In the City
Flying the red tape
WITH the threatened Trump tariffs a new obstacle to Labour’s hopes for growth to avoid more spending cuts or higher taxes, the City deregulation chorus is expected to grow louder. But what is the evidence that less regulation of financial services means more economic growth?
A Treasury policy paper last month – New approach to ensure regulators and regulation support growth – suggested “red tape” could cost 3-4percent of GDP (or around £70bn) across the whole economy. Financial services represent around 10 percent of GDP.
However, a footnote explained that £70bn was extrapolated from a 2005 report based on studies in the US and the Netherlands, which suggested 30 percent of an estimated 10-12 percent regulatory cost was administrative. The projection on to 2023 UK GDP also came with caveats about time, comparability and national variables.
Asked about the £70bn estimate last week by Lib Dem MP Bobby Dean of the Treasury select committee, Nikhil Rathi, beleaguered chief executive of the Fundamentally Complicit Authority, declined to comment, other than: “There is no one figure.” Rathi had previously admitted to FCA staff that “not much” was known about how regulation supported growth. Still, there is a new five-year FCA plan to rebalance risk and support growth in line with chancellor Rachel Reeves’ “regulation-lite” demands.
Those looking for the benefits of less regulation usually point to the US. Rathi told MPs that since 2012, ie post the global financial crisis, the US-UK productivity gap had more than doubled. But how much is down to excessive City regulation? US financial markets are highly regulated – too much so for many Republicans. The FCA’s Wall Street equivalent, the Securities & Exchange Commission, requires voluminous, rapid and regular disclosure from listed companies, beyond that insisted on here. Banks and insurance companies are also overseen by overlapping federal and state regulators.