Theresa Villiers is a former Environment Secretary, and is MP for Chipping Barnet.
Two years on from leaving the EU, it is time the Government made the most of our new-found freedoms and reshaped our approach to regulation, so that we can drive growth, economic investment and competition into every corner of the UK.
The public put their faith in the Conservatives, not only to ‘get Brexit done’ but also to improve their lives and their communities. It is completely understandable that for much of the past two years, the devastating effects of Covid have dominated Government activities and consumed bandwidth that would normally be devoted to different areas of policy and reform.
However, now that we appear to be over the worst of Omicron, and hopefully returning to something approaching normality, we must refocus back on the core issue of driving growth and investment and improving living standards across the country.
If we are to deliver the long-term economic growth that benefits all communities (and opens the way for tax cuts), we must recognise that unleashing productive investment from the financial services sector is crucial. The UK is home to some of the most innovative companies and thoughtful investors in the world. It is up to the Government to create the optimal conditions to allow our business leaders and entrepreneurs to reach their potential. That is a key means to increase prosperity and opportunity, and to raise living standards for all.
However, aspects of our regulatory system can act as a barrier to this potential wave of investment. The complexity of regulations – many of which originated from the EU – and their gold-plating by regulators, means that long term investment can end up being directed more towards very large companies that don’t need the funds than to, for example, urban regeneration in our cities.
A perfect example is Solvency II. This is an EU law designed to provide a one-size-fits-all framework for all EU insurers to bring consistency to the way they hold capital to protect policyholder benefits. The rules, which are extremely risk-averse, continue to force UK-based insurers to hold too much capital back, preventing that funding from flowing into a range of much needed projects that could deliver real change in our communities.
For example, new research by Pension Insurance Corporation describes how £20 billion of additional investment over the next decade through reform of Solvency II could be channelled into the building of new social and affordable homes, improving existing social housing stock, as well as on renewable energy projects and urban regeneration.
This could enable the Government to claim a major Brexit bonus, demonstrating to people how the UK, as a sovereign nation, can re-write an unnecessarily complex and risk-averse EU law to the benefit of communities from Barnet to Bolsover.
Solvency II is just one of many EU laws copied on to the UK statute book after Brexit which we need to assess to see whether they are still fit for purpose. But with Lord Frost’s departure from government, we need urgent clarity on who has responsibility for this vital task. With EU relations now wrapped back into the Foreign Office, no Minister appears to have the lead responsibility for post-Brexit regulatory reform since Lord Frost’s resignation.
Past experience shows that drives to remove unnecessary regulatory red tape soon run into the sand if they are not driven with determination at the most senior level in Government. As things stand, we are in great danger of missing one of the most important opportunities Brexit has given us.
In the first instance, a Secretary of State should be made responsible for the Brexit Opportunities Unit which currently resides in the Cabinet Office and is tasked with identifying our economic and political opportunities post Brexit.
Secondly, and as I and colleagues on the Taskforce on Innovation, Growth and Regulatory Reform recommended to Government in our recent report, UK regulators should have stronger duties to promote innovation, investment and competition – as well as consumer protection – pushing them to play a much more active role in supporting growth. The Prudential Regulatory Authority (PRA), which oversees insurance companies, for example, should take a more evenly balanced approach to reforming Solvency II to ensure that there is increased investment in productive assets.
Thirdly, we need to ensure MPs are properly resourced both to scrutinise regulators and hold them to account. Strengthening the select committee system to ensure more effective use of economic impact assessments and metrics will help parliamentarians ensure that regulators really are replacing the EU model with a new, more innovative and proportionate UK regulatory framework.
This would mean that our country really can start to bank that Brexit bonus. At the moment, we face the ironic situation that EU may actually overtake us on Solvency II reform if regulators continue to drag their feet, potentially making us less competitive. As we emerge from the pandemic, long-term investment in our communities across our whole United Kingdom should be at the top of our priority list, and Solvency II reform can give a big boost to our efforts to deliver this. The opportunities are there for us to seize, but we must act now.