It is definitely a problem that not just English players, but all youth players at a lot of clubs have extremely little chance of breaking through at most squads - whilst clubs can go abroad and get an international with the money in the premier, that will always be a problem unless you bring in regulations.
Chelsea are a prime example, they buy the best youth players from around the world, yet not a single player has broke through in Abramovich, and only Bertrand has even been anything like an actual squad member. Why? Well when Chelsea can pay 25m and bring in a German international with 30 caps in the same position rather than promote an academy player, well they always well.
At best this stunts players development, at worst it destroys them and they never become the players they should have been.
I don't think anyone objects to good foreign players being signed, but there's clearly a lot of sub-par foreigners bought in too. If you made every 25 man squad so it had to be 13 England eligible players (or players who were once eligibl to allow for the likes of James Morrison who switch) for example, that allows clubs to bring in plenty of foreign players, whilst also meaning they rely on their academies for squad fillers rather than bring in rubbish from abroad. Unless you force clubs to use their academies, they generally won't, with few exceptions.
Part of the problem can also be seen in this thread - anyone who thinks its due to passion that England failed is so far off you can only hope they're nowhere near the coaching side of things. Whilst English people have this mentality that "passion" overrides all, youth coaching will go nowhere. The US play within a system built to within their needs, when England did that in Euro 2012 and took Italy to penalties everyone complained, when they tried to play a more technical approach, naturally they failed because other teams produce more technical players. Absolutely nothing to do with effort. England need to produce at grassroots level, but that'll never happen when skillful players are mistrusted and a love of "Passion" overrides all. In all likelihood this mentality of passion (which more often than not is shown through fouling people and running around a bit to most fans) will mean England never create the players they need to win anything. England don't lead the world in skillful players in any sport - probably a reflection of the demands of fans who demand passion and hard work and ignore skill and flair.