When UK Prime Minister Keir Starmer took office in July of this year, he and other officials in his government made clear that their top priority was restoring economic growth. In the months since, there has been public debate as to how a balance can be achieved in promoting competitiveness, maintaining stability, and ensuring economic inclusivity.
A recent paper written by Policy Exchange's James Vitali and Zachary Marsh argued that a key aspect of promoting growth will be reducing regulatory burden. The authors criticized what they call the "risk aversion ratchet," whereby regulatory burden has grown largely unchecked for decades. This has stifled growth and innovation, Vitali and Marsh contended.
In the foreword to that report, Lord Mark Sedwill, Former Cabinet Secretary, endorsed Policy Exchanges' findings and urged the Government to carefully consider them. "This latest Policy Exchange paper identifies a trend of which anyone working in or dealing with the UK Government system over the last few decades will be entirely conscious: a cumulative increase in the regulatory burden on both the private sector and public service, undermining innovation, productivity and delivery," he wrote.
Lord Sedwill also highlighted how the "risk aversion ratchet" affects businesses and consumers. "Government adds a safety margin to Parliament’s legislation, regulators add a safety margin to Government’s, compliance teams in the private sector and public service add a safety margin to the regulators'," Lord Sedwill explained. “Big institutions can bear this burden. Small ones find it stifling.”
However, regulators have expressed concern of a "race to the bottom" on financial regulation if these ideas are taken to the extreme. "You can see the apparent direction of travel in the US," UK Financial Conduct Authority (FCA) Chair Ashley Alder said in a Parliamentary hearing this week. “There are clear dangers in indulging in any sort of race to the bottom in any sort of deregulatory agenda, for obvious reasons that go right back to the financial crisis 15 years ago.”
At the same time, the FCA is under pressure to promote competitiveness, and Alder claimed that it had already taken substantial steps in that direction. It remains to be seen how the FCA intends to thread this needle going forward as it readies for the release of a new five-year strategy. “The FCA is at a turning point on the secondary competitiveness and growth objective and on their approach to risk,” Miles Celic, Head of TheCityUK, told Bloomberg. “The concern is that they end up being a drag on government ambitions rather than an engine for them."
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