Jan 2012 03

Cut regulation to avoid a double-dip recession and for a happier 20126

2012 was supposed to be the year when everything would start to look up for the Government, according to the received wisdom back in May 2010. This was to be the year when the economy would rebound into strong growth, monarchists would celebrate Her Majesty’s Diamond Jubilee and the gaiety of the nation would be lifted upwards as Londoners in traffic jams wished Olympics VIPs Godspeed as they whizzed past in exclusive Olympics traffic lanes. But that’s not how it looks now.

A Deloitte survey of Chief Financial Officers has found that 54 per cent now expect a double-dip recession – twice the figure making that prediction last year. Meanwhile, a survey of companies by Lloyds Bank shows business confidence has plummeted back to levels not seen since 2008 and assesses the likelihood of another recession to be 75 per cent.

The sluggish growth in the US and Japan means that lacklustre British economic growth is unlikely to be dragged up by booming export orders. The unfolding debt crisis in the eurozone, meanwhile, means companies are once again battening down hatches and preparing for a possible disaster.

In the UK, high taxes and Byzantine regulations continue to choke off the growth that we’d be enjoying without them. While politicians often say the right things about red tape, it’s becoming clear that far too little is happening to reduce the burdens on business and pave a path for prosperity.

Even the Government’s moratorium on new regulation for micro businesses employing fewer than 10 people will make little difference as it has emerged that it will only apply to one new regulation, a single new rule regarding forthcoming equalities legislation. Alexander Ehmann, Head of Regulatory Affairs at the Institute of Directors said:

“It’s the Emperor’s New Clothes. The moratorium exists but it hasn’t been applied to anything. Unless it is applied to something it is meaningless.”

John Walker, Chairman of the Federation of Small Businesses, summed up the increasing frustration with the Government’s failure to act on its diagnosis:

“The Government has talked a good game on deregulation. But small firms are still waiting to see action on the ground that matches the rhetoric.”

With the deficit still at eye-wateringly high levels and grim prospects for our major trading partners, the Government needs to take decisive action now to free up enterprise to create the jobs and prosperity which the economy and the public finances desperately need. Announcements and statements are not required. Abolition, amendments and cuts to regulations and taxes are.

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  • Blarg1987

    Its all well and good saying regulation and taxes need to be cut to encourage economic growth, but as you said, europe is facing a debt crisis and the big economies may not be importing, so how by reducing regulation would the encourage economic growth?

    History has shown both the left and the right of the political divide, is that the state needs to stimualte economic growth be it new housing, saying they are going to build new power plants etc.

    The idea that cuting regulation will encourage growth is peanuts in the grand scheme of things, builders arn’t building property because they wont get the pre crash prices which they expect, buisness wont invest because it is taking a risk, which it would rather allow the state to take instead.

    We need more reforemd regulation such as the state forcing developers to start building new housing by giving them a deadline of two years or the goverment will start its on house building programme with little to no profit that way the private sector has a carrot and a stick to grow.

    Only then will we have economic prosperity, I do admit a tax cut at the botom end of society would be a massive boost for local buisnesses, however this would have to be paid for somehow, and that is the balancing act that we have to choose.

    • Kobi

      So much rubbish I don’t even know where to start.  To take on example: “builders arn’t building property because they wont get the pre crash prices”.  One of the reason that new build house prices are so is because of the regulations imposed by central and local government requiring private sector house-builders and ultimately private sector house-buyers to subsidise social housing.  If up to 25% of a development has to be handed over to social housing, no wonder that prices are so artificially high.  To say nothing of the ratcheting up in building regulations in the name of chasing the climate change god, which are jacking up prices even more.

      “History has shown both the left and the right of the political divide, is that the state needs to stimualte economic growth”.  Sorry, but economic history has shown the exact opposite.  Every pound spent by government is one pound less for wealth creation and economic growth.

      • Cap4420

        My friend you are completely wrong!

        No such evidence has ever been produced to show that government spending restricts wealth creation – it’s a fantastic theory but it simply doesn’t stand up to scrutiny. And if you take it further – the last round of tax cuts by Bush junior – it can be highly damaging to an economy!

        Climate change should be a massive opportunity for private sector innovation but has been stalled by indecision and weakness. And house building – your post is disingenius to say the least. Developers want to build 4 and 5 bed properties on green belt – but all the stats and the demand is for smaller properties in urban areas (brownfield). This is nothing to do with regulation – it’s simply about what developers prefer doing.

  • Sick of the South

    So nothing to do with the government’s economic policies sucking demand out of the economy then?

    Hiking taxes on consumption, like VAT and fuel duty, has contributed to the further erosion of stagnating incomes and pressing ahead with ideologically motivated cuts to public sector pay and jobs has had a disasterous knock-on effect on the private sector in many regions.

    It’s well and good saying ‘cut regulation’ and ‘cut employers NI’ but, certainly from the point of view of my business,  I won’t be recruiting anyway as long as people out there don’t have money in their pockets and aren’t spending because they are worried about losing their job. 

    • http://twitter.com/TomTheWaters Tom Waters

      “Sucking demand out of the economy”? What do you mean – the government has INCREASED spending every month since it’s been in office – look at the Treasury’s own figures! http://www.cityam.com/forum/the-cuts-are-convenient-lie-the-whole-political-class-city-am-does-the-maths

      I think that it’s hard to call such increases as ‘ideologically motivated’, and even by 2015, spending will have only been reduced to those ideologically stringent and extremist fiscal conservatism times of… 2008.

  • Anonymous

    Abolishing regulations will take for ever and, anyway, some regulations are good. Management can be lazy and cavalier about doing its civic and humanitarian duty. What can happen straight away are tax-cuts. They are the real injustice and the real brake on the economy.