“Every regulator, no matter what sector, has a part to play by tearing down the regulatory barriers that hold back growth,” said Rachel Reeves, the chancellor, after summoning the overseers of the railways, aviation, water and energy industries and more for a pow-wow at No 11. You’d almost think the UK would be transformed into a high-growth paradise if only these regulatory plodders would allow companies to embrace risk-taking.
The reality, sadly, is more nuanced. First, most of these regulators – the likes of the Competition and Markets Authority, Ofcom, Ofwat, Ofgem, the Environment Agency and the Civil Aviation Authority – have had a secondary “growth duty” since 2017. The political urging to take the obligation more seriously may be louder these days, but the duties themselves have not changed.
Second, it’s too simplistic to think that strong regulation impedes growth. In most cases, firm and predictable regulation, coupled with the rule of law, is good for attracting investment. In general, international investors prefer high regulatory standards over a free-for-all that invites fraud or worse.
Third, as long as regulators’ primary duty is to protect consumers and the public, they have to obey. If parliament reversed the order to prioritise growth, there would be uproar. Financial services firms may grumble about the Financial Conduct Authority’s “consumer duty” rule that requires customers’ needs to come first, but the voters probably like it. It is a high-level protection against being ripped off by an industry that, let’s face it, has not always covered itself in glory. Similarly, we’d surely all prefer the Environment Agency to concentrate on enforcement over growth.
Fourth, if Reeves truly wants to change the regulatory mindset, she may have to be precise with her instructions. Issuing remit letters to encourage more risk taking is fine as far it goes. But, if the chancellor wants the UK to embrace, say, a crypto lash-up, she should say so. In the absence of an order from the government, you can’t blame regulators for being cautious – they’ll be the ones who get it in the neck if everything goes horribly wrong.
None of which is to deny there is scope for regulators to clear out clutter or get out of the way sometimes. Reeves, in her Mansion House speech last year, said “elements” of the Senior Managers and Certification Regime, a post-banking crisis reform to make top bankers accountable for their conduct, had become “overly costly and administratively burdensome”. That may be the case. But since she also said the regime had “helped to improve standards and accountability”, she’s presumably not proposing to rip it up wholesale. Any reform sounds like a tweak – maybe a logical one – but not a gamechanger, growth-wise.
Equally, the Financial Reporting Council, the audit watchdog, has rightly been praised for dropping certain reforms that would have increased reporting requirements on London-listed companies in environmental and social areas. The requirements were duplicated elsewhere, it argued, and the priority was to harden the critical stuff, such as internal audit controls. Very sensible – but, again, the application of some common sense and proportionality is not likely to be transformative for growth.
Companies like to grumble about regulators, of course, and there is always room for improvement. It’s just that the big stuff for growth is closer to the government: planning reform, the cost of energy for industry and consumers, the tax regime, the supply of skilled labour, business rates, housebuilding and so on. There’s no great harm in giving regulators a performative tickle, but, sorry, they do not have the power to conjure a 2% growth rate out of thin air.
