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11 June 2015
[Warning: this blog contains simple arithmetic. Politicians and senior civil servants should approach with caution.]
In his first speech as business secretary last month, Sajid Javid, pledged that the new Government would “sweep away” £10 billion of “burdensome red tape” over the next five years. It is a grand ambition. Will he succeed?
To answer that, we first need to understand how Mr Javid came up with this very Blair-esque target. That is where things start to get a bit murky. Its genesis appears to be a press notice released by the previous business minster Matt Hancock on 30 December 2014, in which he claimed that “the government’s war on red tape has saved business £10 billion over the last four years.”
The trouble is that – if the Coalition was able to save £10 billion over just four years – surely the new Government should be able to save at least (10 ÷ 4 × 5 =) £12.5 billion over five years? Or perhaps has it lost its reforming zeal?
Alternatively the calculation of the £10 billion target could be based on the officially published measure of deregulation, the so-called ‘equivalent annual net cost to business’. This is a notional annual figure that takes account of the differing time spans of different regulations. Over the course of the last Parliament, it added up to a net saving of £2.2 billion. But again, this suggests the new Government lacks the ambition of its predecessor, since 5 × £2.2 billion = £11 billion.
Sadly, when it comes to the arithmetic of deregulaton, the Government has form. Two particular issues stand out. The first is a willingness to turn a blind eye to its own counting rules. The most egregious recent example was the claim in 2011 that a minor tweak to pension regulation would generate a stunning £3.3 billion saving (an amount large enough to pay for every single new piece of domestic regulation introduced between 2010 and 2015). Reform has previously challenged the shaky basis for this assertion.
The second issue, and the one more likely to tax Mr Javid’s officials, is the fact that his new target conveniently excludes all EU regulation. Figures released by the Government’s own independent Regulatory Policy Committee suggest that correcting this oversight would almost certainly cancel out the entire £10 billion of domestic savings.
(On the face of it, the decision to ignore EU regulation is odd. After all, the struggling entrepreneur does not care whether a particular strand of red tape was woven in Whitehall or Brussels. With a referendum on EU membership scheduled to take place before the end of 2017, it seems unlikely this omission will continue to go unchallenged.)
What is certain is that the main challenge Mr Javid will face over the next five years will not be the mountain of legacy regulations already on the books. It will be all the new red tape his Cabinet colleagues will inevitably seek to introduce. In responding, he should remind them of the sage words of Baroness Thatcher, who warned that regulation “like marriage … should not ‘be enterprised, nor taken in hand, unadvisedly, lightly, or wantonly.’”
Rather than setting an arbitrary and easy-to-manipulate target, perhaps a more straightforward ambition for the new Government would be to create a low regulation environment where innovation and entrepreneurialism can flourish. In this, British businesses have a doughty champion in their new Secretary of State.
Richard Harries, Deputy Director, Reform