Monday, July 4, 2022
Homesmart lifeIf a nimble UK is to be better regulated than the EU...

If a nimble UK is to be better regulated than the EU it has to be just that — nimble

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There are days when it is genuinely hard to take the government’s post-Brexit regulatory reforms seriously — as on Wednesday when Jacob Rees-Mogg, the Brexit opportunities minister, announced his ‘dashboard’ for abolishing parts of retained EU law.

It’s not that it is ridiculous to suggest that the large body of EU-derived law that was sucked on to the UK statute book at the point of Brexit might not need amending or overwriting, but the manner in which this government seeks to go about it.

You only needed to listen to Rees-Mogg’s preening performance in the Commons to see that this was essentially a cosmetic exercise that risks gumming up the works in Whitehall for what even Rees-Mogg conceded were “marginal” economic benefits.

What is frustrating is that the UK — having made a for-now irreversible decision to leave the EU with all the economic headwinds that brings — has little choice but to innovate in order to prosper outside the EU.

This is just as Brexiters like Lord David Frost intended when they negotiated a low-ambition, low-alignment trade deal with the EU to force a revolution on to the British state which they felt had been lulled into a state of torpor by 40-plus years of taking dictation from Brussels.

There are undoubted limits to the upsides of going it alone, but there are potential opportunities by getting ahead of the pack in the fast-developing fields of the future like artificial intelligence and gene-editing, where a nimbler UK could become better-regulated and attractive to investment.

The ongoing reforms of UK data regulations, made possible by the UK no longer being subject to the EU’s general data protection regulation (GDPR) are a very good example of the tensions in this process.

The government recently completed a serious consultation on how the UK might be able to have more flexible data regulation without endangering the EU’s “equivalence” decision that business deems necessary to keep valuable data flowing with Europe.

The fripperies of Rees-Mogg at the despatch box are largely a distraction. The government listened to the lobbyists that Rees-Mogg publicly disparaged and backtracked, for example, on Iain Duncan Smith’s plan to remove Article 22 of the GDPR legislation which entitles everyone to a “human review” of an algorithmically made decision.

As a result TechUK, the main lobby group and one of 4,000 groups that fed thoughts into the system, welcomed the fruits of the consultation, judging it would create “a more proportionate and risk-based approach to the accountability framework and data flows” which should be good for companies operating in the UK.

But as Neil Ross, the associate director of policy at TechUK explains, that is only one half of the data story, because the second piece of the puzzle — a government White Paper setting out a regime for the governance of AI — is at risk of being pushed back to the end of the year or beyond.

You might argue that given how important this is to the UK’s economic future, it would be sensible to take our time in developing that new regime, but alas regulation is a competitive environment. First-mover advantage is important in setting the future rules of the road.

Time is of the essence, says Ross, because while the UK tries to get its new regulatory house in order, the EU’s regulatory juggernaut is rolling on. And given the scale of the EU market, companies will have to comply with that regime, come what may.

“The UK rules might well be superior, but there is also a big chunky piece of EU legislation that you’re going to have to comply with, so even if you want to leave space for better UK rules, in the end gravity may take over,” he says.

The outgoing chief executive of the Competition and Markets Authority Andrea Coscelli made the same point in a fascinating interview with my colleague Kate Beioley this week, warning that the UK would end up being a rule-taker from Brussels if it didn’t move faster.

“As a country we are in a great place to set up smart, pro-business, pro-competitive rules of the road in a number of these areas . . . If we don’t, then in practice we become a rule taker because of the cost of divergence,” he said. “The . . . frustration is that we were [initially] ahead of the European legislation [in drafting the rules] . . . we’re now behind.”

In short, a nimbler UK needs to be just that — nimble.

One issue, as Coscelli notes, is the lack of bureaucratic capacity in the UK, now that we have to regulate all these areas — from tech to medical devices, chemicals and the environment — by ourselves.

It mightn’t fit the Johnsonian or Rees-Moggian rhetoric about the need to “prune” Whitehall (they have ordered 20 per cent cuts across all departments) but to steal these Brexit advantages, such as they are, you need expertise and investment in building up regulatory capacity.

On the tech front, part of the problem according to both Whitehall and industry insiders, is that this massive and evolving new industry — which the government estimates could grow by at least £41.5bn by 2025 from 2019 levels, creating a further 678,000 jobs — is run by Whitehall’s smallest department, the Department of Culture, Media and Sport.

Now size isn’t everything. As Rhys Clyne at the Institute for Government notes, DCMS has almost the same number of staff (3,020) as the Treasury (3,100), but inside Whitehall everyone knows DCMS has about as much clout as the Treasury cat.

This is partly a legacy, say insiders, of DCMS being seen as the old “Ministry of Fun” (think David Mellor) which means that its secretary of state just doesn’t have the political heft to move these big ideas forward.

The department’s lowly status is demonstrated by the fact it has had 11 secretaries of state in the last 12 years, and these have either been complete lightweights, like the incumbent Nadine Dorries, or bigger beasts, like Jeremy Hunt or Matt Hancock, that quickly moved on to bigger things.

There are those in Whitehall who argue that DCMS would be better shunted into the Business Department or the Department for International Trade (bits of Treasury have been suggesting shutting it down for a while) but such reorganisations are costly and disruptive.

To be fair, insiders say DCMS has tried to up its game of late, running its teams in a similar fashion to the Cabinet Office’s delivery and implementation units, but with “limited success” given all the constraints noted above.

But given the importance of the digital sector and the future of UK productivity, how DCMS will absorb the demanded 20 per cent cuts when it is already chronically underpowered for the role it now has, is a question that deserves a non-fripperous answer.

Thanks to all our readers who sent emails to our new address last week. Please keep your comments coming to [email protected]

Brexit in numbers

As my esteemed colleagues George Parker and Chris Giles set out in this limpid piece of reporting this week, there has been a deafening silence about the economic fallout of Brexit among those responsible for it.

However some, like David Frost in a speech given today to the research network UK in a Changing Europe, continue to bravely assert that all the talk of Brexit having an economic hit is not “supported by any objective analysis of the figures” and is just the work of those with “an axe to grind”.

That’s actually a step backwards from the previous Brexiter argument that there would be a short term hit, but in the longer term new trade deals with the rest of the world and domestic deregulation would deliver us to sunnier economic climes.

But this week the Resolution Foundation published fresh economic analysis on the effects of Brexit which threw up this fascinating chart (Fig 17 in the report) which showed that the areas hardest hit by Brexit were the very areas — the North and the Midlands — that Brexiters promised would be best-served by leaving the EU and voted to leave.

Conversely Northern Ireland, which ministers have been saying has taken a huge economic hit from the so-called Northern Ireland protocol, is the least badly off.

According to this analysis, the north-east takes a 1.8 per cent total hit to output by 2030, which Sophie Hale, the principal economist at the Resolution Foundation explains, is composed of two parts.

The first hit (dark blue line) is a 1 per cent loss caused by the frictions created by Frost’s minimalist trade deal, and the second part (light blue line) is a 0.8 per cent hit from the continued integration of EU economies, which further shuts out the UK’s manufacturers from EU supply chains.

Overall, the average permanent loss to GDP across the UK is 1.3 per cent by 2030, which is less than the Office for Budget Responsibility forecast of 4 per cent because, explains Hale, this chart focuses only on the direct impact of the Trade and Cooperation Agreement since it came into force on January 1 2021.

The OBR number includes the hit to investment that came from the uncertainty caused by the vote to leave in 2016, which accounts for about 40 per cent of the decline before the TCA came into force, and the impact of regulatory divergence and ongoing trade frictions in the future.

And, finally, three unmissable Brexit stories

Co-operation between the EU and the UK over financial services has become “collateral damage” in the dispute over the Northern Ireland protocol, according to a new House of Lords report. A committee looking at Brexit and its impact on the City of London said the creation of a Memorandum of Understanding — promised but not yet delivered — on regulatory co-operation should be a priority.

Senior Trade Writer Alan Beattie is full of praise for the UK and its dealings with non-EU trading partners which he says are “in line with the country’s internationalist free-trade tradition”. In contrast, he argues, the contacts with the EU are “childish and self-destructive”.

After two years of calm the drive for Scottish independence is restarting. The temptation for unionists is not to engage, argues Robert Shrimsley. But, he says, simply stifling a complacent yawn would be a mistake — the parameters of the next contest are being set.

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