Britain faces a simple but unforgiving test: can it adapt its economy fast enough to sustain growth, protect living standards and remain competitive in a rapidly changing world? A new report from the Tony Blair Institute for Global Change argues that restoring economic dynamism – the speed at which labour, capital and land move to higher-value uses – is essential to reviving the animal spirits that will drive investment, innovation and long-term growth in the age of AI.
In Taking the Brakes Off UK Growth: Building a More Dynamic Economy for a Faster World, TBI argues that Britain’s constraint is not simply weak productivity, but a declining capacity to adjust. Over the past two decades, the reallocation of labour, capital and land has slowed. In an economy being reshaped by AI, that loss of agility has become a competitive liability – and unless dynamism is restored, the UK risks falling further behind in the next phase of global competition.
Recent policy decisions – higher taxes on employment, stricter migration rules, expanded employment protections and an energy strategy that prioritises speed in reaching net zero over affordability – have all added friction to the UK economy at precisely the moment it needs to become more agile. With the Spring Statement likely to confirm how fragile the outlook remains, the case for change is becoming harder to ignore.
Britain needs a reset in favour of reigniting growth and dynamism: it is the defining economic challenge of this parliament. As the foundation of rising living standards and national renewal, it must serve as the government’s north star – the organising principle shaping decision making across Whitehall.
The report sets out a focused reform agenda to strengthen the UK’s capacity to adapt in the AI age – enabling workers, investment and infrastructure to shift towards the industries of the future. It calls on government to:
1. Introduce a tiered employment-protection system
Create a two-track framework that introduces greater contractual flexibility for higher-paid roles in high-growth sectors, where labour mobility is higher and unemployment risks are lower, while maintaining strong protections for most workers. This would preserve security where it is most needed while giving dynamic firms the confidence to hire, experiment and scale.
2. Make minimum-wage policy explicitly conditional on economic conditions
Update the Low Pay Commission’s remit so minimum-wage setting explicitly reflects labour-market conditions and rising employer costs, with clear authority to moderate increases during downturns. The same conditional approach should apply to youth-rate changes, tying any further convergence – including those announced at the last Budget – to youth-employment outcomes. The minimum wage has lifted pay, but without flexibility further rises could choke off the churn that underpins economic dynamism – especially at entry level.
3. Compete aggressively for global talent and capital
Expand the Global Talent Visa to frontier sectors, lower costs, introduce a targeted Growth Investor Visa, and reform the Foreign Income and Gains regime. Recent changes to the immigration system have reduced flexibility with a clear growth-focused alternative. In the age of AI, without a sharper offer, the UK risks losing skills and capital to faster-moving competitors.
4. Modernise the tax and finance system to back an ideas-driven economy
Allow full expensing of investment in R&D, data, software and other intangible assets and catalyse a market in IP-backed lending to unlock finance for high-growth firms. In an economy where value is increasingly driven by ideas, a tax and financial system still geared to physical collateral is out of date, and risks holding back the very industries the UK says it wants to lead.
5. Accelerate planning reform through rules-based zoning and fast-track approval for AI infrastructure
Move decisively towards a rules-based zoning system to provide certainty for development, and legislate for accelerated approval processes for nationally significant AI, energy and digital infrastructure projects. While planning reform has begun, a more radical shift is needed to match the scale and speed of technological disruption.
Tom Smith, Director of Economic Policy at the Tony Blair Institute for Global Change, said:
“Reigniting growth is the defining challenge facing the UK. Too often, growth is treated as one objective among many, rather than the engine of rising living standards and national renewal. A reset in favour of dynamism is needed.
“The government has shown it can be pro-worker; now it must prove it is pro-business – by unlocking the constraints that stop the economy from moving. Dynamism – the ability of workers, capital and land to shift to their most productive uses – has slowed. In the age of AI, that matters more than ever: growth will go to countries that adapt fastest.
“Restoring dynamism must sit at the heart of the government’s growth mission, backed by reforms to labour markets, finance and regulation that make it easier for businesses to hire, invest and grow. It is the difference between an economy fit only for the past, and one that can thrive in tomorrow’s world.”