My Times column on Britain's opportunity to diverge from the EU:
At the risk of infuriating both sides in the parliamentary civil war over Brexit, I humbly suggest a compromise. The central issue is divergence: how much should Britain aim to veer away from the Continent in how it regulates products and services, and how much would the 27 countries and the European Commission allow us to diverge before denying us a trade deal at all?
Between the hope of Philip Hammond, the chancellor, for “very modest” divergence and Jacob Rees-Mogg’s fear that this would leave us a “vassal state”, there is a gulf. Yet (like the English Channel) it may not be unbridgeable. Part of the compromise would be for Britain to start out in close alignment on existing products and services, but to be free to diverge not by repealing existing laws, but as new technologies and conundrums arise.
David Davis, the Brexit secretary, hinted at such a thing last week. There is never much appetite for wholesale repeal of regulation. It is all too easy for opponents to portray it as a dangerous betrayal of the safety of the public, even if this is not the case.
Besides, repeal is surprisingly unpopular with a sector groaning under the burden of a regulation, however much that sector protested when the regulation first came in. By the time the financial sector has adopted and adapted to some heavy-handed rule on money laundering that (let’s imagine) requires the inside-leg measurements of clients to be rechecked every six months by an independent tailor, it will have geared up to meet the rule. It quite enjoys the barrier to entry. Insurgent competitors struggle to find tailors who are not already signed up.
The tailors now have a lucrative new business line and will lobby hard for keeping the regulation in place, by leaking to the media blood-curdling stories of frauds that could be perpetrated were inside-leg measurements not taken. This is the reality of regulation, its dirty little secret: it always benefits incumbents by raising hurdles to new entrants, and it creates vested interests. Even the most egregious rules, ones that clearly get in the way of offering better value to customers while doing nothing to protect them, prove almost impossible to repeal.
Incidentally, America may be about to prove me wrong, but I doubt it. I am told by American friends that while the media is distracted by the chaos and confusion in the White House, the lower echelons of the Trump administration are pushing ahead with wholesale deregulation and decluttering of bureaucracy.
As an example, the US Environmental Protection Agency (EPA), normally keen to ban things, last week challenged Columbia University to give it the data from a study that was used to justify a lawsuit forcing the banning of a pesticide. The agency’s words were: “Despite multiple requests, an EPA visit to Columbia, and a public commitment to ‘share all data gathered,’ [the Columbia Center for Children’s Environmental Health] has not provided EPA with the data used.”
However, I suspect the greatest deregulatory impact of the Trump administration will come much later, when the new judges it has appointed start resisting calls for new regulations. It is in the nature of modern society that regulators constantly face new challenges to which they must respond.
It is here that divergence really matters. After leaving the EU Britain will face new technologies and habits for which it will require new rules. So long as we are free to promulgate such rules in different ways from our “close and special” partners across the Channel, without their being struck down by the European Court of Justice, then we need not be a vassal state.
Let me give a real example. The growing potential of artificial intelligence (AI) is throwing up new challenges in the use of data, in the legal liability of machines and so forth. At present the general view in this country, and in most countries, is that a special AI regulator would be a mistake, that existing bureaucracies can cope with the issue and that we mainly face new versions of old problems. As time goes by, this may need to change.
Ten years from now both the EU and the UK may have begun bringing in new AI-specific rules. It is unlikely these would need to be identical, even if they aimed to achieve a similar result. Ours might more reflect the importance of financial services to the British economy, or the dominant position of the National Health Service in gathering health data.
Twenty years ago nobody could envisage the need for rules for self-driving cars, or gene-edited plants, or fracking, or revenge porn, or chatbots, or biomass power stations. To take a more trivial example in the news, who could have foreseen the sudden resurgence of phone boxes on high streets, driven entirely, it seems, by the opportunity they represent for advertising and the fact they are exempt from planning permission: a loophole that needs addressing?
Just as innovation will lead to a constant stream of new regulations, giving opportunities for Britain and the EU to diverge, so old regulations often eventually become irrelevant thanks to innovation. It is instructive to browse a list of parliamentary acts from the 1930s and see how many no longer matter: from the Hairdressers’ and Barbers’ Shops (Sunday Closing) Act to the Wheat Act.
In short, I am arguing that the big prize is future differentiation, allowing Britain gradually to become a country that aims for similar outcomes as the EU in regulating innovations, but by different methods, ones that (I hope) do less to stifle innovation and competition. This means there might be neither an immediate Brexit pain nor an immediate Brexit dividend. So long as the European Court of Justice cannot strike down our rules, then the future could be a happy one for both sides.
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