Chris Wilford is Director of Financial Services Policy at the CBI. He is also an Area Officer for South East London Conservatives. He writes in a personal capacity.
Sovereignty was one of the most powerful cases for the United Kingdom leaving the European Union, including the power to set our own rules. Whilst many British policymakers spent much of the last 30 years attempting to build a large and accessible single market for our goods and services, an increasing chorus was highly critical of what was felt to be a top-down, unbending and sclerotic EU approach to regulation.
From bendy bananas to ditching imperial measurements and, more latterly, the advance of the acronyms including MiFID II and GDPR, enough was enough, they sang. A more Global Britain would have the agility and dynamism to set its own rules, build on its own strengths in areas such as financial services, and set the direction of travel in new areas such as artificial intelligence and green technologies to all our benefit.
Rules matter; they provide the framework for our daily lives, be it ensuring windows are robust, food is edible or the financial system stable. Regulation aims to keep us safe and is what much of our economic activity rests on; they are the plumbing for our economy. At a global level, if you set the rules, others are engaging with products and services on your terms, with consumers and companies adapting accordingly.
The Obama Administration in the United States, facing into a century of challenge, made a strategic play to set the rules of the game in key markets. It launched negotiations for a Transatlantic Trade and Investment Partnership (TTIP) for the Atlantic and the Trans-Pacific Partnership for the Pacific, the latter surviving in some form following Trump’s withdrawal of the US. The thinking was that economic decline could be staved off and power shored up by maintaining core markets operating to the rules you set.
The EU has also been active in developing and protecting its market. As the UK left, it started the long journey of pulling away from this regulatory orbit, forging its own path, but also preparing for the inevitable pull of trade gravity into other orbits and how to manage this process through trade agreements and dialogues.
The UK is therefore facing into two major challenges regarding its economic plumbing. First, re-regulation to transpose EU legislation into our law and ensure everything, from audit rules to our financial framework, can continue to function whilst capitalising on the UK’s new powers.
Second, new regulation, be it to tackle online harms, fuel the green revolution with Environmental, Social and Governance (ESG) rules for businesses, or deal with new technologies such as artificial intelligence.
Ian Duncan-Smith’s Taskforce on Innovation, Growth and Regulatory Reform was alive to the challenges and the need for proportionality and an outcomes-based approach. With a government in a hurry to deliver on its manifesto, dealing with a pandemic whilst wanting to demonstrate it has started to level up, this has led to a flood of consultations and reviews across a huge swathe of the economy businesses dealing with a huge range of pressures – from supply chain challenges to new ways of working – are grappling with this surge as well as an increasing tax burden to deal with the fall out of the Covid crisis.
This surge at pace is overwhelming and the danger is policy that counters the Government’s aims of a more agile and competitive country slips through. Rather than seizing the opportunities of Brexit, the Government and British business would spend the next ten years unpicking bad rulemaking whilst others forge ahead.
For example, recent audit and governance reform proposals added huge extra burdens to the role of a director, making it unattractive. The Government revisited this area following industry feedback and more workable proposals are being brought forward. Many in business are asking what the rush is. It’s better to get this gigantic exercise – much of it such as a new subsidies regime happening relatively under the radar – right than have regrets at our leisure.
The Government rightly appreciates that Parliament does not have the capacity of its European counterpart with regards to regulation – the focus has been on setting frameworks and improving scrutiny mechanisms of how regulators regulate – but more needs to be done.
First, slow things down. Whilst government wants to achieve much, it should now take its time. With significant parts of the manifesto delivered, including getting Brexit done, the focus should be on establishing what isn’t working and where the most opportunities lie, prioritising accordingly.
Second, join things up. Technology is blurring the traditional boundaries between sectors whilst areas such as ESG cut across a range of sectors. Some of this vast regulatory exercise in arcane areas of the economy may not be the most attractive to ambitious Ministers, but these economic nuts and bolts really do matter. A cross-Whitehall taskforce headed by Number 10 should undertake the prioritisation exercise and keep an eye on progress.
Third, co-create policy with business and listen more cannily to their concerns. The swathe of consultations at the moment often seem in danger of being a rubber stamp exercise. Officials collaborate closely with industry through an existing network of forums and taskforces, this stretches so far Ministers may well forget it is a resource available to them. Whilst much is heading in the right direction, the prioritisation exercise undertaken by Number 10 should also listen to these voices and look to co-create policy with them from early stages.
Tax has grabbed the headlines as the it reaches its highest level for 70 years. That said, regulation must not be forgotten. Let’s get our economic plumbing right – we certainly have enough other challenges to be dealing with.