The House Article | The evidence is clear: energy infrastructure gives you economic growth

4 min read4 hr

Few things unite the UK’s main political parties as much as the recognition that we need to build more energy infrastructure. The reasons may differ, from reaching net zero, cutting the cost of living, or strengthening national security, but the conclusion is the same. More, cheaper electricity is vital to UK resilience and competitiveness.  

And yet, despite this consensus, the UK’s ability to generate sufficient energy has declined. The effective capacity of our energy system – the power we can reliably depend on – has fallen by 30 per cent from 2010 to 2024. And the UK’s total capital stock as a share of GDP has fallen at a greater rate than anywhere else in the G7 between 2010 and 2019.  

This contradiction sits at the heart of Britain’s growth challenge. If everyone agrees we need to build more energy capacity, why haven’t we done it? 

The reasons are threefold. Firstly, even where policymakers recognise the importance of infrastructure, the economic returns can be hard to prove upfront, which gives way to questions of affordability. Secondly, real pressure on scarce resources inevitably dilutes the investment available and makes it difficult to decide where investment should be prioritised. And lastly, even where the will and the funding exist, it is often spent ineffectively due to delivery challenges and a lack of incentives across the board to keep costs down. 

But none of this is insurmountable.   

For one, the economic case for greater energy infrastructure is clearer than ever. By analysing data across 92 countries over 30 years, our new research shows that increasing energy infrastructure is associated with greater long-term economic growth than any other type of infrastructure. A 5 per cent increase in energy-generating capacity could increase economic growth by 0.45 percentage points after 15 years. For context, the three small modular nuclear reactors recently announced in Wales could boost capacity by about 2 per cent. Given the UK economy likely grew by around 1 per cent last year, a 0.45 percentage point increase is material.   

At least some of the delivery challenges are also within the government’s gift to fix. The challenge is not whether to build, but how.  

Firstly, the state is well placed to help reduce the cost of infrastructure projects. Interventions such as government guarantees or selective use of the public balance sheet can materially lower the cost of capital by reducing risk to investors. This approach was used to deliver the Thames Tideway Tunnel, reducing the impact on household bills to around £20 per year, compared with initial estimates of up to £80. A similar model could be applied to selected large-scale energy infrastructure.  

Then there are the significant barriers to infrastructure delivery arising from government requirements. As things stand, 68 per cent of UK infrastructure projects run over budget, and 50 per cent run over time. Therefore, even before projects are chosen, there are ecosystem-level challenges that need to be addressed. While recent efforts to streamline planning are welcome, momentum must be maintained. Ensuring regulations are proportionate and conducive to building, particularly for nuclear, is just as vital – the John Fingleton recommendations are a clear place to start. Additionally, the supply chain needs long-term certainty to scale, strengthening the case for a stable, credible pipeline of projects. While a good start has been made here, more depth and detail are needed.   

Lastly, the government can support better infrastructure delivery at the project level. Too often, costs rise because of problems the state could have avoided altogether: shifting objectives, gold-plating, fragmented accountability, and underpowered delivery teams. Nowhere is this truer than with regard to energy infrastructure. When priorities change mid-project or decisions are repeatedly delayed, uncertainty is pushed onto contractors, who in turn charge for this responsibility — and taxpayers usually pay the price. More careful scoping and planning before projects commence can materially improve delivery confidence.   

There are rarely policies that are almost guaranteed to improve economic growth while being politically palatable. Expanding energy infrastructure is one of them, and it is within the state’s power to do so. 

Raoul Ruparel and Francesca Fraser are director and analysis manager of Boston Consulting Group’s Centre for Growth. They both previously served in 10 Downing Street.