Wrap me up in red tape

This Government came to power promising a bonfire of red tape. Regulation, it said, was stifling growth. Small and large businesses alike were drowning. Red tape costs £millions, and for the Tories, they could point to much of it coming from Brussels – useful for the anti-Euro brigade. The Cabinet Office even had a ‘one in one out’ programme. For every new regulation brought in, one had to go.

In truth this simplistic approach plays to the gallery but massively underestimates the complexities of regulation and statute. It also goes against the political grain. Although Margaret Thatcher famously noted that running the country’s economy required a similar approach to that of a canny housewife minding the pennies, the UK is not a semi-detached house in Grantham.

The Coalition Government has come under fire for the lack of Bills promised in this year’s Queen’ Speech. Some commentators have argued that this makes a nonsense of five year Parliaments; the low number of Bills scheduled means the Coalition has run out of steam, so there should be an election now.

And, without the machinery of legislation, our politicians have little to do. They would use their time to gossip and plot, and make trouble for the executive. Indeed, aren’t politicians elected to legislate and improve society? There’s an obvious paradox between the ‘bonfire of red tape,’ and the desire of Government, and individuals within Government, to stamp their names on statute. 

Regulatory overload extends well beyond Parliament. BIBA figures show that the cost of UK regulation in insurance is five times that of many of our competitors, including Germany and France.  This year FCA thematic reviews are in double figures and these are set to continue into 2015.

In banking, HSBC chairman Douglas Flint felt it helpful to note that an astonishing 24,300 HSBC employees work in regulation and compliance, nearly 10% of the entire workforce. The bank spends up to $800m a year on compliance, which the CEO, Stuart Gulliver, has blamed on an overall increase in the expense ratio. Mr Flint said the sheer volume of regulatory scrutiny has created disproportionate risk aversion, with a knock on impact on revenues and profits.

Turning to insurance, for the past two/three years, the OFT and now the Competition and Markets Authority (CMA) has been investigating motor insurance, including the impact of credit hire, at a cost of more than £2m. By the CMA’s own calculations, the cost to the average premium of credit hire provision is under £3 per policy per year. Of course the credit hire market is complex, but it has evolved over the years into a functioning market, where customer rights are properly upheld. In its most recent report into possible remedies, the CMA – a body dedicated to improving market competition – even proposed a price capping regime for credit hire. The CMA clearly doesn’t do irony!

Regulation and statute have become instruments of political populism – enacted for approval ratings not the absolute good. The CMA insurance investigation has its roots in the Government’s determination to bring down the cost of motor insurance. But intense competition in the market has done far more to keep the lid on premiums than anything the Government has done.

The warp and weft of events and the concomitant desire of politicians and regulators to wish to be seen to be ‘doing something about it,’ is the reason why we have regulatory overload. Governments that actually reduce red tape don’t exist.