As the old saying goes, ‘when American sneezes, England catches a cold’. This week, the two major city watchdogs announced they will be ditching planned ‘Diversity and Inclusion’ regulation.
The Financial Conduct Authority (FCA), the regulator for Britain’s financial services sector, first announced their plans to impose extensive new Diversity and Inclusion rules in 2023. After significant pushback at the time, they have finally declared it has ‘no plans to take the work further’. The Prudential Regulation Authority (PRA), the Bank of England’s regulatory arm, has also issued a statement saying that they are not proceeding with similar proposals. Is this the first sign of a turning point in the creeping politicisation of business?
Much of the state is moving in the opposite direction when it comes to rowing back diversity initiatives
The FCA’s proposals represented some of the most damaging EDI (equality, diversity and inclusion) requirements the financial sector may have seen. They intended to require all firms to put in place a ‘Diversity and Inclusion Strategy’ and expected companies to ‘set targets to address underrepresentation in their firms’. This would have taken place alongside mandatory reporting for larger firms on age, ethnicity, sex or gender identity, disability, religion, and sexual orientation.
Not only would this impose a huge cost to business – the FCA’s own impact assessment estimated £561 million in set up costs and annual ongoing costs of £317 million – it would also have politicised the workplace. Respondents to the FCA’s consultation warned that the proposals would have chilled free speech, caused the proliferation of ideological training schemes and undermined women’s sex-based rights.
The FCA and the PRA are the first UK regulators to take a step back from advancing EDI. Why have they done so? Across the pond, Donald Trump’s early Executive Orders directly targeted federal EDI (or DEI, as it is known in US) programmes. Major firms like Walmart, Bank of America, and Goldman Sachs have followed suit, axing diversity orders – though others, such as Apple, have doubled down. Did our Financial Regulators realise that their proposals risked placing UK firms which operate in the US at a severe disadvantage?
Opposition to EDI is sometimes portrayed as ‘ideological’ or part of a ‘culture war’. Yet it is becoming increasingly clear that such programmes place extensive costs on firms; they undermine their ability to do business by hindering companies from hiring the most qualified candidate for jobs, and distracting them from their broader goals with questionable ‘targets’ or unpopular political campaigns. Importantly, there is not public support for this sort of activism in the workplace.
Polling for Policy Exchange, which has been documenting the shift in the debate over EDI, revealed that 75 per cent of people, including a clear majority of non-white respondents, believe that companies should prioritise hiring on merit, regardless of race or gender, rather than hiring to create a diverse team. The decision to row back from its proposals sees the FCA fall more in line with public opinion.
Policy Exchange’s research shows regulation places a ceiling on UK productivity. Earlier this year, the Chancellor Rachel Reeves called on watchdogs to cease regulations that hamper growth. She is right to be concerned: growth is flatlining while unemployment, inflation, and the cost of living are rising.
It’s important to be cautious, however, of reading too much into one positive signal by two regulators. Much of the state is moving in the opposite direction. UK Research and Innovation, which funds research in universities, recently announced that they would be requiring all those they fund to ‘embed diversity and inclusion’; the new Sentencing Guidelines will enshrine two-tier justice into the criminal courts; and the government is pressing ahead with an expensive Employment Rights Bill, and a Race and Disability Equality Act which will generate huge legislative costs for business.
The FCA themselves are sending mixed messages. Diversity requirements are embedded within much of their existing regulations – such as a new requirement in 2022 for mandatory reporting on the ethnicity and gender makeup of senior roles. None of these are being rolled back. Looking at their justification for abandoning plans for further measures, they cite ‘a very active policy and legislative agenda, including on employment rights, gender action plans and disability and ethnicity pay gap reporting’. It is possible that the regulators are sufficiently confident that EDI will be pursued by the state, that they themselves no longer feel the need to go ahead with unpopular policy proposals.
This week may have been a tentative step forward, but a step forward, nonetheless. EDI is embedded in every aspect of the British State – and is advancing in more areas than it is in retreat.
If the government genuinely wishes to prioritise growth, reduce the burdens on business and avert a two-tier society, it will need to communicate clearly that these sorts of initiatives are neither welcome nor desirable. It must be willing to act to enforce this across all of its departments, regulators and arm’s length bodies.
Instead, ministers seem to be pressing ahead with harmful policies, such as commencing the socio-economic duty in section 1 of the Equality Act – which could prevent all public bodies from making any decisions without considering how they could reduce economic inequality. It is an unworkable and expensive measure that will generate huge costs in implementation. A key test of the government’s commitment to sensible policy will be whether they ditch it.
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