Too much red tape hinders investment

  • 4-3-2012

THROUGHOUT the whole term of the coalition Government, there has been a movement to reduce red tape in the UK.

Some of this is political rhetoric targeted at the previous regime which managed to pass some 8,000 new laws including a law making it illegal to go on holiday without informing your neighbours how to turn off your burglar alarm. To be fair to the previous government, it made an attempt to tackle red tape by appointing a Minister for Better Regulation, giving the post a budget and a secretariat.

While it is easy to say that red tape should be addressed, surveys by all of the leading business organisations including CBI, FSB, EEF, IOD and the NECC indicate that regulations are having a harmful effect on the economy, by potentially slowing the rate of growth.

This effect is felt most dramatically among the SMEs, where the administrative burden of excessive red tape is frequently borne by the owner of the business who neither has the resource nor luxury of appointing someone to deal with such bureaucracy.

The introduction of the Bribery Act, which has a Ministry of Justice Guidance Note that specifically states that even micro-businesses must comply with the Act, is not only an example of more red tape, but is a piece of legislation that could deter overseas companies investing in the UK.

The BIS consultation on reforming Competition Law is another example of legislation that could reduce overseas investment.

The consultation suggests that the Office of Fair Trading and the Competition Commission should be merged to create a Competition Markets Authority which could save £1m per year, making merger clearance a slightly faster, but less certain process.

The other big change suggested is the removal of the dishonesty element for cartel offences which will reduce the threshold of proof needed and make prosecutions easier, ironically, for accidental or inadvertent breaches.

The case for cartel and monopoly behaviour in the UK has never been fully made. Rather, as a country we have assumed that the US criminal model works in terms of deterrence. This is despite the fact that the number of cases in the US post-criminalisation has remained exactly the same as before. This argument fails to address the fact that the US economic model is very different to the UK, where there is a long tradition of large super-competitors. Most markets in the UK are more fragmented.

If the UK wishes to emerge more competitive from this global recession it needs to consider that additional regulation and heightened prosecutions will make investment in the UK seem less attractive. Growth in the BRIC economies (Brazil, Russia, India and China) and the Far East stems from emerging markets and innovation, but it can be no coincidence that few of these economies have highly developed regulatory regimes.

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