When the Chancellor takes the stage to deliver his Mansion House Speech next week, he will do so against a backdrop of stubborn inflation, steep interest rates, and many households continuing to feel the squeeze. These are not problems unique to the UK, as markets across the US, Australia and Europe are all battling similarly challenging economic conditions.
But if this economic turmoil is consistent across many developed economies, then what is helping some to stand above the rest? The answer is not an exciting but a crucial one – and lies in the UK’s regulatory system.
Like a frog in boiling water, an inscrutable and Daedalian regulatory system has gradually gone unchecked, with serious consequences for our consumers and the health of our economy. In nearly every sector, regulators have become focussed on process, on institutional goals, and on managing every bit of risk out of their section of the economy. Not only are UK businesses often greeted with a regulatory climate of hostility and mistrust, the barrage of regulatory requirements in everything from food production to energy, to pensions investment often ends up hitting consumers in the pocket. The few countries who can still boast of low interest rates or booming growth are set apart by a collaborative regulatory culture based on trust, whilst the UK falls behind.
But now we have left Europe, and no one is overseeing our dozens – even hundreds – of regulators, we have reached a tipping point: it is time we re-established the principle of democratic accountability for our regulators, and really work with them to scrutinise the impact that their decisions are having on the British public’s daily lives, our homegrown businesses and economic growth.
Financial Services is a case in point. The Chancellor has demonstrated his commitment to restoring the UK’s financial services sector to its world-leading role. A fundamental part of this is to address the UK’s regulatory regime and its lack of requisite transparency and accountability, both to the firms which it regulates, Government and our consumers.
The Treasury took the first steps in the right direction with the Edinburgh Reforms back in January, and the new Financial Services and Markets Bill which introduces a new statutory growth and competitiveness objective for financial regulators – a welcome statement of the Government’s intent to create a more agile and outward-looking industry that prioritises the best outcomes for customers.
However, delegating powers and setting new objectives is redundant without accompanying accountability to ensure that powers aren’t overreaching, and that objectives are being met.
There must then be a body with both the expertise and the resources to mandate that regulators justify their decisions and demonstrate how their powers are being used for the benefit of the medium and long-term health of the industry, and a willingness to challenge regulators on how they have managed trade-offs. This would capitalise on one of our key recommendations in our recent report – for a new cross House, cross-party Committee, which would be dedicated to this crucial function. The Committee’s remit would not be solely focused on financial services but would scrutinise all major regulators to help them achieve the right outcomes for the country.
Regulators across the economy, including in utilities, planning, and the digital world, to name but a few, all need to understand the wider economic implications of their decisions, and be more transparent about what they are doing.
As the crown jewel of the UK’s economy and given all the recent angst over saving the City – the financial services industry seems as good a place as any to kick-start this commitment to greater accountability across the UK’s regulatory landscape, and provide an example for other regulators, industries, and Government departments, to follow suit. The Mansion House speech therefore offers a golden opportunity for the Chancellor to lay the foundations for a proportionate, outcomes-based regulatory system that can meet the challenges and opportunities our country will be facing in years to come.
Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.
CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.
