The agenda Britain so desperately needs, but is unlikely to get

Telegraph

01-05-2025

From Washington to London, Brussels and beyond, deregulation is the new political zeitgeist. More or less everyone is talking about it, triggered by a combination of Donald Trump's second coming and an increasingly desperate hunt for ways out of today's all pervasive hiatus in productivity growth.
It's a welcome change that has been a long time coming.
Like a cancer, the tide of bureaucracy, red tape and risk-averse government interference has metastasised into virtually all walks of life, stifling enterprise and gumming up the wheels of economic progress as it goes.
Only now, with the fiscal credit card maxed out and living standards in manifest retreat across a broad swathe of advanced economies are the politicians beginning to talk about grasping the nettle with long overdue reform. But talk is easy – action is another matter entirely.
With Trump back in the White House, the pendulum is nevertheless beginning to swing; to varying degrees, governments throughout the Western world are thinking about following the US president's lead. Even Brussels has sat up and taken note.
It's astonishing, really, that this awakening has taken so long to happen. Columnists like me have been banging on about oppressive regulation for years, even decades, as one of the key reasons for slow productivity growth and the consequent hiatus in living standards.
But though successive governments have paid lip service to the idea of deregulation, they have utterly failed to pursue it in any meaningful way.
Every crisis or mishap is met with another lorry-load of regulations, and is often accompanied by yet another government agency to enforce them. Rarely are the long-term economic costs of all this risk aversion ever taken into account.
In laying the foundations for a high performing economy, it is not enough simply to stabilise the public finances, as Rachel Reeves, the Chancellor, somewhat disingenuously claims she is doing in the UK.
She needs to go much further in dealing with the deep structural barriers to growth that have been allowed like Japanese knotweed to flourish and spread, throttling the life out of much gainful economic activity.
This is quite a challenge for Labour, which though it has the majority to engage in serious reform, is not ideologically best suited for such an endeavour.
High levels of regulation, though an irritant, are generally reasonably easy for large companies to deal with. In most cases, they will have the systems and bureaucracy to cope.
But on the whole, it's not large companies that create jobs and growth. For smaller companies, for start-ups and scale-ups, a highly regulated economic environment is much more difficult.
Getting the tax structure right is also important, obviously, but for most start-ups, it's oppressive levels of government bureaucracy that act as the bigger deterrent.
As Federico Sturzenegger, Argentina's minister for deregulation and state transformation, put it during last week's spring meeting of the International Monetary Fund, too much regulation is anti-entrepreneurship, it's anti-small firms, it's anti-growth, it's pro-corruption, and because it creates high barriers to entry, it's anti-competition.
In virtually all advanced economies, we have in recent years seen a remarkable swing away from private sector growth to much greater government engagement with the economy. This trend long pre-dates the pandemic, but was turbocharged by the interventions then deemed necessary.
In Britain, for instance, government spending has been left some four to five percentage points of GDP higher than it was before the pandemic, even though the extraordinary outlays associated with the pathogen are no longer needed.
Consequent, explosive growth in public sector employment is proving politically extremely difficult to reverse.
But there can be little doubt that this kind of 'make work' madness is a large part of Britain's low productivity problem; as evidence, look no further than the fact that public services continue to deteriorate despite the additional taxpayer largesse being heaped upon them.
To give her her due, Reeves talks a good game on deregulation.
The Planning and Infrastructure Bill (2025) promises to cut a deep swathe across the UK's highly restrictive planning laws; she further promises significant capital markets reform that will make it easier for start-up and scale-up companies to access finance; City regulators are being told to prioritise growth over risk mitigation; some regulators are being lined up for closure or merger; and she's committed to reducing the regulatory burden on businesses by a quarter during the course of this parliament.
In terms of intent at least, Labour is doing many of the things the Tories should have done but didn't. Instead they allowed themselves to be sidetracked by years of tortuous bellyaching over Europe.
Little good did eventually leaving the EU do us, either; an endeavour supposed to free the economy from the burden of excessive European regulation has succeeded only in duplicating and further enhancing it.
But despite Reeves's declared intent, you have to wonder whether her heart's really in it. Quite a lot of what Labour is doing – from its enhanced workers' rights legislation to a much higher minimum wage, the ban on further North Sea oil and gas development, and even relative trivia such as the renewed crackdown on sugary drinks – pushes in the other direction.
Some of what the Chancellor counts as deregulation is, moreover, the exact opposite.
For instance, she wants pension funds, Britain's largest repository of private sector savings, to invest more heavily in UK productive assets, an ambition which we should all applaud.
But if they don't do it voluntarily, she threatens coercion. This is not deregulation.
A better approach would be to ease the liability matching rules that force pension funds to invest in UK gilts. Yet it seems unlikely she'll do anything that jeopardises the Government's insatiable appetite for debt.
In any case, Reeves's own particular brand of deregulation doesn't hold a candle to the chainsaw of Trump's America and Javier Milei's Argentina.
Of course, you can always have too much of a good thing, and it seems quite likely that this is where Trump will end up. To be sure, the pendulum needs to swing, but only back to a more neutral position, not to the other extreme.
This is particularly the case with financial regulation – which has plainly gone too far since the traumas of the financial crisis, creating myriad distortions – but needs to be defanged rather than got rid of altogether.
Oppressive regulation of the banking sector while finance runs riot beyond its walls is not healthy, and simply means that areas of the market where there is excessive oversight are badly disadvantaged against those where there is none.
The accident waiting to happen is no longer among the major banks, which are in danger of being regulated to destruction, but in private credit where regulation is limited.
As I say, Reeves is good at talking the talk; I hope to be proved wrong, but I'm not optimistic she'll also walk the walk.