Unlock Editor’s Digest for free
A cacophony of anger erupted over Rachel Reeves’ demands that regulators should do more to support the economy. Consumer groups fear losing protection. Antitrust lawyers tweet about monopolies. Government departments manipulate to avoid cuts in the institutions they sponsor. Meanwhile, others are taking the opportunity to unearth dark warnings about the bright touch regulations that fanned the flames of the 2008 crash.
The prime minister is right. Light-touch regulation is not a current problem in the UK. In fact, regulation is one of our few consistently reliable growth industries. There is no inherent tension between the economy and smart regulations that prevent monopolies, keep markets competitive, and promote capital formation. But all too often there is something different about us. Constantly changing rules that companies struggle to keep up with. Spawn rank of lobbyist complexity. Unique mission creep.
Hundreds of sites with permission for high-rise housing now stand empty as new building safety regulators struggle to deal with them eight years after the tragic Grenfell Tower fire I am. The Financial Conduct Authority, which failed to find the Woodford scandal despite warnings from former cities minister Paul Miners, has imposed diversity rules on companies in a tenuous attempt to prevent “group think”. They seem to be obsessed with imposing themselves. Whatever you were thinking about the CMA’s decision on Microsoft’s application to take over Microsoft’s gaming company, the many months it has taken to close have been unimpressive.
There is plenty of room for improvement. But while replacing one chair (formerly Boston Consulting Group) with another (formerly Amazon, Exkinsey) may bring a different culture to the CMA, it is not a permanent solution. Some of these organizations are clearly failing, but most are only as good as the powers they are given. The reason Britain has the highest electricity prices in Europe is because ministers have long used energy regulation to promote their own environmental goals.
Reeves’ instinct is that “the balance has gone too far in regulating risk.” This is because Whitehall itself is risk averse. Officials keen on risky decisions tend to push too much into the vast arm-length physical landscape of Westminster. Sponsoring departments are often reluctant to take a hard look at how they are working, making up nonsense of monitoring architectures, five-year reviews, and impact evaluations. But the minister is also risk-averse. And especially “something has to be done” – Ellie. The classic example was in 2000, the response to the terrible Hatfield rail crash was to create chaos and introduce very expensive safety regulations. .
In 2015, when I worked at Downing Street, I was surprised to find that the Whitehall department I was dealing with didn’t even have a list of the regulations it was responsible for. I asked a senior advisor what happened to the “bonfire of Quangos” that George Osborne launched five years ago. Although initially troubled by my skepticism, he eventually explained that although some intrusions had been made, the system was in retreat and the results were more of a bonfire than a small spark. I admitted it. In 2021, the Public Accounts Committee found that spending by these institutions was trebled. And Meg Hillier, Labor chair of the PAC, challenged the government of the day to explain why they were set up in the first place.
Britain used to be good at sensible regulation. The creation of a regulatory sandbox, and the rapid rollout of Covid-19 vaccines, shows that we are still capable. But governments also need to ask some difficult questions about the purpose of the state and why we need a body with some level of overlap. Do we really need both Ofgem and the National Energy System operator? Environment Agency and Nature England? What’s the point of the Rail and Road Office as British Rail launches?
Sir Dieter Helm, professor of economic policy at the University of Oxford, argues that energy and water regulation has become too complex. He proposes that they be regulated as a network through a single regulator. That’s a much more effective approach. And how will the UK be agile enough to deal with advances in AI or synthetic medicines unless we can bend our regulatory systems to improve our goals?
You don’t have to be a raving libertarian to feel that Reeves is on the right track. The problem, of course, is the dissonance between what the Prime Minister and the Business Secretary are saying and what the Government is actually doing. We are installing a number of new arm’s length bodies. And it is on the verge of unleashing an unprecedented set of new employment regulations. One small clause in that package is that all pubs that are sued by both staff and customers because the requirement that employers protect employees from harassment directly conflicts with customers’ free speech rights. will be created.
There’s still time to get this right. But politicians who want regulators to interfere less must suppress their instincts to intervene. It’s not easy.
camilla.cavendish@ft.com
