Is Red Tape holding Britain back?

Allister Heath was banging on about Red Tape Britain yesterday, blaming bureaucracy for stifling growth. His piece is more of a frustrated rant than an argument and his solution, a parallel executive with permission to flout the law, is the sort of thing you’d expect from a 14-year-old asked to write an essay on ‘How to get rid of red tape’.

We may laugh but his views are only a spittle-flecked version of a more general antipathy towards regulation. Only a few months ago, the Prime Minister portrayed his civil servants as the enemies of enterprise, saying that he would give them  a good talking to if they didn’t stop putting petty rules in the way of business. The view that Britain’s economy is being stifled with red tape is widely held.  

Not by everyone though. Last weekend, I went to a barbecue at my Polish neighbours’ house. Somehow we got onto the subject of regulation. (Don’t ask me how; I’d had quite a lot to drink by then.) Three of the Polish people there had set up businesses in the UK. They laughed at the suggestion that Britain was overburdened with red tape. Even though they were working in their second or third language and didn’t fully understand the legal system, they found it easier to form companies and employ people in Britain than in Poland.

From a quick glance at the OECD’s regulation index it’s easy to see why.

Index scale of 0-6 from least to most restrictive

According to the OECD’s index, which takes into account a number of regulatory measures, Poland is the most restrictive of its member countries and the UK is one of the least, second only to the USA for lack of business regulation.

For those interested in the subject, the report is worth reading in full. It also concludes that the UK has the lowest barriers to entrepreneurship and the third lowest barriers to trade and investment.

So, given that the UK has relatively low regulation, how do the countries that have a lot of it cope? Presumably, their economies must be stagnating under the weight of red tape.

Er, not quite.

If we look at the most regulated economies, plus, for fair comparison, the three that are a similar size to the UK (which are also more highly regulated), only Italy has lower growth forecasts.

OECD Growth Forecasts

Percentage change in GDP from previous period

	2010	2011	2012
Poland	3.8	3.9	3.8
Turkey	8.9	6.5	5.3
Mexico	5.5	4.4	3.8
Czech Republic	2.2	2.4	3.5
France	1.4	2.2	2.1
Italy	1.2	1.1	1.6
Germany	3.5	3.4	2.5
UK	1.3	1.4	1.8

Highly regulated Poland, Turkey and Mexico are storming away. Germany and France are not doing badly either. Red tape, it seems, doesn’t stop other countries from growing faster than the deregulated UK.

No-one likes regulation, though whether someone thinks a rule is good or bad depends on whether it stops them from doing something or stops someone else from doing things to them. One person’s red tape is often another person’s protection.

People who run businesses moan about administrative burdens all the time. Tomorrow, I have a monthly meeting with my colleagues. We will spend some time grumbling about the compliance stuff we have to contend with. We always do. There is something almost tribal about this. You can’t be a proper businessman or businesswoman if you don’t have the odd gripe about red tape.

But all countries have red tape. In the grand scheme of things it isn’t a big deal and, compared to most other places, the UK gets off lightly. So much so that people from other countries come here to start businesses. Even so, other economies with far more onerous regulatory regimes are managing to bounce back from the recession more quickly than we are.

At the moment, the UK is a low regulation and low growth country. Whatever the reasons are for Britain’s poor economic performance, red tape isn’t one of them.

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