As we squabble over bendy bananas and bash Big Tech, investors are quietly slipping away
Last week the Tories went bananas over Brexit. Bendy bananas, rather. Kemi Badenoch, the business secretary, announced that the Retained EU Law Bill would be scrapping only 600 EU rules straight off, rather than the promised thousands — with the rescued laws including the notorious regulation on the “abnormal curvature” of a certain fruit. Backbenchers drew angry comparisons with an advert from Rishi Sunak’s leadership campaign in which a white-shirted office drone fed piles of EU rules into a shredder while Ode to Joy blasted out on the soundtrack.
The row wasn’t just about a clash between pragmatism and principle. It reflected a growing concern among Brexiteers that the government hasn’t done enough to pinpoint areas in which Britain can steal a march on the EU.
There is a slightly farcical element to this — not least the idea that you show virility and purity through the sheer number of rules you axe, never mind the actual detail. But those MPs do have a point. Post-Brexit regulation has been a policy merry-go-round, subject to endless changes of personnel and approach. It wasn’t until years after the referendum that a specific unit was created to marshal progress, and it was pitifully underpowered compared with, say, the legions working on the Cop26 climate conference. Yes, there has been good work done, such as the Edinburgh reforms to financial services. But even then the EU may actually beat us to reforming the Solvency II insurance regime, which has been weighing down our investment prospects.
But it’s not just about EU laws. There is a far broader concern — forcefully expressed by Sir James Dyson in The Times yesterday — that when it comes to business and innovation, Britain is simply not at the races.
In 2012 the economist Andy Haldane gave a speech highlighting the increased scale of financial regulation. He pointed out that the ratio of regulators to financial service workers had increased from 1:11,000 in 1980 to 1:300 in 2011. I don’t have access to his methodology, but from counting up the numbers in various annual reports, I put the figure today at roughly 1:75. In other words, the number of regulators may have quadrupled in just over a decade. Likewise, the average FTSE 350 company report is 64 per cent longer than it was five years ago, because of all the extra reporting requirements — which helps explain why so few companies are listing here.
This isn’t just about finance. As Dyson says, it often feels as if the British state is doing more to deter growth and innovation than encourage them. Officials are itching to reimpose costly checks on food arriving from the EU, even though it is demonstrably safe. The Natural England quango has done more to block housebuilding than any Tory backbencher.
There was a lot of scoffing about post-Brexit Britain becoming “Singapore-on-Thames”. But the attraction of Singapore, as with the faster-growing US states, is not just the lower taxes but also the way investors are treated as honoured guests rather than being bounced from department to department. In France global chief executives are whisked to the Élysée Palace. In Britain officials take almost six months to answer Dyson’s letters. Investment funds with billions allocated to the UK describe the process of actually deploying that capital as like wading through treacle.
Leaving the EU was always going to hit the economy. But the worst forecasts all assumed nothing else would change; that we would not make ourselves more competitive to compensate.
And indeed on pretty much every axis we have done scandalously little to adjust. We have raised corporation tax, sharply. The government urged those of us who objected to look beyond headline figures. But look where? Our agile, accommodating planning system, which makes it easy to build and power factories and laboratories? The plentiful and affordable housing we provide for their workers? Our world-class transport infrastructure? Our rock-bottom energy prices? Our world-beating and consistent investment incentives?
I voted Remain, largely because I didn’t trust the British state to get Brexit right. But after the Leave vote I thought it would at least respond to the brute necessity to compete.
Instead, the headlines are filled with bosses such as Dyson and companies such as Revolut and Johnson Matthey bemoaning Britain’s attitude to business, or national champions such as ARM listing their shares in New York because they feel London is becoming a backwater. We are about to bring in the world’s most prominent piece of tech-bashing regulation, the Online Safety Bill, and are threatening firms with multibillion-pound fines across several pieces of legislation. Meta is threatening to pull WhatsApp from British phones because of our insistence on breaking end-to-end encryption as part of the bill. Microsoft is furious that our competition authority blocked its attempt to buy the maker of Call of Duty — which, irrespective of the merits of the arguments, surely has very little to do with us, as they’re both American firms.
The prime minister keeps making glowing statements about how he wants to make the UK a hub for video games, or AI, or start-ups. But much of Whitehall doesn’t seem to have got the message. This, indeed, is our core Brexit delusion: that we can still carry on as we were, that the world still owes us a living, even as the terms of trade have changed.
I could give example after example, but here’s a very simple one. The latest survey from the Investment Association showed that UK wealth management firms control more than £10 trillion in assets. But only £1.6 trillion was invested in this country. And the proportion of share portfolios devoted to UK firms had fallen from 37 per cent to 23 per cent in just a decade.
Put simply, the smartest investors in the country think we’re a bad long-term bet. And that becomes a self-fulfilling prophecy. Without investment there will be even less growth. Which is why it’s particularly alarming that, of that £1.6 trillion, only £40 billion is invested in UK infrastructure.
Ministers are aware of these concerns. A review is under way of our attractiveness as an investment destination. Badenoch’s package of announcements had good things to say on regulation as a last resort, and on getting regulators to consider the growth impact of their decisions. But it’s hard to shake the feeling that reformers are pushing water uphill; that the UK too often sees itself as a market leader surrounded by a spacious moat, rather than a small player that must scrap ruthlessly for every advantage.
A decade ago David Cameron tried to popularise the idea that Britain was in a “global race”. We still are. And it would help an awful lot if we put on some running shoes.
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