Liz Truss wants a bonfire of EU regulations to make the most of Brexit – it’s a pipe dream

This culling of controls planned by the Conservative leadership contender will look less like a giant bonfire and more like a scout campfire, writes Sean O’Grady

Foreign secretary and Conservative leadership candidate Liz Truss (PA)

Liz Truss, Conservative leadership contender and apparent Margaret Thatcher tribute act, would like to emulate her hero by “ditching EU law from statute books by [the] end of 2023 to boost [the] economy”.

In the words of her bullish press release: “As prime minister I will unleash the full potential of Britain post-Brexit, and accelerate plans to get EU law off our statute books so we can boost growth and make the most of our new-found freedoms outside of the EU. EU regulations hinder our businesses and this has to change. In Downing Street, I will seize the chance to diverge from outdated EU law and frameworks and capitalise on the opportunities we have ahead of us.”

There was much to be said for the Thatcher-Major “supply side” reforms to the economy, such as trade union reform, privatisations, creating enterprise zones and improving incentives for entrepreneurs. However, those governments, and others, made some serious mistakes as well in the struggle to set people and business free.

“Deregulation”, no less than regulation, needs to be done with care and with due assessment of risk. Failure to do so gave the UK, and/or the world, such deregulatory disasters as the “dash for gas”, which permitted precious North Sea gas reserves to be burned to generate electricity, the Grenfell disaster (fire and building regs), and of course the global banking crash and recession after 2008 (“light touch” financial regulation of innovative “synthetic” financial instruments and lending to sub-prime borrowers).

With such a breakneck rush to dismantle 50 years’ worth of EU legislation, now adopted into UK law, the danger of being careless is much amplified. Truss’s deadline is even more demanding than a 2026 deadline suggested by Jacob Rees-Mogg, which was thought unwise by many observers.

Questions are likely to be raised over the feasibility of combing through more than 2,000 pieces of legislation in under a year and a half while the civil service faces cutbacks.

There are particular problems with the proposals to reform financial regulations, designed to protect institutions and investors alike by ensuring funds are invested prudently and firms have adequate reserves against difficult times and the calamity of collapse. The Truss announcement states that “Solvency II is EU regulation that forces pension funds and investors to hoard cash instead of investing in infrastructure, energy projects, and the high-tech industry. We will introduce new regulation that preserves the original goal of Solvency II – the protection of people’s investments – while unleashing capital that can be invested in our future.”

There is also a suggestion about the dull sounding but crucial “MiFID II” regulation (Markets in Financial Instruments Directive”), again pushing savers’ money towards riskier schemes, and undermining independent analysis of fund managers’ performance.

The obvious problem with that is that there is no necessary reason why British pension funds will get the best or safest returns from an investment in British infrastructure as opposed to, say, Norwegian infrastructure, a US Treasury bond, shares in Amazon or any other destination in a balanced portfolio. It feels rather like a government short of cash is looking for other sources to fund its pet schemes, sometimes with an eye to marginal seats and political interests.

The insurance sector has raised the alarm about the huge damage that could be thus inflicted on people’s savings, even with government guarantees. It recalls the worst aspects of the traditional left-wing demand to force UK pension funds to invest in British industry. It is a deeply unConservative idea.

But even if all of the deregulation was carried out perfectly, and with due safeguards, it might well fall foul of the EU-UK Trade and Cooperation Agreement (TCA). The TCA specifically requires Britain to maintain a “level playing field” with the EU, in the interests of fair trade. It prevents too much divergence between UK and EU rules in important areas, such as animal welfare, subsidies, environmental safeguards, labour law and other areas.

It bans any backtracking from standards in place when the UK left the EU in 2021. “Non-regression” provisions are there to ensure that protections are not reduced below the levels at the end of the transition period if that would affect trade or investment. The UK and EU both commit to maintaining effective oversight and enforcement systems, with administrative or judicial means of challenge and redress.

So gaining significant competitive advantage against already highly efficient EU-based concerns will be more difficult than simply scrapping various rules – if, that is, the UK continues to want to have access tariff-free to the EU single market.

Given all that, this culling of controls planned by Truss will look less like a giant bonfire and more like a scout campfire. Mind you, it could still get out of control.