If we learn one lesson from the last few years of politics, let it be this: Britain must focus again on economic growth.
In doing so, we need to get to grips with how we regulate. Humdrum as it may seem at first, the British economy is shaped by a complex and often daunting web of regulations. More and more, regulators influence how businesses act, which sectors grow, and how we approach emergent technologies like artificial intelligence. Regulators have the power to drive growth – or to stifle it entirely.
Not only are regulators hugely important for our economy, but we are in the process of giving them even more powers, onshoring the duties once carried out in far-off Brussels. The Financial Services and Markets Bill is just one example, empowering regulators even further in managing one of our economy’s most important sectors.
With all of that in mind, careful consideration must be given to how we maintain where we can, and drive where we must, best practice across all of our regulators. This is vital to ensure we allow businesses, consumers, and communities across the UK to thrive, whilst providing the right regulatory protections to manage risk.
When I set up the Regulatory Reform Group earlier this year, the response from Ministers, MPs, and industry alike was an enthusiastic welcome. Time and again, we heard the same thing: Britain’s regulators are some of the best in the world, but we need to start thinking seriously about how, why, and when we regulate.
This is exactly what the RRG’s first report, “The Purpose of Regulation”, sets out to do, with a focus on regulator accountability.
The report’s findings on the state of our regulatory system are striking. Strained relationships between regulators and the regulated, incomplete lines of accountability, a lack of strategic direction – and that’s before we even begin to talk about the host of recent regulatory failures.
The ongoing fallout of the LDI crisis in the pensions industry is one of the clearest recent examples of regulation gone wrong, but the problem of bad regulation goes much further than this. Natural England’s nutrient neutrality regulations have blocked as many as 20,000 new houses a year since their introduction, denying thousands of young families the opportunity to get on the property ladder. The story is all too often the same, well-intentioned regulations stunting growth and running contrary to the Government’s objectives.
Clearly, a change of direction is needed. In some areas, we need to start again from first principles while in others, we can tweak what already works.
To start with, our disjointed system of regulation must be classified and clarified, with a clear definition of what a regulator is, and a clear list of who bodies who meet those criteria. Our current system suffers from a litany of quasi-regulatory bodies who regulate important sectors of our economy without clear parameters or explicit ministerial approval. Businesses must understand who regulates them, and on what basis.
Second, regulators must be made more accountable. When regulators get it wrong, the public suffers – it’s right that elected Members of Parliament should have a greater role in holding them to account. However, this isn’t just about criticising those who get it wrong. Regulators must be nudged, influenced, and encouraged by Parliament to adopt best practice and collaborate with one another on issues of shared interest. Take AI, an emerging field that Britain should be able to lead on. Getting the rules around AI right, in a way that protects consumers while driving innovation, will require coordination of numerous different regulators, a convening role that Parliament is best suited to playing.
Finally, we must become much better at measuring and assessing regulatory performance. A new ‘accountability framework’ should be established, setting out a standardised set of metrics to measure the performance of major economic regulators. At the same time, we should judge regulators with an interest in emergent technologies on innovation-based outcomes, allowing us to make the best of our world-class research and development facilities.
By changing the way that we regulate, we can shape a more dynamic, higher growth economy. A critical first step is to start really thinking about regulation again, exercising a muscle that has atrophied for some forty years. We must move beyond the unhelpful dichotomy of more regulation versus less regulation, and instead take a systemic approach, reviewing and improving incentives to ensure that regulators contribute towards a renewed push for economic growth.
Britain must get a handle on its regulators – better outcomes for business, for the public, and for the country are essential.
Bim Afolami is Conservative MP for Hitchin and Harpenden and founder of the Regulatory Reform Group
