Wednesday, May 23, 2007

Praguetory on the DTI

The blogger Ghost Cabinet is a thoroughly good idea. Encouraging more policy debate in the blogosphere is a fine thing. In that spirit, here's a, hopefully constructive, response to Praguetory's piece on the DTI:

"The DTI manages government assets of £10 billion and performs sundry other tasks with 10,000 staff on a budget of £6 billion per annum. It is a department in crisis. In a classic sign of an uncertain organization the DTI recently conjured up the following statement of purpose."

That spending figure is actually a little out of date. It's the number that was bandied around a little while ago but this year the DTI spent £6,899,000,000 according to the Public Expenditure Statistical Analyses.

"“Working to create the conditions for business success and help the UK respond to the challenge of globalisation”.

Are they succeeding? Firstly, let’s measure business success by considering movements in the value of companies. Between May 1992 and 1997 the FTSE 100 index rose by 92% to 4500 when Labour took over. If Labour had managed to maintain that rate of growth the FTSE would stand at 16,532 today. It is 60% lower at around 6,600. So that’s a big black mark."

That's a little unfair. The DTI is only one government department with a very limited capacity to create a framework for business success. It has little control over regulation and none over corporate taxation. Also, FTSE performance is a pretty imprecise measure of corporate success.

"To measure how the UK is responding to the challenge of globalization we should examine the UK’s relative competitiveness. The World Competitiveness Yearbook shows that the UK has slipped from ninth place in 1997 to 21st in 2006. The World Economic Forum also compiles a global competitiveness league table. In 1997 we were 4th since which time we have dropped to 10th."

This is a better measure of the DTI's failure.

"In their latest report, an inadequately educated workforce was cited as the most problematic factor of doing business in the UK. Another major weakness is the inefficiency of the UK’s tax system. We were ranked 67th. Britain came 51st for its burden of government regulation down from 13th in 1997 and we dropped from 11th to 26th on bureaucracy. In sum, UK plc is not responding well to the “challenge of globalisation” either."

The DTI has very little power to affect most of these issues. The Department for Education and Skills is responsible for education. The Treasury controls the tax system. Regulation and bureaucracy is created by all government departments (a lot of regulation comes from the EU of course). This should highlight that the problem is less that the DTI is making poor decisions and more that it has no ability to put in place the policies that might improve the lot of business.

"It is hard to understand how bureaucracy and regulation could become so much more damaging over such a short period until we observe that Labour have brought in 15 new regulations every working day since taking office."

Doing something to curb this constant drive to regulate should be the key task for any reformed DTI that actually seeks to make government less of a hindrance to business.

"A Strong Voice For Business"

Praguetory doesn't offer any particular proposals for change. However, the best idea I've had would be to establish a new Regulatory Audit Office with a similar mandate to the, excellent if sometimes overly diplomatic, National Audit Office. While the National Audit Office attempts to highlight waste a Regulatory Audit Office might do the same for regulation that is counterproductive or harmful to business. It might highlight profitable areas of regulation to repeal or reform. Politicians would quickly become aware that new regulation faced increased scrutiny and might be more careful about the impact of its plans.

Of course, regulation emerging from the EU would be harder to tackle, we have a limited say over EU legislation. However, it would still be a fine thing to provide our government with detailed analysis of harmful regulation to present to other EU states and the Commission in negotiations.

I'm pretty sure that the National Audit Office is pretty inexpensive so a new Regulatory Audit Office would cost a tiny fraction of the amount the DTI comes to. It wouldn't tackle other business concerns like poor education or corporate taxation but I'd be wary of a generalised 'voice for business' that might just become one more PR machine. Instead, focus on the one issue that really requires both investigative resources and constant vigilance, an issue where a decent internal but independent auditor could really become influential and help government form policy more effectively. The cost of regulation. Let outside lobby groups provide a voice for business on issues like corporate taxation.

1 comment:

Praguetory said...

Hi Matthew - thank you for your most constructive criticism. I will be the first to admit that I have been unambitious/cautious in this maiden post where I have been setting out how to go about improving things rather than attempting to make any sort of conclusions. Feeding suggestions into the mix is definitely valuable and your key idea for reform has merit. I must admit the "voice for business" line does sound painfully cliched and risks being little more than a slogan. I'm hoping that I can have some influence over the Ghost Chancellor Mr CityUnslicker and Ms Bel at Education re cross-departmental initiatives. Keep tuned.