If we are to make Brexit a success, our regulators need proper scrutiny

Bank of England forecasts confirm that the UK will face a “very challenging” two years, with the looming prospect of a recession. Though I have no doubt that we will emerge stronger from this, we urgently need to develop a genuine sense of the type of economy we are trying to create and how to get there following our exit from the EU. Making a success of Brexit demands a new approach; there is no choice.

Brexit gives us the opportunity to set our own path towards better social and economic outcomes. Operating as before simply won’t cut it. Most people would assume that parliamentary legislation is paramount here; but detailed regulations governing all aspects of our economic life matter just as much. To this end, we have repatriated thousands of powers from Brussels, putting them in the hands of our own regulators. Yet these powers are hard to exercise appropriately and systematically after leaving the EU.

Nowhere was this tension clearer than the case of Solvency II, an obscure piece of insurance regulation that hit headlines in last summer’s leadership race. Solvency II provided a one-sizefits-all framework for EU insurers, despite the differences between domestic markets. The resulting rules trapped excessive amounts of capital on insurers’ balance sheets, preventing them from investing more in long-term projects. The industry has estimated that effective reform could unleash tens of billions in additional productive investment, helping us regenerate our regions, kickstart new innovation, and revive derelict brownfield sites.

But it is not just Solvency II that is unfit for purpose. We need to rethink our entire regulatory approach. Done properly it can bring transformational change. This approach must be positive, giving regulators appropriate control over their areas of expertise while ensuring that their efforts are directed at our national objectives.

Take housing, for example. The Government’s homes targets go consistently unmet, while flagship developments are often delayed by environmental regulators on the basis that they are not “nutrient neutral”. Such impediments further distort housing markets and, ironically, hamper efforts to build the new and environmentally friendly homes we will need to combat climate change in the long run. It cannot continue.

This is not a blanket criticism of regulators. More often than not, they are highly capable people well versed in their fields. Many of our regulatory bodies, such as the PRA, serve as a global gold standard of effective regulation, respected worldwide. What we must avoid is a siloed system of regulation that consistently neglects the broader picture of improving UK Plc in favour of several dozen different regulators each pursuing their own objectives. We must think anew about how to change our approach.

This can be renewed in several ways. As an important first step, the Government itself must be able to set out clear cross-sector priorities for regulators to follow, guiding the overall purpose. More coherent aims will help us better regulate emerging sectors of real economic importance, such as AI or data governance, which require many different regulators in many different areas, all working towards the same aim.

That is why I am setting up the Regulatory Reform Group, bringing together lawmakers and experts to scrutinise our regulators properly. Using industry insight, we will identify restrictive rules that are holding back entrepreneurs, innovators and long-term investment. We will engage and work with ministers, devolved governments and Whitehall officials to achieve sustainable economic growth.

If Britain is to move forward, we need a smarter regulatory framework that encourages engagement with wider issues and finally delivers for the future. My colleagues and I are determined to achieve this.

A smarter framework will encourage innovation and long-term investment