Why attempts to cut red tape almost always fail

Rishi Sunak has been appointed to chair a new committee that will be tasked with cutting red tape, particularly anything that originated from a European Union directive. Part of me thinks Boris has tasked Sunak with this as a means of taking some shine off of his Chancellor’s star — this latest venture to cut down on red tape is bound to fail as badly as the many other attempts that have been made over the years to drastically change the regulatory environment in this country. A lot of the thinking around regulatory reform in the UK is deeply wrongheaded, not from a left-wing or Remainer standpoint but from the perspective of anyone who really wants to make doing business in the UK easier and better.

I speak from some position of knowledge, having myself been the director general of an organisation that explicitly searched for examples of EU red tape, something called the Red Tape Initiative. We spoke to over 300 businesses over a two-year period between 2017 and 2019, asking them for any regulations they felt were too restrictive or just plain bad that they either knew originated from the European Union or thought might be EU related.

What we got from big business were small things, not worth huge amounts of money either way. With small businesses, we heard something different. They were almost always frightened of the regulatory environment changing in any way at all since they felt that the government was very likely going make things worse for them as opposed to better, no matter what the rhetoric.

What I mostly found out was this obsession with the idea that there is this mountain of red tape that is holding the country back and that if we just got rid of it we’d be billions of pounds better off is nothing more than a myth. That isn’t to say there isn’t bad regulation out there; we should obviously maximise the regulatory environment to the betterment of the British economy. Small changes that help things along should be made where appropriate. But acting like there is this regulation-shaped silver bullet that will cure all ills is the right-wing version of the Greens thinking there is a pile of tax avoidance money out there, and if we just got hold of it, all of our problems would be solved.

One thing smarter Brexiteers who are regulation conscious might say here is: ‘You spoke to existing businesses in your research. What about businesses that don’t exist yet? Businesses that can’t even get started in the current environment?’ The problem with this viewpoint is that there will always be an infinite number of imagined businesses that could flourish if only everything was perfect. A better way of approaching this is to ask how we might make conditions for doing business in the UK notably better — and more to the point, closer to the US in approach.

The problems standing in the way of that are much bigger and more systemic than just the shape of the regulatory environment and have little to do with being in or out of the European Union. An actually good place to start would be banking culture in Britain. It is overly difficult to start a new business account in this country. Then there’s the problem of getting a loan if you’re a new firm. It is much, much easier to do this in the US; furthermore, it is almost unthinkably simpler to do so if you’ve had a failed business already. Banking in the US is much more forgiving of crashing and burning with your business and starting over again. In the UK, the black mark of having failed once is difficult to come back from. Yes, in renewing banking in the UK to make it more business-friendly there would probably be regulatory changes involved; yet they wouldn’t be the best place to start in order to drive the changes that were required, nor would regulatory change be the big mover that made all the difference.

Then we come to immigration. One thing businesses were worried about post-EU is easy access to the best talent. This is actually much easier to navigate in the US than in the UK post-Brexit. Then there are worker’s rights, namely how easy it is to hire and fire people, which opens up a whole other can of worms — one the Tories are swearing over and over again will remain closed.

What I’m really saying here is that if you want the UK to become much more like the US as a place to do business, it will involve looking at the real, systemic things that stop that from happening at the moment as opposed to thinking that scrubbing the British translation of EU Directive 2005/36/EC from UK law is going to net the country billions of extra pounds automatically.

This continuing obsession with eliminating red tape won’t get the government very far. If it really wants a Brexit bonus, it will have to look elsewhere. Further, if it wants to match the United States of America as a place to do business, there are simply no short cuts to that goal.