The Lex Newsletter: Brexit red-tape bonfire is more of a slow smoulder

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Dear reader,

There was a hint of parody about the Benefits of Brexit. The official document published here in London on Monday — the second anniversary of the UK leaving the EU — enthused about blue passports and crown stamps on pint glasses.

It was published on the same day as a heavily redacted report on lockdown parties in Downing Street. In both cases, critics said, it looked as though anything of significance had been removed.

That is harsh. But it is fair to say that the Brexit project is not delivering what some cheerleaders had hoped. In December, the government’s chief EU negotiator Lord David Frost resigned in frustration over the direction of travel.

Meanwhile, the drawbacks of Brexit are materialising as predicted. As of October, UK imports and exports of goods were 16 per cent below the expected trend if the UK had stayed in the EU, according to the pro-EU Centre for European Reform.

Chart of UK exports plus imports, seasonally adjusted (£bn), showing the cost of Brexit

High time, then, for the government to take advantage of its newfound ability to forge its own rules. There should be scope to improve on the EU’s “one size fits all” approach that does not always accommodate national differences. Reforming agricultural subsidies, for example, will allow the UK to steer away from food production and towards biodiversity and carbon reduction.

Well-designed rules could, in some cases, give the UK a competitive edge. In fintech, the government wants regulators to experiment and collaborate with business. It wants to encourage the use of “sandboxes”, which allow businesses to experiment under a regulator’s supervision, for example in testing new products.

The UK has a chance of securing a “first mover” advantage by regulating emerging industries before the EU does. The government cites digital markets, artificial intelligence, gene editing, artificial meats and autonomous vehicles as examples of “new and exciting areas”.

But it will be far from straightforward. The National Farmers’ Union says new precision breeding techniques, such as gene editing, could offer huge benefits. But many environmental campaigners want to stick with EU restrictions. Getting the public onside could be a struggle.

In the case of autonomous vehicles, the UK could attract manufacturers and developers by relaxing restrictions on companies accessing personal data. But that could prompt the EU to withdraw the adequacy ruling that allows data exchange with the UK when it comes up for review in 2025.

The cost to UK companies of transferring data from the EU in that scenario has been estimated at as much as £1.6bn. Moreover, safety standards for autonomous cars are governed by international agreements, rendering regulatory autonomy something of a token advantage, according to a study by UK In a Changing Europe, a think-tank.

The UK’s freedom of manoeuvre is limited by the increasing division of the world into three regulatory spheres of interest: the US, EU and China. An innovative UK regime might not prove sustainable after the larger blocs have made their moves, says the Institute for Government. That said, the UK might be able to form alliances with other regulators, or exert influence on them.

Escaping the EU’s orbit is tricky because many businesses do not want to operate under multiple different regimes. Chemicals producers have warned that replacing EU regulation could cost the industry £1bn.

No wonder some of the punchier numbers about scrapping EU rules have been scaled back. The government says its reforms will cut £1bn of red tape for UK businesses. That compares with the Leave Campaign’s claim, ahead of the referendum, that Brexit could remove £33bn of Brussels red tape.

There are some real opportunities as the UK diverges from EU rules. But they are unlikely to match up to the hopes of those, like Frost, who wanted Brexit to create a lightly regulated economy. Replacing existing rules can lead to additional burdens, while new technology and the move to net zero will require an entirely new set of edicts. The promised bonfire of red tape is failing to catch alight.

Enjoy the rest of the week,

Vanessa Houlder
Lex writer

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