Fishing for Brexit opportunities will deliver an unsatisfactory haul

The Brexit bargain was simple: in return for the loss of private freedoms to work, learn, trade and move freely in the EU, the government acquired the right to make decisions without EU control. Not surprisingly, the politicians who brought this bargain about wish to show that it was worthwhile.

Jacob Rees-Mogg, staunchest of Brexiteers, has duly been appointed Brexit opportunities minister, apparently with a mandate to discover "1,000 regulations we want to get rid of". He can surely find the regulations. But abolishing them will be far harder. This fishing expedition is unlikely to end with a satisfactory haul.

The fundamental reason why it is hard to prove the benefits of Brexit from regulatory divergence is that the regulatory divergence it allows also causes its costs. To take a crucial example, the more UK standards diverge from the EU's, for example, the more costly border checks have to become. That is why post-Brexit trade with the EU has been weak and why the Northern Ireland agreement has led to those unpopular border controls – a reality Boris Johnson has, of course, denied.

Divergence

So far, as a recent report from the think-tank UK in a Changing Europe shows, actual divergence has been modest. The government has certainly not delivered the bonfire of controls leading Brexiteers desired. Still, change is inevitable, especially where EU policy has vanished, notably in trade, agriculture, fisheries and subsidies.

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There are also opportunities for change in areas like finance, public procurement, taxation, consumer protection, environmental policy and aviation. Finally, there are newer sectors, such as climate, data and the digital economy, autonomous vehicles and bioscience. In all these areas, regulation will surely evolve.

The question is whether any of these issues can be sensibly reduced to the goal of scrapping thousands of regulations. The answer is no. Modern economies are regulated for powerful reasons: externalities, systemic risks, asymmetric information and inequalities of power are pervasive.

Moreover, the UK is embedded in international agreements and global relations that businesses and government cannot ignore. If, to take one example, British data protection standards diverge from those in the EU, UK-based business will find itself at a significant disadvantage.

In practice, then, the creation of effective regulatory regimes is a technically and politically complicated activity. In a few areas, there have already been developments. The reform of the EU’s indefensible agricultural policy towards protecting biodiversity and meeting targets for “net zero” emissions is a benign example, as is a surprisingly liberal immigration policy for skilled workers. But the UK’s flexible new subsidy regime offers disturbing opportunities for rent-seeking.

Opportunity and risk

One of the most significant areas of regulatory reform will be finance. Rishi Sunak, the chancellor, has indicated his preference for divergence and so loss of favourable market access in the EU in favour of promoting the UK, and London in particular, as an internationally open financial centre.

Here there is surely an opportunity. But there is also danger in his desire to introduce a statutory secondary objective, to provide for a greater focus on “growth and competitiveness” into the terms of reference of the prudential regulatory and financial conduct authorities.

Why might this be so dangerous, even as a secondary objective? The answer is that it might, once again, turn the UK into a leading player in a global regulatory race to the bottom, rather like the one that preceded the 2008 financial crisis. A growth objective may be acceptable, but not one of competitiveness.

Above all, the principles and practices of regulation should be rigorously set out. They must not be a mere political football. Maybe we should move from prohibitive and adversarial regulation towards more trusting and co-operative approaches, as Oxford's Christopher Hodges suggests. What we must not do is discard important regulations haphazardly. There could be big costs to safety, market access and other goals.

There is an alternative to deregulation: go for symbols instead. The government’s report on the benefits of Brexit shows the way, by stressing the return of “iconic blue passports”, a review of the ban on using pounds and ounces, and permitting a “crown symbol” on pint glasses. Surely, Rees-Mogg can find more such symbols.

If so, in the words of the Roman poet Horace, Parturient montes, nascetur ridiculus mus (the mountains will labour and a ridiculous mouse will come forth). To deliver mice is merely silly. Delivering monsters is dangerous. – Copyright The Financial Times Limited 2022