Memo for Rachel Reeves: regulators cannot produce growth out of thin air | Nils Pratley
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Companies grumble about watchdogs, and there’s often room to improve, but the big stuff is in the hands of government. “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.
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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.
