Three ways to fix the regulators and boost growth
There are signs that tackling regulation is finally getting the focus it needs, but with GDP forecasts looking grim, there’s more to be done, says Leo Ringer
The UK is producing world-beating companies in complex, regulated markets like fintech, healthcare, novel foods and autonomous vehicles. But their success is in spite of regulatory frameworks that are decades out of date and overseen by regulators who lack the resources and incentives to do much about it. At Form Ventures we meet dozens of startups each month that could run faster and compete harder if we took seriously the job of fixing our regulators.
Last week’s downgraded GDP forecast makes the next few months a do-or-die window for ministers looking to boost growth. There are signs that tackling regulation is finally getting the focus it needs. We’ve seen the creation of a new Regulatory Innovation Office, a “growth ideas, please” letter from the Chancellor to regulators, a public dressing-down of the FCA by the Business Secretary and the expulsion of the CMA’s chairman. The Prime Minister also took aim at the now-infamous HS2 “bat tunnel” as an example of environmental over-regulation.
To butcher Eric Morecambe’s line, these are only some of the right notes, and definitely not in the right order. Fixing the regulators requires political commitment, a plan of action and – so often the hardest bit as I experienced in my own time as a ministerial adviser – actual delivery.
Clear the backlog
First, ministers need to capitalise on the quick win available by clearing the backlog of firms waiting for regulatory authorisation. This means fast-tracking a year or more’s worth of new companies and innovations into the market in one go. Lord O’Shaughnessey was drafted in to tackle the desperate clinical trials build-up at the MHRA, so it can be done. Once achieved, a “one month, not 12 months” approach to authorisations across all regulators should become the norm.
Not only would this unlock innovation, competition and disruption across the economy, it would send a meaningful signal to the business community that the government is serious about growth.
Take risks
Second, ministers need to be much clearer in instructing regulators to take risks, and giving them the political cover to do so. Hectoring regulators for being anti-growth, while also placing them on the hook for any slip-ups, puts them in an impossible position. Nikhil Rathi, CEO of the FCA, has asked for a “metric for tolerable failure” in return for a renewed focus on growth and innovation. Ministers need to put their political money where their mouths are.
More funding
Third, government needs to fund the regulators if it wants them to enable more growth. This sounds counter-intuitive, but backlogs pile up because caseloads are too high. Even worse, new tech and new companies are rejected by regulators because they require levels of technical understanding and the design of new frameworks that simply don’t have a budget attached. Just ask the UK’s burgeoning crop of alternative protein companies facing years of delay from the UK regulator, while Singapore and the US press ahead at pace.
As a quid-pro-quo for greater political cover and more funding, ministers would be in a position to radically beef-up their oversight of regulators, holding them to account for fudging their growth efforts or failing to act at the pace that startups and scaleups require.
Rachel Reeves has an opportunity to put these ideas into action in her upcoming regulatory action plan, and to cement them into a wider industrial strategy. Anything less will see the opportunity to fix the regulators slip by.
Leo Ringer is partner at Form