What these ideas could
mean for policy.

RCG is our proposed explanation for why money put into the economy often does not reach productive investment.

Most policy assumes that capital flows to wherever it earns the highest return. RCG suggests that, in practice, it also flows to wherever it meets the least friction — the fewest delays, costs and barriers. Those two places are not always the same.

We write this as a simple equation, F = P · ΔR · G. The flow of capital (F) depends on how much money is pushed in (P), how much better the destination pays than the alternatives (ΔR), and how freely capital can get there (G, or conductance). Because the terms are multiplied, a low value in any one holds back the whole result.

Several well-known patterns are consistent with this idea:

• After 2008, large-scale quantitative easing (QE) — central banks buying bonds to push money into the economy — lifted asset prices much more than business investment
• After 2020, large fiscal stimulus was followed by supply bottlenecks and rising asset prices
• UK infrastructure often costs considerably more than comparable projects abroad, and reviews such as the 2025 Fingleton nuclear review point to process, rather than technology, as a large part of the reason
• A study of 614 cities found that finance first helps growth and then, beyond a point, holds it back — the pattern you would expect if finance first reduces friction and later adds to it

PRICI is a proposed score that compares how a company uses its money with other companies in the same sector.

PRICI stands for the Price Restraint and Investment Compliance Index. It is built from three parts, all taken from published company accounts:

• Price Intensity (PI) — how fast the company’s prices have risen compared with the sector average
• Extraction Signal (ES) — how much of its sustainable earnings the company pays out to shareholders through dividends and share buybacks
• Investment Compliance (IC) — how much it verifiably invests in equipment, research and development (R&D) and pay for typical employees

They combine into one score: PRICI = (PI × ES) ÷ (1 + IC). Lower is better. A company that raises prices faster than its peers and pays out heavily without investing scores high; one that invests well scores low, whatever its payouts.

Under the proposal, companies well above their sector average would face a surcharge on excess payouts, and companies investing above average would be rewarded. The choice of how to respond stays with the company.

Because the current approach also carries costs and risks — they are just less visible.

Three considerations:

• Money is not always reaching its target. Our draft UK Transmission Balance Sheet — a working estimate of where public spending ends up — suggests that a large share of spending is absorbed by administration, outsourcing and process before it reaches frontline services. Even if the true figure is lower, the gap is worth measuring.
• Delay has a cost. Japan’s long period of weak growth after 1990 shows how persistent low investment and productivity can become once established.
• Established approaches can be improved. Central bank independence was once considered a radical idea. Long practice does not mean an approach cannot be made better.

That is why we propose a cautious route: measure first, pilot in phases, and evaluate independently before any wider use.

Because many are growing well below their past rate, and that gap has a real cost for households.

Productivity — how much is produced per hour worked — is the main long-run driver of wages. The Centre for Cities (2026) found that if UK cities with strong output but weak household income growth had matched comparable cities, their residents would be around £11,000 a year better off.

The question is not whether these economies are doing badly, but whether they could be doing noticeably better.

No. The same pattern appears in developing economies, though advanced economies may be best placed to test the approach first.

• Zimbabwe: during the 2008 hyperinflation, capital flows effectively collapsed. Adopting the US dollar in 2009 removed a major source of friction, and activity recovered quickly.
• The middle-income trap: as countries grow, their low-wage advantage shrinks while institutional friction often rises. Capital can then leave for safer destinations even when returns at home look higher.
• Cross-country research: the finance-and-growth pattern found by Ioannou & Wójcik (2021) holds across 614 cities in 75 countries, including developing economies.

Advanced economies have the data and institutional capacity to pilot PRICI, and — as with financial reporting standards in the past — could set a model others can adapt.

No. Reducing friction is not about cutting spending — it is about making sure spending reaches its intended destination.

We group friction into four sources. Tackling each usually needs investment, not cuts:

• Regulatory friction: faster, clearer planning and permitting, so projects can go ahead — not fewer projects
• Information gaps: better transparency, so investors can find and trust productive opportunities — not less oversight
• Market structure barriers: more effective competition, so new firms can enter — not deregulation
• Capture: rewarding payouts that come alongside productive investment — not banning profits

In practice this means investing in planning systems, data infrastructure, competition enforcement and incentives. It is a way of getting more from the money that is already being spent.

Deregulation removes rules. Reducing regulatory friction keeps the standards and removes unnecessary process.

The 2025 Fingleton review of UK nuclear regulation illustrates the difference. It found the regime was not so much too strict as too process-heavy, with repeated safety cases and very large volumes of paperwork. The suggested answer was a more efficient process, not weaker safety.

Competition authorities deal with market power itself. PRICI looks at how that power is used.

Competition authorities review mergers, prevent cartels and, occasionally, break up monopolies. That work is essential, but it is case-by-case and can take years.

PRICI would add a continuous, rules-based signal. Even in a concentrated market, a firm that uses its position to raise prices and pay out heavily without reinvesting would score poorly, while one that invests would not. It is designed to work alongside competition policy, without needing new enforcement powers.

PRICI offers a common, auditable measure, which can make those efforts easier to target and track.

Each existing route has limits. Organisations rarely have strong incentives to reveal their own opacity; some market participants benefit from information others lack; and new technology helps only where there is demand for it.

Information gaps can be estimated from published indicators — such as the cost of trading (bid-ask spreads), the cost of due diligence and how standardised contracts are. Putting these into a common measure makes the problem visible and comparable.

PRICI does not ban payouts. It applies only where payouts are well above the sector average and not matched by investment.

Experience with other behaviour-based incentives, such as environmental taxes, suggests that firms more often adapt than relocate, because changing behaviour is usually cheaper than moving. Any capital that did leave would, by definition, be capital that was not being reinvested productively. The phased pilot is designed to watch for exactly this effect.

PRICI does not pick sectors or projects. It counts three broad types of investment that are widely linked to long-run growth.

• Capital expenditure — factories, equipment and infrastructure
• Research and development — new products, processes and services
• Pay for typical employees — investment in people, measured at the median rather than executive pay

There is broad agreement among economists that sustained growth depends on investment in physical capital, innovation and skills. PRICI uses these categories because they can be verified from audited accounts, and leaves every decision about where to invest with the firm.

Markets tend to react most to uncertainty. PRICI is designed to be clear, predictable and introduced gradually.

Markets have adapted to earlier changes such as central bank independence, environmental regulation and new reporting standards. There may also be demand-side benefits: if more capital goes into investment and wages, household spending and growth can rise.

Careful communication, a long lead-in and an advisory period with no penalties are all part of the proposal.

The proposal is phased specifically so that problems can be found and fixed before they matter.

If the measure needs refining, the weights and classification rules can be recalibrated. The underlying question — whether friction affects how well stimulus works — is not what is being tested in a pilot; the measuring instrument is, and instruments can be improved.

A phased pilot run through existing institutions, with no new regulator.

• Data collection: the national tax authority, using accounts firms already file
• Setting sector benchmarks: the finance ministry with the central bank
• Audit and enforcement: the financial regulator and the national audit office

The timetable follows the four phases above — roughly two and a half years from the start of data collection to a parliamentary decision. The main costs are analytical and administrative, and would be weighed against the evidence from the pilot.

It is designed with legal robustness in mind, around three principles. Detailed legal analysis would be needed in each jurisdiction.

• Clear legal authority: anchored in existing economic governance powers, linked to a documented problem, with exemptions for small firms, a sunset clause and parliamentary review
• Regulating conduct, not taking property: firms keep a free choice — invest, or pay a surcharge on excess payouts — with a proportionate, stepped approach
• Proportionality: staged enforcement (advisory, then watch, then surcharge), clear safe harbours for compliant firms, and the option to pre-clear investment plans

The aim is a published, evidence-based, reviewable process — the kind of record that courts generally expect from a reasonable regulator.