Fishing for Brexit opportunities will end with an unsatisfactory outcome

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The Brexit deal was simple: in exchange for losing the private freedoms to work, learn, trade and move freely in the EU, the government acquired the right to make decisions without the control of the EU. EU. Unsurprisingly, the politicians who made this deal want to show that it was worth it. Brexiteers’ staunchest Jacob Rees-Mogg has been duly appointed Brexit Opportunities Minister, apparently with a mandate to uncover “1,000 regulations we want to get rid of”. Surely he can find the settlement. But abolishing them will be much more difficult. This fishing expedition is unlikely to end with a satisfactory tow.

The fundamental reason why it is difficult to prove the benefits of Brexit from regulatory divergence is that the regulatory divergence it allows also entails its costs. To take a crucial example, the more British standards diverge from those of the EU, the more costly border controls must become. This is why post-Brexit trade with the EU has been weak and why the deal with Northern Ireland has led to these unpopular border controls – a reality that Boris Johnson has of course denied.

As long as a recent report from the UK in a Changing Europe think tank shows, the actual divergence has been modest. The government has certainly not delivered the bonfire of checks on major Brexiters desired. Yet change is inevitable, especially where EU policy has disappeared, notably in the areas of trade, agriculture, fisheries and subsidies. There are also opportunities for change in areas such as finance, public procurement, taxation, consumer protection, environmental policy and aviation. Finally, there are newer sectors, such as climate, data and digital economy, autonomous vehicles and biosciences. In all these areas, the regulations will therefore surely evolve.

The question is whether any of these problems can reasonably be narrowed down to the goal of removing thousands of regulations. The answer is no. Modern economies are regulated for powerful reasons: externalities, systemic risks, asymmetric information and power inequalities are ubiquitous. Additionally, the UK is embedded in international agreements and global relationships that business and government cannot ignore. If, to take one example, UK data protection standards diverge from those of the EU, UK-based companies will find themselves at a significant disadvantage.

In practice, therefore, creating effective regulatory regimes is a technically and politically complicated activity. In a few areas there have already been developments. Reforming the EU’s indefensible agricultural policy to protect biodiversity and meet ‘net-zero’ emissions targets is a mild example, as is a surprisingly liberal immigration policy for skilled workers. But the UK’s new flexible subsidy regime offers worrying opportunities for rent-seeking.

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One of the most important areas of regulatory reform will be finance. Rishi Sunak, Chancellor, has indicated a preference for divergence and thus the loss of favorable EU market access in favor of promoting the UK, and London in particular, as an internationally open financial centre. Here, there is surely an opportunity. But there is also a danger in its desire to introduce a secondary statutory objective, to provide for a greater focus on “growth and competitiveness”, in the terms of reference of prudential regulators and financial conduct authorities. Why could this be so dangerous, even as a secondary objective? The answer is that it could, once again, make the UK a leading player in a world regulatory race to the bottoma bit like the one that preceded the 2008 financial crisis. A growth objective may be acceptable, but not a competitiveness objective.

Above all, the principles and practices of regulation must be rigorously defined. They must not be mere political football. Perhaps we should move from prohibitive and adversarial regulation to more trusting and cooperative approaches, as Oxford’s Christopher Hodges suggests. What we must not do is toss around important regulations. There could be significant costs for security, market access and other purposes.

There is an alternative to deregulation: opt for symbols instead. The government report on the benefits of Brexit is leading the way, insisting on the return of ‘iconic blue passports’, overhauling the ban on the use of pounds and ounces, and allowing a ‘crown symbol’ on pint glasses . Surely Rees-Mogg can find more such talismans. If so, in the words of the Roman poet Horace, Montes parturientes, nascetur ridiculus mus (the mountains will toil and a ridiculous mouse will come out). Delivering mice is just stupid. Delivering monsters is dangerous.

martin.wolf@ft.com

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Slogans aren’t enough for Biden and Johnson voters / From Belle von der Goltz, Needham, MA, USA

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