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A cacophony of outrage erupted over Rachel Reeves’ demands that regulators should do more to support the economy. Consumer groups fear loss of protection; antitrust lawyers mutter about monopolies; government departments are maneuvering to avoid cuts in the bodies they sponsor. Others, meanwhile, took the opportunity to exhume dark warnings about the light-touch regulation that fueled the fire of the 2008 crash.
The chancellor is right. Light touch regulation is not Britain’s current problem. In fact, regulation is one of our few consistently reliable growth industries. There is no inherent tension between the economy and smart regulation that prevents monopolies, keeps markets competitive, and promotes capital formation. But in too many cases we have something different: ever-changing rules that companies struggle to keep up with; the complexity that creates ranks of lobbyists; and inherent mission creep.
Right now, hundreds of sites with planning permission are sitting empty, as the new building safety regulator struggles to process them, eight years after the tragic Grenfell Tower fire. The Financial Conduct Authority, which failed to spot the Woodford scandal despite warnings from former City minister Paul Myners, appears obsessed with imposing diversity rules on firms in a feeble attempt to prevent “groupthink”. Whatever you think of the CMA’s decision on Microsoft’s application to take over the gaming company, the many months it has spent in turmoil have not been impressive.
There is plenty of room for improvement. But while replacing one chairman (ex-Boston Consulting Group) with another (ex-Amazon, ex-McKinsey) may bring a different culture to the CMA, it is not a permanent solution. Although some of these bodies are evidently unsuccessful, most are only as good as the politicians who appointed them give them credit. The reason the UK has the highest electricity prices in Europe, crippling producers, is because ministers have long used energy regulation to promote their own environmental goals.
Reeves’ instinct is that “the balance has shifted too far in regulating risk”. This is partly because Whitehall itself is risk averse. Officials, keen to reduce the risks of decisions, tend to push too much into the vast Westminster landscape of long-armed bodies. Sponsoring departments, on the other hand, are often reluctant to look too closely at how they work: creating nonsense monitoring architectures, five-year reviews and impact assessments. But ministers are also risk-averse; and especially prone to “Something must be done”-ery. A classic example was in 2000, when the response to the horrific Hatfield train crash was to introduce safety regulations that caused chaos and were so expensive that they actually valued the lives of train passengers more than a hundred times more than the lives of car passengers. .
In 2015, while working in Downing Street, I was surprised to discover that the Whitehall department I was working with didn’t even have a list of the regulations it was responsible for. I asked a senior adviser what happened to the “bonfire of quangos” that George Osborne started five years ago. Initially irritated by my skepticism, he eventually admitted that while some inroads had been made, the system had backfired, and the result was less a bonfire than a tiny spark. In 2021, the Public Accounts Committee found that spending by these bodies had tripled since then; and Meg Hillier, Labor PAC chair, challenged the government of the day to explain why they were set up in the first place.
Britain used to be very good at smart regulation. The creation of regulatory sandboxes and the rapid introduction of a vaccine against Covid-19 shows that we still can be. But the government also needs to ask itself some tough questions about what the government is for and why we need bodies with confusing levels of overlap. Do we really need Ofgem and the National Energy System Operator? The Environment Agency and Natural England? When Great Britain’s railways are launched, what will be the purpose of the Office of Rail and Road?
Sir Dieter Helm, professor of economic policy at the University of Oxford, argues that energy and water regulation has become too complex. He suggested that they be regulated as networks, through one regulator. That would be a much more efficient approach. And if we are unable to adapt our regulatory systems to better serve our purposes, how will Britain ever be nimble enough to deal with advances in artificial intelligence or synthetic drugs?
You don’t have to be an enthusiastic libertarian to feel that Reeves is on the right track. The problem, of course, is the discrepancy between what the chancellor and business secretary say and what the government actually does. It sets up a large number of new long-arm bodies. And it is on the verge of launching an unprecedented raft of new employment regulations, many of which will be unenforceable. Just one small clause in that package will make every pub vulnerable to lawsuits from both staff and customers – because its requirement that employers protect their employees from harassment will directly conflict with customers’ right to free speech.
There’s still time to get this right. But politicians who want regulators to interfere less need to curb their own instincts to interfere. That doesn’t come easily.
