Britain is plagued by uncompetitive markets and a regulatory system encouraging market concentration
The backslapping over the G7’s efforts to institute a new minimum global corporation tax rate last week was almost audible. The deal is a critical juncture – a signal that established economies are no longer racing to the bottom on business tax. But the palpable excitement should be cautioned: it takes far more to create a thriving environment for successful businesses than corporation tax reform.
There are a range of components needed – including the business tax environment – to stimulate long-term business-led growth. Those factors include our national innovation system, business culture and how much we invest in human capital. Competition and regulation of our markets is a crucial cog in the machine helping the UK economy grow.
Competition in six of eight key consumer markets – like groceries and telecoms – are moderately or highly concentrated, according to analysis by the Social Market Foundation. Old perennials such as current accounts continue to drag the UK down.
Market concentration is bad news for consumers who get hit by higher prices; EU data show prices are on average about 20 per cent higher in the UK than across the EU average.
Companies are less likely to make improvements to their products and services if we fail to encourage competition. Too much concentration only disincentivises firms from bringing entirely new offerings to market. Competition is the not-so-secret ingredient that ensures markets deliver for people and creates a strong economy.
We need to eliminate this historic problem as we recover from the pandemic and strike a new course after Brexit. The reasons for many markets being relatively uncompetitive are multiple and complex, but a key explanation is the regulatory environment governing how those markets operate and firms compete within them.
The UK’s competition regime remains largely ineffective. Some sector regulators have failed to be as aggressive on competition issues as they should have been. The use of technology to improve transparency in markets has not yet penetrated across the economy sufficiently to empower consumers in some markets, whilst consumer protection and redress remain enduring challenges. And new challenges have arisen in recent years: questions loom large over the CMA’s new Digital Markets Unit and its ability to shape possibly era-defining markets and products.
The problems ultimately start at the top. Governments of all stripes have repeatedly failed to think-through the competition implications of the policy proposals they have made. This needs to change.
To remedy that – and put competition considerations at the heart of government – we need a new minister for competition and consumers. The post would have a cross-Whitehall remit to evaluate the competition impacts of new policy ideas and to examine existing policies for their competition impact. And crucially it would signal the Government’s intent to make competitive markets a post-Brexit priority.
But to truly transform the competitiveness of consumer markets and in-turn increase the prosperity of people across the country, the UK must steer its economy toward an entirely new economic model – a social market economy. That means jettisoning the largely laissez-faire approach of the past forty (plus) years which has resulted in economic stagnation, dwindling productivity and too many unambitious businesses who aren’t looking to grow.
In its place? A new social market model, where an active state draws on all the tools at its disposal to forge a thriving private sector and make Britain the best place in the world to start and grow a business.
The G7 deal isn’t so much about tax as about the state. It’s a sign that the days of the shrunken state stepping back from the economy are over. Today, the state has an active role to play. But that role isn’t to replace or curb market forces – quite the contrary. This should be the era of stronger states, more competitive markets and a pro-business environment to get us back to growth.