TS Eliot wrote that April is the cruellest month, but we all know it’s January that wears that crown. This January felt more exhausting than usual with markets slamming into and out of reverse mode and a thick fog of unresolved issues – inflation, the prospect of rising interest rates, the threat of war and political mayhem – obscuring visibility of the year ahead.
We might have expected that the arrival of two key reports at the end of the month, one about the government and one from the government, would clear some of this confusion. Yet the first of these, on Downing Street lockdown parties, was incomplete owing to an ongoing police investigation and did not resolve the question of how long Boris Johnson will survive as PM. The second, on the benefits of Brexit, was overshadowed by the described failures of the PM’s leadership and judgement in the former.
Nevertheless, the Brexit report did at least set out (not for the first time) the framework being developed to allow the UK to prosper outside the EU. It all boils down to this: ensuring that businesses do not have to “struggle through a thicket of burdensome and restrictive regulations”.
The big Brexit payout, it is said, will be how it enables the UK to slip off the highway to regulatory hell and into a world where regulation is business-friendly. ‘Bad’ rules that hurt business and do not work in the interest of the UK are being dumped (although the government has decided not to stick with its previous plan to enforce one-rule-in, two-rules-out). New regulations will be “co-created” with business. Frameworks will be flexible, compliance costs will be borne down on and SMEs will be protected from the most burdensome obligations. Too often, chide the report’s authors, regulation has been produced with inflexible rules and heavy compliance costs. The new guiding principles are that regulation must support businesses not burden them and that rules must only exist where they are absolutely necessary. The culture now will be business-friendly above all else with lots of information sharing between the rule makers and business.
Markets that are seen to be achieving “the best outcomes” – however that will be determined – will be allowed to move more freely and dynamically.
There is nothing wrong with encouraging regulators to factor in the impact of rules on growth and innovation. They almost certainly already do, although perhaps not as the first priority.
Regulations tie us all up in order to protect consumers (and even with tons of the stuff, people get ripped off – just look at the financial scandals of the past few years) and employees (to curtail capitalism’s more exploitative aspects), but they also protect businesses and allow competition to flourish. Switching the emphasis now to putting business first carries risks. The first is overpromising. Lifting the burden in this way may not be possible. It certainly won’t be easy. In the £90bn life sciences sector, for example, the intention is to make it faster and easier to run clinical trials but still ensure the highest standards in safety quality and efficacy of medical products.
There is another overpromising risk, which is that regulation may not be the key to productivity gains. Our long-term economic growth ultimately depends on productivity increases, and here my colleague Chris Dillow’s view is that international factors such as technical progress or the lack thereof matter at least as much as anything else.
And recent academic papers from the LSE and the University of Oxford, examining the reasons why productivity is slowing down in a range of advanced economies, show that the majority of their panels rate investment in education and worker training as having far more impact on productivity than factors such as tax and regulation.
