Rachel Reeves has wanted to downplay the significance of the Spring Statement this afternoon. But with every leaked proposal and briefing, the statement feels increasingly like a full-blown Budget. Soaring borrowing costs, and a growth forecast set to be slashed in half, have wiped out the Chancellor’s £10 billion headroom against her ‘ironclad’ fiscal rules. Reeves’s statement could now include civil service reforms, NHS productivity measures and an ‘austerity-lite’ stance on future spending.
There will be no major tax decisions, barring a possible extension to fiscal drag. But today’s announcement is a crucial one for the Chancellor. Reeves’s didn’t expect the outlook for Britain’s economy to be so bleak. Yet nearly two decades of economic stagnation have brought the Chancellor closer to the fiscal brink than perhaps any other in recent memory.
Andrew Bailey, Governor of the Bank of England, warned in a lecture on Monday night that the country faces ‘strong headwinds’. He said that only a major breakthrough in AI or automation could bring Britain sustained growth. But Bailey overlooks the drag that regulation has placed on the economy – and the potential gains from cutting red tape. Reeves has started to talk the talk on deregulation; today, she has the chance to walk the walk.
Research from the Institute for Economic Affairs (IEA), seen by The Spectator, reveals the scale of damage decades of red tape have inflicted on the British economy.
The Consumer Price Index has risen some 84 per cent since the millennium, but not all goods have followed that trajectory. The IEA’s analysis of Office for National Statistics inflation data shows that many manufactured goods, such as clothes, computers and TVs that are produced in heavily competitive markets, have seen sharp falls in price; whereas sectors the government regularly intervenes in, such as housing, electricity and childcare, have seen prices shoot up.
These price rises hit the poorest hardest – especially in electricity and housing, because they take up a larger share of their income. For the poorest families, housing, fuel and power accounts for 27 per cent of their spending, compared with 19 per cent for the richest. As the IEA has argued, easing regulatory burdens could boost supply and innovation and lower costs for British consumers in the long run.
Studies have shown that a 10 per cent increase in regulation leads to nearly a percentage point increase in prices. The World Bank found that for every 10 per cent increase in the burden brought on by regulation, economic growth per capita slows by half a per cent. That number might seem small, but it translates to billions of pounds in lost output. Excessive regulation is also linked to higher poverty, greater income inequality, and even reduced life expectancy.
A serious rethink of Britain’s regulatory regime – in planning, digital technology, and crucially energy – could offer the kind of breakthrough Bailey believes only AI can deliver. Reeves won’t go there today, but she may soon find that a major pivot on regulation becomes impossible to avoid.
Among longtime deregulation advocates, there’s quiet optimism. Britain’s economic malaise, fiscal fragility, and the influence of Donald Trump’s 'move fast and break things' approach may finally be shifting the Overton window on what’s politically possible.
At a Growth Commission briefing in Westminster on Monday, a familiar cast of political figures – whose previous attempts at reform were burned by burdensome regulation and economic orthodoxy – took to the floor. Liz Truss herself took the mic during the Q&A and criticised ideologically driven regulators who, she argued, are ‘wrong time and time again.’ Truss took aim at the Office for Budget Responsibility for misjudging the dynamic effects of tax, immigration, and planning reform. Others warned that the push for regulator independence has led to a dangerous lack of accountability: independence from politicians has become independence from the people.
Voters shoulder some responsibility too. The instinct to regulate runs deep. After last week’s Heathrow power outage, the response was predictable: blame poor planning and demand it 'must never happen again', was the response from many. In Whitehall, such reactions become pretexts for more regulation, such as new rules on power resilience for infrastructure projects. It’s an instinct the government must learn to resist.
Labour, to their credit, appear willing to tackle the regulation problem. The Chancellor recently told regulators that ‘too much bureaucracy’ was slowing the government – and the country – down. The Treasury has been briefing for weeks that cumbersome environmental rules could be for the chop. But so far this has been mere lip service. We are yet to see decisive action.
Far from kicking regulation off the pitch, the government is ploughing on with it in practice. They’re pushing on with a football regulator to regulate what is already the world’s most successful sports league. Despite bragging about abolishing quangos, they have created 27 new ones. And as Charles Moore points out in the Daily Telegraph, not only does the employment rights bill pour yet more rules, duties and costs on employers but it attacks free speech too.
If a rabbit is to be pulled from the Chancellor’s hat at this Spring Statement, it will be on infrastructure investment. Reports last night suggest Reeves will give the go ahead to billions of pounds of investment on rail links and road crossings in a bid to boost growth. But for these projects to succeed – on time and within budget – she, the Prime Minister, and their party must confront the bat bodyguards, net-zero zealots, and newt knights – and the regulations they weaponise – who make Britain nearly impossible to build in. Deregulation may soon not be seen as politically optional, but economically essential.
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