Why Britain cannot build enough of anything

 The problem is bad rules, not bad people opines The Economist

Sep 1st 2022

Duncan sandys, a Conservative minister in the 1950s and 1960s, has two reasons to be remembered. The first is that he was the “headless man” being fellated by the Duchess of Argyll in a Polaroid photo, which emerged in divorce proceedings so vicious that they were turned into a bbc One drama earlier this year.

Listen to this story.

 Enjoy more audio and podcasts on iOS or Android.

The second reason is less salacious. In 1955 Sandys issued a circular that fundamentally changed Britain. It implored local councils to forbid building on the edge of cities in order “a) to check the further growth of a large built-up area; b) to prevent neighbouring towns from merging into one another; or c) to preserve the special character of a town”. The authorities had tried to restrict urban growth since the reign of Elizabeth I. Now they could.

Today all four nations of the United Kingdom have green belts. About 13% of England is so designated, including the surroundings of every major city. The girdle that encloses London is three times the size of the capital. A stroll through it takes in scrubland, pony paddocks and petrol stations. In “The Blunders of our Governments”, a book by Anthony King and Ivor Crewe, the policy is held up as a rare example of legislation achieving exactly what was intended.

The green belts do their jobs well, pushing development into the rural areas between them (see maps). Indeed, most parts of the planning system work as intended. Councillors retain democratic control over the planning system. Environmental watchdogs enforce their mandates fiercely. Stringent rules protect bats, squirrels and rare fungi. Courts ensure that procedures are followed to the letter. But the system as a whole is a failure. Britain cannot build.

In total, about 10% of gdp is spent on building, compared with a g7 average of 12%. England has 434 dwellings per 1,000 people, whereas France has 590, according to the oecd, a club of mostly rich countries. There is little slack in the market. In France, about 8% of dwellings are vacant at any one time. In England, the rate is barely 1%. Britain also struggles to build reservoirs and (despite boasts from successive prime ministers) nuclear power stations. With almost 500,000 people, Leeds is the largest city in Europe without a mass transit system. What has gone wrong?

The problem starts with the Town and Country Planning Act, which nationalised the right to build on land. Where once owners could do almost as they pleased, after its passage in 1947, local councils controlled what was built where. They have never relinquished that power. The planning system has more in common with an old eastern European command economy than a functioning market, argues Anthony Breach of Centre for Cities, a think-tank. “We do not have a planning system, we have a rationing system,” he says.

Even when councils approve development, other outfits can stop it. Natural England was created in 2006 with the aim of protecting flora and fauna. After a European Court of Justice ruling in 2018, it was tasked with ensuring “nutrient neutrality”, meaning any development could not increase phosphate or nitrate pollution in rivers. Natural England came up with a blunt solution: building could not go ahead unless developers could prove it would not lead to an increase in nutrient levels, a stipulation that few could provide.

The result was a near total freeze on house-building. Local politicians and developers, who had spent years in painful negotiations, were caught out. In total, about 14% of England’s land faced extra restrictions. One industry group argues that 120,000 houses were affected, or 40% of Britain’s annual housing target. Liz Truss, the likely next prime minister, has promised to scrap the requirement, but details are scant.

Newts present as many problems as nutrients. Anyone who harms a great crested newt while building can be jailed for up to six months. Bats are a nightmare for anyone renovating or developing (enterprising nimbys sometimes install bat boxes in order to attract them to a potential site). Protected under law, it is a crime to harm a bat or destroy its roost. A full report, which involves ecologists scouring a property with bat-hunting microphones plugged into iPhones, can cost £5,000 ($5,800).

If a roost must be destroyed, a like-for-like replacement must be installed. hs2, a railway line, was forced to build a £40m bat tunnel to stop the creatures being squished; its route is lined with bat-houses, which are large enough for humans. For developers, the rules are an expensive annoyance. For bats, however, the legislation has been a success. Numbers of the common pipistrelle have almost doubled since records began in 1999.

Some schemes do not survive contact with environmental objections. A planned nuclear power station in north Wales was rejected by the planning inspectorate in 2019 partly on the ground that it might affect a local population of terns. Inspectors ruled that “it cannot be demonstrated beyond reasonable scientific doubt that the tern colony would not abandon Cemlyn Bay”. That the terns had existed next to a previous nuclear power station was little defence. Inspectors also worried about the effect construction would have on the dominance of the Welsh language.

Even small housing estates now require reams of impact assessments and consultations. A planning application used to involve a single thick folder, says Paul Smith, the managing director of Strategic Land Group, which helps customers win planning permission. Now it is a thicket of pdfs, often running to thousands of pages.

For a development of 350 houses in Staffordshire, a developer had to provide a statement of community involvement, a topographical survey, an archaeological report, an ecology appraisal, a newt survey, a bat survey, a barn owl survey, a geotechnical investigation to determine if the ground was contaminated, a landscape and visual impact assessment, a tree survey, a development framework plan, a transport statement, a design and access statement, a noise assessment, an air quality assessment, a flood risk assessment, a health impact assessment and an education impacts report. These are individually justifiable, yet collectively intolerable.

See you in court

Make an error, however, and a legal challenge will follow. Anyone affected by a decision and able to afford a judicial review can challenge a planning decision. For a group of motivated, well-off nimbys, whipping together £20,000 for a review is easy enough. In Bethnal Green, in east London, a mulberry tree blocked the conversion of a Victorian hospital into 291 flats. Dame Judi Dench, an actor, was roped in to support the tree, which was so frail it required support from a post haphazardly nailed onto one of its branches.

After a campaign, the mulberry was in 2018 designated a veteran tree, which gives it special legal rights. (The number of signatories to save the tree matched the then population of Bethnal Green.) Although the developer had proposed moving the plant, a judge ruled that the council had not properly considered the danger that it might not survive: “A policy was misinterpreted; a material consideration was ignored.” The site sits derelict today.

Councils behave rationally when it comes to development. They levy no income tax or sales tax, and cannot even fund all their operations from property taxes, known as council tax. In all, local government imposes taxes worth less than 2% of gdp, according to the oecd. So more development does not equal much more money for better services. But it does equal more complaints. Councillors often enjoy majorities of just a few dozen votes. A well-organised campaign can replace an entire council, as happened in Uttlesford, in Essex. The result is that local councils are “a bottleneck on national economic growth”, argues a joint paper by the Centre for Cities and the Resolution Foundation.

The government in Westminster can usually override local objections. “When the state decides to act, it has unlimited power,” says Andrew Adonis, a Labour peer, who oversaw the introduction of hs2. Projects such as hybrid bills allow the government to bypass the planning system, turning Parliament into a kind of planning committee. The process is so arduous that sitting on the committee is often a form of punishment from the whips who enforce party discipline. But the benefit is that courts do not challenge primary legislation. Judicial review claims bounced off hs2 like stones off a tank.

Even when the government acts, it is often cautious. A plan to turn a quarry in Kent into a settlement of 15,000 homes was one of the most ambitious schemes, when announced by George Osborne, the then-chancellor, in 2014. Yet it is around a seventh of the size of Milton Keynes, a maligned but highly successful new town begun in the 1960s.

Larger schemes, such as a push for a million homes stretching between Oxford and Cambridge, with a new railway and motorway linking them, have been ditched due to local opposition. “We were a bit out of puff,” admits a cabinet minister. Greg Smith, a Tory mp, had already put up with hs2 slicing through his constituency, and it seemed unfair to subject him to more building. In Britain, pork barrel politics works in reverse, with mps keen to keep things out of their constituencies.

As a result, Britain’s most productive region is shackled. Burgeoning life-sciences firms fight for scarce lab and office space while world-class researchers live in cramped, expensive homes. The average house price in Oxford, £474,000, is about 12 times average incomes. Given the opposition of local councils and local mps to housebuilding, though, it can hardly be said to be against voters’ will.

Britain is rare in that the Treasury functions as both a finance ministry, keeping a close eye on spending, and an economic ministry, investing for the future. Thriftiness tends to trump investment. “[The Treasury] can add up but they can’t multiply” as Diane Coyle, an economist, puts it. It shackles big infrastructure projects, balking at upfront costs even if there are large returns later on.

The result is false economies. hs2, a £100bn project to connect London to Birmingham and then Manchester, Sheffield and Leeds, was intended mostly to add capacity to Britain’s crowded railways, not (despite the name) to speed journeys up. The government recently cut the eastern leg of the scheme to save money. That it was the most beneficial part of the scheme—the eastern leg to Leeds and Sheffield had a benefit-to-cost ratio of nearly 5.6:1, compared with 2.6:1 on the western leg between London, Birmingham and Manchester—was overlooked. Joseph Bazalgette, the Victorian responsible for London’s sewer system, is said to have argued that: “We’re only going to do this once and there’s always the unforeseen”. Now, the opposite principle applies.

Political capital is less fungible than the financial kind. When it comes to building things in Britain, there is usually no alternative scheme ready to go. If a big project is scrapped, the political capital spent on forcing through its approval cannot be instantly reallocated. The slow process of winning support at a local and national level must start anew. In the meantime, nothing is built.

And Westminster can be capricious. In 2022, after years of argument, Transport for London won permission to build 351 flats on land it owned at Cockfosters Underground station. Grant Shapps, the transport secretary, blocked the development because it removed too many car parking spaces. The Leeds Supertram Act was passed in 1993. Three decades later, Leeds possesses no tram, super or not, as a series of governments refused to fund the project. In 2016 the government rejected a proposal for a trolleybus, in part because it did not think the route would reduce inequality within the city.

Scepticism among nimbys is often justified. Post-war town planners botched city centres, bulldozing through objections. Birmingham’s Victorian centre was carved up to make way for ring roads that still throttle the city. London narrowly avoided a similar fate. New developments, such as Nine Elms, manage to be expensive while looking cheap. Outside big cities, development is often limited to boxy housing estates, which are notorious for poor building quality. A Welsh property surveyor has amassed 560,000 followers on TikTok by angrily taking viewers through snags in newbuilds. (“Check out what this absolute melt has done with this hinge,” he almost screams in one video. “That is absolutely ridiculous.”)

In Oxfordshire a group of residents have spent almost a quarter of a century fighting attempts to build a reservoir. The Environment Agency and a public inquiry sided with the residents over Thames Water. The objectors are shrewd, motivated and well-versed in water regulation. The chairman of the Group Against Reservoir Development (gard) is a retired nuclear scientist; his predecessor was a brigadier. But after a summer of drought, in which Thames Water had to implement a hosepipe ban, the victory rings a little hollow.

Efforts are being made to convert the unbelievers. New planning legislation offers residents the chance to propose their own development and, in effect, approve it themselves via street votes. The government is trying to improve design standards, hoping that beautiful buildings will attract less opposition. Those who put up with infrastructure, whether wind turbines or a reservoir, may benefit from free energy or water bills under one scheme floated by ministers.

Officials are also toying with a net-zero trump card. Projects deemed crucial to making Britain emissions neutral by 2050 would be able to ride roughshod over many obstacles. At the moment policy aimed at protecting the environment hinders projects that should help the climate. The government protects flora and fauna because voters want it; circumventing such rules can only be done in the name of the environment, runs the logic.

Building is binary, however. If something is built, those who oppose it will be unhappy; if it is scrapped they will be delighted. There is little incentive to meet halfway, or to accept a payoff. “This is not some sort of poker game where we demand huge compensation,” said Derek Stork, who chairs the reservoir-killing gard. Britain cannot build. But that is just the way voters want it.

China pulls back from the world: rethinking Xi’s Belt and Road Initiative

James Kynge and Jonathan Wheatley in The FT

It has not taken long for the wheels to come off the Belt and Road Initiative. As recently as May 2017, China’s leader Xi Jinping stood in Beijing before a hall of nearly 30 heads of state and delegates from over 130 countries and proclaimed “a project of the century”. 

This was not hyperbole. China has promised to spend about $1tn on building infrastructure in mainly developing countries around the world — and finance almost all of this through its own financial institutions. Adjusted for inflation, this total was roughly seven times what the US spent through the Marshall Plan to rebuild Europe after the second world war, according to Jonathan Hillman, author of The Emperor’s New Road. 

But according to data published this week, reality is deviating sharply from Mr Xi’s script. What was conceived as the world’s biggest development programme is unravelling into what could become China’s first overseas debt crisis. Lending by the Chinese financial institutions that drive the Belt and Road, along with bilateral support to governments, has fallen off a cliff, and Beijing finds itself mired in debt renegotiations with a host of countries. 

“This is all part of China’s education as a rising power,” says Mr Hillman, a senior fellow at Washington-based think-tank CSIS. “It has taken a flawed model that appeared to work at home, building large infrastructure projects, and hubristically tried to apply that abroad.” 

“Historically, most infrastructure booms have gone bust,” he adds. “Whether China can avert that fate may depend on its ability to renegotiate loans with countries now in urgent need of debt relief. If China is unable or unwilling to provide sufficient relief to its borrowers, it could find itself at the centre of a debt crisis in developing markets.” 

The data that describes China’s predicament comes from researchers at Boston University who maintain an independent database on China’s overseas development finance. They found that lending by the China Development Bank and the Export-Import Bank of China collapsed from a peak of $75bn in 2016 to just $4bn last year. 

The context around this is crucial. The two banks fall under the direct control of China’s state council (cabinet), so they function as arms of the state. They provide the overwhelming majority of China’s overseas development lending and the funds they disburse rival in scale those of the World Bank, the world’s largest multilateral lender. 

Between 2008 and 2019, the two Chinese banks lent $462bn, just short of the $467bn extended by the World Bank, according to the Boston University data. In some years, lending by the Chinese policy banks was almost equivalent to that by all six of the world’s multilateral financial institutions — which along with the World Bank include the Asian Development Bank, the Inter-American Development Bank, the European Investment Bank, the European Bank for Reconstruction and Development and the African Development Bank — put together. 

In global development finance, such a sharp scaling back of lending by the Chinese banks amounts to an earthquake. If it persists, it will exacerbate an infrastructure funding gap that in Asia alone already amounts to $907bn a year, according to Asian Development Bank estimates. In Africa and Latin America — where Chinese credit has also formed a big part of infrastructure financing — the gap between what is required and what is available is also expected to yawn wider. 

‘Dual circulation’ 

China’s retreat from overseas development finance derives from structural policy shifts, according to Chinese analysts. “China is consolidating, absorbing and digesting the investments made in the past,” says Wang Huiyao, an adviser to China’s state council and president of the Center for China and Globalisation, a think-tank. 

Chen Zhiwu, a professor of finance at Hong Kong university, says the retrenchment in Chinese banks’ overseas lending is part of a bigger picture of China cutting back on outbound investments and focusing more resources domestically. It is also a response to tensions between the US and China during the presidency of Donald Trump, when Washington used criticisms of the Belt and Road as a justification to contain China, Prof Chen adds. 

“In domestic Chinese media, the frequency of the [Belt and Road] topic occurring has come down a lot in the last few years, partly to downplay China’s overseas expansion ambitions,” says Prof Chen, who is also director of the Asia Global Institute think-tank. “I expect this retrenchment to continue.” 

Yu Jie, senior research fellow on China at Chatham House, a UK think-tank, says Beijing’s recently-adopted “dual circulation” policy represents a step change for China’s relationship with the outside world. The policy, which was first mentioned at a meeting of the politburo in May, places greater emphasis on China’s domestic market — or internal circulation — and less on commerce with the outside world. 

“Volatile Sino-US relations and more restrictive access to overseas markets for Chinese companies have prompted a fundamental rethink of growth drivers by Beijing’s top economic planners,” says Ms Yu. “Naturally, if state-owned enterprises decide to switch back to the domestic market in order to follow the leadership’s wishes, the budgeted financial resource for overseas investments will reduce accordingly.” 

All this is leading to a fundamental rethink by China towards both the Belt and Road and its overseas lending profile, analysts believe. Mr Wang says that one strand of a new approach would be to pursue more lending through multilateral bodies such as the Asian Infrastructure Investment Bank. In addition, Chinese financial institutions may co-operate more with international lending agencies, he adds. 

Such a change would amount to a fundamental reorientation. The Beijing-based AIIB and another multilateral bank in which China is a stakeholder, the New Development Bank, are very different organisations from the two Chinese policy banks. They have lent out a fraction of the policy banks’ annual average and are not directed by Beijing’s policies but by a board of directors who represent the interests of stakeholder countries. 

Flaws in the initiative 

Overall, though, China’s rethink betrays a tacit recognition that its overseas lending bonanza has been ill-conceived. Photographs from the 2017 Belt and Road Forum for International Co-operation — the venue at which Mr Xi declared his “project of the century” ambition — hint at what would become the programme’s fatal flaw. 

Alongside Mr Xi in successive portraits were the authoritarian leaders of countries with big debts and “junk” credit ratings, such as Alexander Lukashenko of Belarus, Hun Sen of Cambodia, Aleksandar Vucic of Serbia, Uhuru Kenyatta of Kenya and several others. 

Debt sustainability — or the ability of debtor countries to repay their loans — had to be part of any reassessment of the Belt and Road Initiative, says Kevin Gallagher, director of the Boston University Global Development Policy Center, which compiled the data on Chinese overseas lending  “This has to be the time for a rethink,” he says. “It’s been such a priority for Xi Jinping, he’s invested so much in it that he’s not going to just turn the lights off. But they need to seriously implement their own debt sustainability analysis and their own social and environmental impact tools.” 

The propensity for China’s credit-fuelled engagement of diplomatic allies to come unstuck is most spectacularly portrayed by Venezuela. Between 2007 and 2013, the China Development Bank lent Venezuela nearly $40bn, cementing a relationship that Hugo Chávez, the former president of Venezuela, characterised as “a Great Wall” against US hegemonism. 

Much of the lending to Venezuela was tied to oil resources, but even before Mr Chávez died in 2013 it was clear that things were going awry. Yet Beijing was in so deep that it felt compelled to keep supporting Nicolás Maduro, successor to Mr Chavez, even after evidence of his ineffectual economic management became clear. 

It lent another $20bn between 2013 and 2017 and is now picking through the country’s pile of $150bn in defaulted debt, pushing its claims against rival creditors. The whole episode carries crucial lessons for Beijing, says Matt Ferchen at Merics, a Berlin-based think-tank. 

“Chinese foreign policy and policy bank officials entered into their outsized economic and political relationship with [Venezuela] with a combination of hubris, ambition and naïveté,” Mr Ferchen wrote. “[This] has contributed to the region’s worst economic, humanitarian, and political crisis in decades.” 

Debt renegotiations have proliferated as the pandemic has clobbered emerging economies in Africa and elsewhere. A report by Rhodium Group, a consultancy, says at least 18 processes of debt renegotiation with China have taken place in 2020 and 12 countries were still in talks with Beijing as of the end of September, covering $28bn in Chinese loans. 

So far, Beijing appears keen to pursue a soft touch, deferring interest payments and rescheduling loans. But the experience is reinforcing a growing sense of wariness that now infuses Mr Xi’s big project. 

China is finding out, says Mr Hillman, that “risk runs both ways along the Belt and Road and the damage can return to Beijing”.

Columbus shows Trump how to thrive in the new world order

Rana Foroohar in The Financial Times


A day or two after Donald Trump announced tariffs on a spate of Chinese goods, the world was gripped by fears of a trade war. More than a week later, there is a storyline building that perhaps the US president had the right idea. China is negotiating with the US; the US and South Korea will probably cut a new trade deal. While the administration is right to call China out over unfair trade practices, however, there is also a risk of taking away the wrong message, which is that tariffs are the best way to protect the US Rust Belt. 

China may not play fair, but it plays the long game. This is the crucial point. While Mr Trump rails mostly against the trade deficit, China has an industrial policy designed to win the jobs of the future in strategic high-tech industries. This is the better strategy, as evidenced not only by what is happening in the Middle Kingdom, but also in the US. 

Consider the success of Columbus, Ohio, a city whose fortunes I have followed closely for many years because it is an economic and political bellwether for the country. Politicos come here to take the pre-election temperature of the nation and companies to test drive new products. Columbus is in the heart of the Rust Belt territory that helped elect the president. Mr Trump has visited Ohio in recent days, offering modest federal incentives with the aim of creating a boom in local infrastructure spending (unlikely, given the dismal fiscal picture in many US states and cities). 

Columbus is the third-biggest national market for employment in the manufacture of motor vehicles. Yet the city fathers are not too bothered either way about what the president does or does not do around tariffs. 

“Some industries will win, some will lose,” says Kenny McDonald, the head of Columbus 2020, the regional economic development strategy. “But there’s plenty of people at JPMorgan, Honda and Nationwide [all large local employers] that are right now working on algorithms that may replace their jobs.” 

This statement reflects important truths. During the past four decades, technology has created just as much job disruption, if not more, in the Rust Belt as has trade. After the global financial crisis, Columbus was one of the US cities that suffered most. While it didn’t fall quite as far as the rest of the state thanks to a diversified economy (Columbus is the state capital and also has a strong education sector), it was faced with chopping $100m in municipal spending — more than 15 per cent of its total operating budget — in 2009. 

The city did all the usual back-end trimming of public services. But then, rather than become Detroit, which for a period of time literally couldn’t keep the lights or water on, Columbus also did something else: it thought ahead. 

The Democratic mayor went to the Republican city fathers and persuaded them to support a tax rise, the first in nearly four decades. They agreed, on condition that a chunk of that money would go into a public-private economic development partnership that focused on how to cultivate human capital for an era in which all value will reside in intellectual property, data and ideas. 

They connected community colleges with local companies, domestic and global (L Brands, JPMorgan, Worthington Industries, Honda) to train up a digitally savvy technical workforce. They renovated the crumbling downtown and created new housing stock to appeal to the millennials who had been leaving for greener pastures after their studies. 

Columbus is now one of the top 10 areas that young workers are pouring into (it ranks number three as a city of choice for fashion designers, after Los Angeles and New York). In an effort to move from making bumpers and hubcaps to being part of the internet of things, Columbus bid for, and won, a $40m Department of Transportation grant to become a “smart city” focused on electric vehicles. About $500m of additional investment has followed. 

“This isn’t a five-year plan for economic development, it’s a 100-year plan,” says Alex Fischer, head of the chief executives group the Columbus Partnership. 

The city is part of Elon Musk’s “hyper-loop” plan to create a train that can connect Chicago, Columbus and Pittsburgh in minutes. Ohio State and Columbus State Community College have started some of the first degree programmes in data analytics. Tesla, AWS and Apple have moved into town. Accenture now has an innovation lab on what used to be the site of a large buggy manufacturer. 

It is hard to imagine a greater symbol of change. The Columbus region has, since 2010, created roughly half of all the new jobs in Ohio. Harvard Business School recently wrote a case study about the city’s accomplishments. 

The city’s success is a great example of what American industrial policy can yield. Many countries — not just China, but also a number of European nations — create multiyear plans for economic development. The US does not, of course. Industrial policy have always been dirty words here. 

Mr Trump, and many others, rail against Chinese state-run capitalism. But by demonising the outsider, rather than creating a real national economic development strategy at home, the US is missing the point. Columbus is, in a way, showing how to do Chinese economic development with American characteristics. It’s a strategy worth copying.