The United Kingdom’s 2016 “Brexit” decision to leave the European Union created the opportunity for the elimination of unwarranted and excessive EU regulations that had constrained UK economic growth and efficiency.
Recognizing that fact, former Prime Minister Boris Johnson launched the Task Force on Innovation, Growth, and Regulatory Reform, whose May 2021 report recommended “a new regulatory vision for the UK.” That vision emphasized “[p]romot[ing] productivity, competition and innovation through a new framework of proportionate, agile and less bureaucratic regulation.”
Despite it containing numerous specific reform proposals, relatively little happened in the immediate wake of the report. Last week, however, the UK Department for Business and Trade announced an initial package of regulatory reforms intended to “reduce unnecessary regulation for businesses, cutting costs and allowing them to compete.” The initial package is focused on:
- “reducing the business burden”;
- “[e]nsuring regulation is, by default, the last rather than first response of Government”;
- “[i]mproving regulators’ focus on economic growth by ensuring regulatory action is taken only when it is needed”;
- “[p]romoting competition and productivity in the workplace”; and
- “[s]timulating innovation, investment and growth by announcing two strategic policy statements to steer our regulators.”
As we explain in a May 15 piece published by CapX, while this latest development holds some real promise, a bit of caution is in order:
For too long the UK’s approach to regulation has been warped by a strange kind of numbers game: how many laws can be removed? What percentage of EU laws on the UK rule book can be dispensed with? how many quangos can go on the bonfire?
It’s the kind of misguided approach that has led to headline-grabbing projects like the revival of imperial measures – a purely symbolic gesture that did nothing to improve competition, liberalise the economy or raise people’s living standards.
Rather than this rather performative approach, our new book Trade, Competition and Domestic Regulatory Policy suggests a very different approach to regulatory reform.
First, does the proposed reform establish a framework that can be used to ensure that future regulation is as pro-competitive as possible. Are actual mechanisms established or are the principles merely hortatory?
Second, how does the reform impact the stock of existing regulation? How precisely will those regulations be made more proportionate, subject to the test of necessity, and generate pro-competitive and open trade outcomes?
Third, is there a moral philosophical choice embedded in the approach? This will be vital to ensuring that reform is not some random hotch-potch of ideas, designed more for a tabloid front page than as a real, sustainable and concrete reform.
Encouragingly, if we look through these lenses in turn, we find that the beginnings of a framework are emerging here in the UK.
The Government’s recent package of regulatory reform has much to commend it. It establishes an overall set of governing principles for future regulation, and also requires the review of our existing stock of regulation, including the body of EU rules that are still part of UK law. The focus on necessity, proportionality and competition is particularly welcome, as is the consideration of how regulation affects economic growth.
It’s not perfect – we do think, for instance, that the framework could go farther and actually embed the Competition and Markets Authority into the regulatory promulgation process more concretely. This should not be controversial. The OECD itself made these recommendations in its Regulatory Toolkit and Competition Assessment some 20 years ago, which was coincidentally the time when the spread of regulatory distortions seemed to accelerate. The International Competition Network (ICN), comprised of most national competition agencies, has also recommended that those agencies advocate for competition in the regulatory promulgation process.
The UK has indicated that they would apply this approach to the stock of regulation, much of which is retained EU law. This represents an opportunity for the UK, as most countries do not have a readily identifiable corpus of regulation to start with. Certainly it is helpful to ensure that common law approaches are applied to the entire UK rule book (including any retained EU law), and that UK interpretation (by judges, and the executive branch) trumps any interpretation of the Court of Justice of the European Union. Of course, it would have been better to have undertaken this task six years ago, when we knew it would be necessary.
Where there is less clarity, it is around the philosophic underpinnings of this regulatory approach, which is regrettable. Back in the early 2000s, the OECD recognised the long-held view that pro-competitive regulation does indeed stimulate an increase in GDP per capita. Separately, this has also been recognised for open trading systems and property rights protection.
None of this should be remotely controversial in the UK, or indeed anywhere else. It is unfortunate that it has become so, largely because of an approach based on a Manichaean view that all EU regulations are bad, and all UK regulations are good, and that success is to be judged on the number of EU rules removed.
More generally, all other nations would also benefit from systematic regulatory reform that aims to ferret out the many anticompetitive market distortions that severely limit economic growth and welfare enhancement. We discuss this topic at length in our recent book on Trade, Competition, and Domestic Regulatory Policy.