If there was ever a metaphor capable of ruffling the feathers of both the left and the right of British politics, then Rachel Reeves drawing parallels between herself and Margaret Thatcher was surely it.
Delivering the annual Mais lecture to a room of financiers, economists and academics, Reeves opened by likening the UK’s current economic climate to that of the late 1970s, and called for a ‘new chapter in Britain’s economic history’ to generate a ‘decade of renewal’. Any genuine comparisons with Thatcher stopped here, however. The rest of the hour was spent outlining her vision for a more collaborative partnership between state and business to deliver on this promise.
Whilst the right will criticise her vision for being a cheap imitation of Thatcher’s free market doctrine, and the left will lambast her for being a neoliberal wolf in progressive sheep’s clothing, the reality is that Reeves’ is far more indebted to current US Democratic thinking.
Labour’s interest in Democrat economic policy is no secret. The ‘Securonomics’ agenda is Reeves’ attempt to marry Britain into a joint movement away from the neoliberal consensus. The similarities in approach are in fact so striking, that commentators have suggested that her vision is ‘Bidenomics without the money’.
If the UK is destined to follow America, there is an overlooked aspect of US economic policy that they need to pay closer attention to – robust regulatory enforcement. This is one of the critical policy levers that US Democrats believe can deliver the stability and economic investment that Labour craves, whilst reaping significant financial dividends in the process.
Our partners at Violation Tracker have documented in a forthcoming report how the UK stacks up against the US. Their findings show that the total penalties issued by US regulators are dramatically higher than in the UK. 57% of the UK cases of enforcement they analysed had no monetary penalties and another 24% had amounts below £5,000. By contrast, in the US, enforcement actions without monetary penalties are so uncommon that their database does not include them, and fines below $5,000 are also excluded.
A gaping enforcement gap
The UK is greatly underperforming when it comes to resourcing our regulators. Since 2010, steep budget cuts and falling staff numbers have resulted in serious declines in enforcement activity – from water quality testing, checks on food products and air quality monitoring, to workplace health and safety inspections, consumer product testing and more. An ‘enforcement gap’ has since grown in size, eroding our capacity to clamp down on harm and leaving the UK exposed to corporate malpractice. By contrast, US policymakers have been investing heavily in tooling up their regulators.
One area where this has become strikingly apparent in recent years is around procurement fraud. The highest profile example of this was the widely covered Medpro scandal in which 25 million pieces of allegedly substandard PPE was sold to the government during the Covid pandemic. The Department of Health and Social Care (DHSC) is currently suing Medpro to recover the £122 million it paid, but beyond this, UK enforcement in this area is largely non-existent. An estimated £33.2 to £58 .8 billion worth of combined fraud and error loss to the government was recorded in 2020-2021, but prosecutions to address this have been rare.
By contrast, The Justice Department in the US, has prosecuted over 800 cases of government fraud since 2010, with nearly £21 billion in penalties. The largest settlement to date was a fine of almost £1 billion in 2016 against Wells Fargo for mortgage fraud claims when the company misrepresented insurance eligibility for residential home mortgage loans.
Another area where the US far outpaces the UK is on anti-competitive business practices. This has also been a regular feature of the news cycle recently with the Competition and Markets Authority launching investigations into the veterinary industry and the recent merger between Vodafone and Three UK, which they fear could lead to higher bills.
A population-adjusted comparison of penalties issued for price-fixing and anti-competitive practices since 2010 reveals that the US total is five times higher than the UK. Since 2010, the UK government has received over £1 billion in fines for price-fixing and anti-competitive practices. Whereas in the US, companies have paid $70 billion in fines and settlements to resolve allegations of price-fixing and related anti-competitive practices in violation of antitrust laws.
Fines are increasing for companies who break competition law in the UK, but they still lag behind the US. And it is still smaller companies that are likely to be targeted in the UK, often with no monetary penalty issued.
The same pattern of small companies and small penalties occurs with environmental enforcement, which has been on the decline across the UK. Weighted by population size, the amount issued in fines by US regulators for environmental offences totals £16.9 billion to the UK’s £357.7 million.
Enforcement in the US results in higher fines than the UK, but it also covers a greater range of offences. Oil and gas companies rarely face enforcement action for environmental offences in the UK, whereas they represent the highest number of parent companies fined for environmental violations in the US.
A financial and electoral dividend
With the General Election on the horizon, many across the UK are hoping that a change of government will bring about a better deal for workers, the environment and the general public. If Reevesian economics is to deliver this, the Shadow Chancellor would do well to pay close attention to the regulatory system on the other side of the pond.
Well-resourced regulators would help deliver her three pillars of stability, investment and reform by allowing proper enforcement of the rules. This would give the government greater scope to clamp down on social and environmental abuse whilst sending assurances to the private sector that they will not be undercut by unethical practices, or squeezed out of markets through monopoly power.
A new relationship between state and the private sector requires a new approach to regulation; one capable of shrugging off the worst excesses of the market by providing proper corporate accountability. And for a cash-strapped government looking to fix things fast, it would certainly be a useful place to start.