandatory housing targets, the opening of grey belt land and some limits on local committee vetoes.
These are welcome steps, however, the gap between ambition and delivery is already large and growing. The Office for Budget Responsibility expects net housing additions to fall to 215,000 in 2026, down from an average of around 260,000 in the early 2020s. The government’s 1.5 million target requires roughly 300,000 homes per year, a rate the country has not sustained since the post-war building boom. Industry surveys paint an even bleaker picture: almost all senior development leaders reported low or very low confidence in the market heading into 2026, citing planning delays, rising construction costs, labour shortages and viability pressures.
The fundamental problem is that mandatory targets and grey belt adjustments operate within the same discretionary framework that makes British construction so expensive. Without a genuine shift towards a more liberal planning system, the targets will remain aspirational.
Hubs, zones and units: action for the sake of action
The speech introduces the usual density of new entities and programmes: innovation hubs, digital campuses, growth labs, an AI Economics Institute to monitor the impact of AI on labour markets, a Youth Jobs Grant and the list goes on.
This proliferation of named initiatives is a beloved British policy tradition. It creates the impression of purposeful activity without addressing the underlying constraints that make activity so difficult. The question that hangs over every new hub and incubator is the same. Why do these sectors need bespoke institutions rather than a general environment in which enterprise can flourish? If planning rules were sensible, energy costs competitive and regulation proportionate, firms in Cambridge and Manchester would expand without needing a development corporation to hold their hand.
The Chancellor has also pledged to procure up to £1 billion of quantum computers from the first UK companies to produce them at commercial scale. This is a bet on a technology whose commercial timeline remains currently uncertain, placed with taxpayers’ money, through a procurement mechanism whose details are unspecified. It may work. It may not. But it is the kind of targeted industrial intervention whose track record gives some reason for scepticism.
Youth unemployment
The Chancellor notes that youth unemployment stands at over 16 per cent and declares the government ‘will not leave a generation to languish without prospects.’ She announces record investment in training, apprenticeships, a Youth Guarantee and a new £3,000 Youth Jobs Grant. What the speech does not say is that the government’s own policies have contributed materially to the problem.
The 2024 Budget raised employer National Insurance contributions and significantly increased the National Living Wage. The combined effect has been to raise the cost of entry-level hiring sharply. Retail employment costs alone rose by £5 billion in 2025. The cost of employing a full-time entry-level retail worker increased by roughly 10 per cent, and for part-time workers by over 13 per cent. When hiring becomes more expensive, employers naturally prefer experienced candidates who can deliver immediate productivity. Young people, who by definition lack experience, are pushed to the back of the queue.
The Chancellor’s response, a billion-pound suite of subsidies, grants and guaranteed placements, amounts to treating a wound that her own fiscal choices inflicted. It would have been cheaper, and more effective, not to have inflicted it in the first place.
Two genuinely welcome ideas
Against this backdrop, two proposals in the speech stand out as genuinely promising.
First, the Chancellor’s commitment to reform non-compete clauses. Around five million employees in Britain work under contracts containing non-competes, and research consistently shows that these clauses suppress job mobility, depress wages, and inhibit entrepreneurship. The government’s working paper, published in November 2025, considers options ranging from statutory time limits to an outright ban and identified evidence, particularly from Austria’s 2006 reforms, that restricting non-competes for lower earners increases mobility into better-paying jobs.
Second, and more significant, is the announcement on fiscal devolution. The Chancellor has asked officials to develop a roadmap for giving regional leaders control over a share of national taxes, including income tax, with a publication expected at this year’s Budget. She has also announced £2.3 billion in City Investment Funds backed by business rates retention for major city regions in the North and West Midlands.
The Chancellor is right that ‘it is no coincidence that Britain is one of the most politically centralised of advanced democracies, and one of the most geographically unequal too.’ Local authorities are asked to plan for growth but capture almost none of the fiscal reward when growth materialises. The result is a system that generates neither strong incentives for local economic development nor meaningful accountability for local outcomes. Creating real budgets with real constraints, where the proceeds of growth benefit the places that generated it, would be a positive, and perhaps overdue, change.
However, fiscal devolution works best when local authorities can compete on rates and set their own terms. If the planning, regulatory and tax environment remains unchanged, devolved fiscal powers may amount to rearranging the furniture in a locked room.
The active and strategic state
The Chancellor’s speech is long on institutional creativity and short on the thing that would actually make the biggest difference: a general, sustained reduction in the cost of doing business in Britain. Planning reform that deserves the name. Energy policy that prioritises cost reduction over target-setting. A tax regime that does not penalise hiring. Regulation that doesn’t inflate costs and blocks economy activity.
On regulation, the Chancellor’s own position is conflicted. She rightly identifies the accumulation of regulatory barriers as a drag on growth yet simultaneously signals a desire for closer regulatory alignment with the European Union. EU regulatory frameworks are, in many areas, precisely the kind of prescriptive, compliance-heavy regimes that raise costs for firms. If the goal is a lighter regulatory environment, voluntarily reimporting the EU’s approach is a strange way to achieve it.
The ‘active and strategic state’ is presented as the corrective to the ‘passive state’ of the past. However, the British state has not been passive. The Chancellor herself concedes as much when she observes that previous governments delivered ‘a highly centralised regulatory state, indifferent to the structure of the economy, lacking in strategic focus.’ Is the promise then the government will do more but ‘aim better?’ Rebranding interventionism as ‘strategic’ does not change its nature.
A more considered approach to addressing the UK’s productivity deficit would be to systematically reduce the supply-side barriers the Chancellor identified in her speech, rather than expanding the discretionary powers of the state that created those barriers in the first instance.
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Oh come ON!! Low productivity is not a problem; it is a symptom. And how is increasing the number of spenders (local ones, with no say in, or responsibility for, how taxes are levied) going to do other than increase collective spending? Mais non! as they say in France.