Despite reviving economic growth being an avowed priority for every government since the Covid-19 era, the record has been lacklustre. The obvious question is why? What are the constraints that hold back ministers who want to support investment, innovation and growth?
Of course, there are some fundamental limitations that any government has to operate within. The fiscal constraints facing the current Government are real, even if a lack of economic growth is part of what is making the fiscal situation so challenging in the medium- to long-term. Pro-growth reforms will also not be durable if they are too offensive to voters, even though, again, economic stagnation is part of why successive governments have seen their popularity erode over time.
That still leaves a lot of important ground, though, where there are changes that could be made to how the economy is regulated with no meaningful fiscal impact, and which voters are either supportive of or understandably disinterested. In some ways the most important test for Ministers is whether they can seize those opportunities and the economic upside they represent.
There are two telling examples at the moment in the tech sector. The strength of the UK digital economy has been a bright spot in otherwise stormy skies in recent years. The UK overperforms as a destination for tech investment, and improving digital services has provided enormous benefits for British consumers and other businesses of all kinds. However, it has faced escalating regulatory demands, which complicate the innovations companies are investing in and improvements in the services we all use every day.
The UK’s copyright rules do not accommodate AI training in the way they do in every other major developed economy. The Government set out a clear standard for reforms, that they should support ‘the development of world-leading AI models in the UK’. There is no fiscal cost to changes that would match the flexibility and protection available in other major economies. It would improve the attractiveness of the UK as a place to invest in developing and deploying leading edge AI models.
New research by Freshwater Strategy finds that voters support the UK allowing AI models to learn from publicly available online content such as websites, blogs, news articles, forums and images.
The research finds that voters do have concerns about AI, but the most commonly-cited worries would be exacerbated by proposals that would limit access to UK training data (e.g., concerns that AI will be unreliable) or require firms to share sensitive information (e.g., risks to privacy and security). Despite an extensive campaign by rights-holders, a majority of voters say that it would be concerning if the UK regulates AI more than other countries, potentially slowing innovation and leading companies, talent, or investment to move elsewhere.
As AI use continues to grow, and AI users are generally more positively predisposed to reforms that support AI training, the political case for an AI-friendly regulatory regime is only going to become stronger. For example, allowing AI models to learn from online content has net +37% support among AI users, versus net +14% support among the population as a whole.
Is it credible for the UK to lead in AI with a notably worse copyright regime for training than every other major developed economy? Can the Government really afford to let that rightsholder campaign shut down an obvious opportunity to improve UK economic growth by simply driving AI development to other jurisdictions?
The other example is in competition policy. Ministers set a clear tone in their strategic steer that the Government ‘expects the [Competition and Markets Authority – CMA] to support and contribute to the overriding national priority of this government – economic growth’. This translated into the ‘4Ps’, a reform programme which was intended to reduce barriers to investment and growth and reassure investors that the CMA would use its powers with restraint.
Thus far, the changes have been limited and fragile. There have been changes in the CMA’s approach to international mergers, for example, where it had intervened in a lot of deals with minimal links to the UK. However, Clifford Chance notes in its review of a new consultation on changes to the competition regime that ‘the proposed clarification of the merger control jurisdictional tests appears largely to codify, rather than rein in, the CMA’s existing practice. For example, past cases of regulatory over-reach where the CMA asserted that the “share of supply test” was met by businesses that had never supplied any products in the UK, but had some UK-based employees, could still occur under the proposed changes.’
There are other changes in that consultation which would increase the burden on business: new requirements to experiment on their customers, and removing the requirements to show an adverse impact on competition. There is a welcome proposal for sunset clauses on interventions, but it feels like very much one step forward, two steps back. At the same time, the new Digital Markets, Competition and Consumers Act is being implemented, and the CMA is consulting on an enormous range of measures that complicate innovation and bear little relation to consumer priorities. Hopefully, what we are not seeing is the Government taking its foot off the pedal and bureaucratic inertia reasserting itself.
The test becomes simple: ministers need to seize those precious opportunities that support economic growth without the fiscal or electoral trade-offs other reforms might involve. Can they press ahead with reforms that they know can support growth when interested groups or an institutional mindset push back?
