Growth in the UK and Europe is being choked off by the ballooning size of the regulatory state, former European Union finance commissioner Jonathan Hill has said.
Politicians have outsourced so much to independent regulators that economies are now too risk averse, he told the Association for Financial Markets in Europe conference in Barcelona on Wednesday. That creates the greater “risk to financial and political stability of low growth.”
Hill’s comments come amid calls from industry for the UK and EU to compete more aggressively with the US and China or risk getting stuck in a low growth trap and being left behind in the new economic arms race.
The US’s $370 billion green energy subsidy program threatens to suck investment from Europe and the UK and deteriorating relations with China raises the prospect of a new economic Cold War.
The EU is preparing a package of subsidies in response but the UK has so far offered only piecemeal action that has left the business community in despair.
Hill said UK and EU governments have “little or no space to increase taxes” and have “borrowed up to the hilt” yet still face ever-increasing spending pressures. “The only way out of this conundrum is growth,” he said. “The one way we can encourage growth is to question the size of the regulatory state.”
“We need to think about regulation through the prism of competitiveness. It is dishonest to promise our citizens that they can have a combination of high growth and zero risk. If we want more growth, we are going to have to accept more risk.”
Over the 15 years since the financial crisis, there has been an “endlessly rising tide of regulation, ever wider in scope and more prescriptive in detail” in the EU and UK.
Two years ago, Hill was commissioned by the government to review the listings regime on the London Stock Exchange to make the UK more attractive for investors. He said he had expected the regulator to resist his proposals but discovered it was open to reform and only cautious because of “the broader social and political climate.”
“Why encourage risk if you know that you are likely to be hauled in front of a parliamentary select committee and roasted if you get the balance wrong? If you know that you will be pilloried in the media?” he asked.
Politicians have “surrendered responsibility” by outsourcing “control over great chunks of our economy to the regulatory state” and compound the problem of excessive risk aversion by attacking regulators for failing to protect consumers.
“We need to reset our attitude towards regulation,” he said. “We need to kickstart a much more honest political and social debate about growth and risk and the trade-offs involved.”
“We need politicians to take more responsibility and recognize that regulation equals politics because regulation is ultimately about growth, jobs and investment.”