Shanker Singham: We should copy the US to reduce anti-competitive regulatory barriers

Shanker Singham is Chairman of The Growth Commission.

The growth figures issued each month by the Office for National Statistics are, in one sense, rather like opinion polls. Looking at a single set of numbers on their own is relatively meaningless, even if some will seize on one aspect or another of the findings to give them comfort; it is far more important to consider the trends exhibited in the figures over time and use that longer-term data to come to more informed conclusions.

The figures for February which were issued last week are a good case in point of the need to treat these numbers with caution. To the surprise of most observers, the headline was an increase in GDP of 0.5 per cent in that one month alone. But while any increase in GDP is welcome, a single month of good growth does not alter the fundamental weaknesses in the British economy as exposed by the lethargic GDP figures of recent months and years.

I would also make the point that the Growth Commission has made regularly since our inception: the raw GDP figure is not a credible measure of living standards. With a population increasing as a result of historically unprecedented net immigration, the far more useful figure is GDP per capita, which better reflects average household income – and fell for two successive quarters in the latter half of 2024.

Much of the boost in the February GDP figure came from a good month’s numbers in the manufacturing sector. But what might have prompted that? It could well be that there was increased activity in the sector because of fears of what we had, by then, been primed to anticipate on the other side of the Atlantic in terms of tariffs being imposed by the US administration – with the prospect of auto tariffs a particular threat to the British car sector.

It is also worth remembering that there are various home-grown anti-growth measures which are yet to register in the GDP figures: the tax increases announced in last October’s Budget only came into effect last week, with the rise in employers’ National Insurance Contributions set to be particularly detrimental. Meanwhile the Employment Rights Bill and all the additional labour market inflexibility which it will cause is still yet to be added to the statute book.

Lest we forget, the pursuit of net zero has lumbered the UK with by far the highest energy costs in the developed world, and there is scant evidence of any impending policy change to alleviate that drag on growth for businesses and families alike.

Since energy accounts for almost half the cost of steel production, it is unsurprising that British Steel – hampered by these costs and net zero environmental legislation – finds itself unable to function. But British Steel may just be the tip of the iceberg. It is almost impossible to be globally competitive with these energy costs.

Add to that the continued uncertainty about what tariffs may or may not be imposed by the US in the longer term and there is definitely no room for complacency about an impending return to sustainable economic growth.

Indeed, on the tariffs front, our modelling suggests that even at the lower end (10 per cent) of what could be imposed by the US, this could cause a hit to UK GDP of 1.0 per cent. If this were to be coupled with the Government opting to lock in to anti-competitive EU regulations as a part of its much-discussed ‘reset’ with Brussels, there would likely be a far bigger negative impact on UK growth.

While there are many changes in policy that ministers ought to be looking at to boost growth – not least repeal of the Climate Change Act, cutting damaging taxes and taking action to improve ailing public sector productivity – the single biggest pro-growth measure that the Government ought to be focusing on right now is securing a comprehensive trade deal with the US that would result in tariffs being eliminated altogether.

Not only would such a deal be a good thing in and of itself, but shunning dynamic alignment of our regulations with those of the EU would mean that the UK could eliminate its anti-competitive regulations and improve its GDP per capita. Our modelling shows that a 10 per cent improvement in the UK’s domestic regulation (from a competition perspective) is a 5.5 per cent improvement in GDP per capita over the period for that change to be achieved.

Frankly the UK needs to have a wholesale review of its canon of regulation and introduce reforms accordingly. The Government would do well to take inspiration from the Executive Order issued by President Trump last week on reducing anti-competitive regulatory barriers, which set out a refreshing approach to competition and regulation.

This Order is effectively an acknowledgement that deviations from pro-competitive regulation have domestic GDP per capita effects. Any regulations that impose anti-competitive restraints or distortions (such as the regulations that keep out new entrants or distort ordinary market competition) now face a competition test administered by the Department of Justice and Federal Trade Commission and repeal if found to be anti-competitive.

We certainly advocate that the UK copy this US Executive Order in its approach with the existing stock of regulation, especially that ported over from the EU. The Competition and Markets Authority could be required to mirror the work the DOJ and FTC are being required to do.

In the great realignment that is coming, countries will only succeed if they shore up the strength of their domestic economies by making them fit for purpose. The UK has a long way to go to be a competitive nation in the future.