The chimera of deregulation
Yesterday’s Queen’s speech exposed a fundamental misunderstanding at the heart of Conservative economic policy. It is not the case, as their actions imply, that the key to unlocking higher levels of growth is to reduce the so-called ‘burdens on business’. The deregulatory initiatives in the Queen’s speech, portrayed as part of a growth agenda, will not get us out of our current difficulties. We had perfectly reasonable levels of growth in the past even with the current regulatory framework. The banking crisis was not caused by ‘burdensome’ regulation, it was caused by the lack of it.
The pro-business and rightwing thinktank lobbies are being disingenuous by suggesting otherwise. Never forget it was the Conservatives who were calling for more deregulation in the banking sector as late as 2007. They and their friends are now – consciously or otherwise – using the smokescreen of our current economic problems to tick off some of a longer list of long-standing big business gripes, be they around the planning system, the ability of the regulators to inspect their premises, or any tidying-up of ‘unnecessary’ legislation.
Of course it is important that governments of any hue demonstrably understand the importance that private enterprise can play in achieving their wider objectives. That was an important lesson for the Labour party in its modernisation. And it is important that the overall business environment is competitive to encourage people to invest here, and make it as easy as possible for our people to find work. But Britain is already seen as having a supportive business environment in which to operate; our current problem is not lack of deregulation, it is lack of demand.
There is an element of catch-22 in our official economic forecasts, such as those produced by the Office for Budget Responsibility. It predicts growth rising back to trend levels – because models are always programmed to return to trend. With consumer demand squeezed, the government committed to austerity and limited prospects in our export markets, the only way the model can achieve this is to presume that business will start to spend some of its hoarded cash. But business says – completely rationally – it does not wish to spend in the UK when consumers and government are not buying what they have to offer. A war on red tape won’t make much of a difference if there simply isn’t a market for what you produce. Neither will notching down levels of corporation tax if your main concern is whether you can make any kind of profit in the first place. Low consumer demand requires business investment to obtain growth; business in turn requires higher consumer demand to invest. We are stuck.
Ironically the solution is more regulation, not less. As I will be exploring in my contribution to the Progress conference on Saturday, the exciting policy opportunity right now is to create new markets in which business will have the confidence to spend, because the returns are spelled out clearly for them in advance. The obvious example is in utilities where the government’s own estimates are that several hundreds of billions of pounds are needed in the next few years to meet our infrastructure needs. Here the Queen’s speech was more encouraging. The commitment to introduce a new energy bill to spell out the legislative framework for the next generation of green investment in power generation is exactly what we need. This is the state intervening to create the framework for infrastructure investment. It is about regulating for growth in a planned way, not deregulating to appease a small segment of the loud business lobby. But their dogmatic approach to economic policy makes them blind to this reality.
Kitty Ussher is a research fellow at the Smith Institute and a former economic secretary to the Treasury. She writes the monthly Economy column on Progress
business, coalition government, Conservatives, economy, Kitty Ussher, Office for Budgetary Responsibility, Queen's Speech