Fred De Fossard is Head of the British Prosperity Unit at the Legatum Institute.
Claire Coutinho, the Energy Secretary, has said that Labour’s energy policy would leave us at China’s mercy, and threaten Britain’s ability to keep the lights on. These criticisms are reasonable. Labour are committed to an aggressive implementation of Net Zero, which includes delivering an entirely zero-carbon electricity grid by 2030. As the economics behind renewable energy sources like offshore wind look increasingly unstable, this plan is at risk of potentially catastrophic failure.
One might assume, therefore, that the Conservatives would pursue quite a different energy policy. Unfortunately not. While attacking Labour’s plans for a Net Zero grid by 2030 as “mad, bad, and dangerous”, the Government is instead committed to a Net Zero grid by 2035.
Despite making a grand announcement last year that the Government will try and inject some economic sense into its Net Zero policy, it remains committed to the windfall tax on the domestic oil and gas sector – even though there is no windfall to tax anymore – mandating even more green-related disclosures on private businesses, and even allowing the Competition and Markets Authority to bend its own antitrust rules to support green projects. The gulf between rhetoric and action has never been quite so vast.
While Ministers pay lip service to the growing scepticism of Net Zero, and the damaging ideas of Woke Capitalism – typically defined by the growth of “diversity, equity and inclusion” (DEI) policies and “environmental, social, and governance” (ESG) practices in the regulatory state and big business – the government over which they preside advances these ideas with relish.
The Financial Conduct Authority and the Prudential Regulation Authority, regulators who oversee financial services – perhaps our most important economic sector – are two such examples. Last year they concluded public consultations into mandating diversity and inclusion requirements on the firms they oversee. In practice, this could mean diversity hiring quotas being forced on private businesses and some of the most important businesses for Britain at that.
This has attracted the opprobrium of a group of Conservative MPs and peers, led by Nick Fletcher, MP for Don Valley, who wrote to the Chancellor before the Spring Budget, demanding the Government overrule the regulators. So far, there is no sign of this happening, and the regulators are expected to announce the next stages of their diversity mandates in the coming months.
This would be a disaster for British prosperity, as well as freedom of association and freedom to run a legal business. A regulator imposing onerous reporting requirements and hiring targets to increase diversity on private companies sends a clear message to businesses in Britain: they simply exist to further the current ideology of the state. For this to happen at all is extraordinary, but to be imposed without the approval of Parliament is an affront to democracy.
While the British state lashes itself to the mast of diversity, our cousins across the Atlantic are doing the opposite. After a flurry of excitement around ESG in 2021 – where investors piled trillions of dollars into funds and businesses committed to social justice – American investors have gone cold on woke capitalism. Money is deserting these funds: Larry Fink, BlackRock CEO and once-cheerleader for ESG, has disavowed the term entirely, and many academics are questioning the veracity of the studies that justified it.
Legislators across the United States have been passing bills at the State level to divest public-sector pension funds from asset managers with DEI policies American politicians have been forceful when it comes to demanding transparency and accountability from corporate giants who pursue these agendas. They have used their democratic and constitutional ability to force truth out of these companies, and expose what these policies mean: who is getting de-banked, denied a loan, and whose job application gets thrown in the bin? So far, 15 US states have passed laws to divest and boycott these funds, including fast-growing States like Texas and Florida.
This is paying dividends. While the heavily regulated British and European economies tie themselves in red tape and head for comfortable decline, the American economy is firing on all cylinders. GDP growth and, most importantly, living standards for the American middle class are well ahead of those in Britain.
Thanks to Margaret Thatcher’s transformative reforms, Britain was catching up in the 1990s. But since the Financial Crisis and the legacy of New Labour – mass migration and overregulation – the gap has been getting wider. While Conservative politicians boast about increasing the “living wage”, American GDP per capita is $76,000 against only $46,000 here.
Meanwhile, Britain is taxing and regulating its domestic gas industry out of existence, only to import gas at great expense from the US and Qatar. This is the mad reality of the UK’s aggressive reduction in carbon emissions since the 1990s: they have simply been outsourced, along with employment and growth.
These outcomes are not inevitable. They arise from political choice, and it is not too late to make different choices, even with an election in the coming months.
Indeed, Labour is likely to turbocharge the ESG and DEI agenda. Their proposed Race Equality Act would accelerate DEI in the workplace and burden all companies with the sort of diversity reporting the FCA wants to impose on the City. Rachel Reeves, the Shadow Chancellor, wrote in 2018 about the importance of reforming the Companies Act to move away from shareholder capitalism and embed “social purpose” in businesses. The growth of the B-Corp movement, and its Better Business Act campaign, suggests this idea is building momentum on the British left.
Ministers have the tools to resist this under existing laws. As we articulated in our paper, Action This Day: Ten things the Prime Minister can do for prosperity, right now, there are plenty existing powers Ministers can use to restore common sense to finance. By using existing powers in the Companies Act 2006, Pensions Act 1993, and the Equality Act 2010, the Government can ditch many of these requirements and let businesses do their jobs: serving customers, creating jobs, and making a profit.
Businesses are not arms of the state: that way lies a totalitarian society. They are the work of individuals, the products of risk and dynamism. When Parliament returns from its Easter Recess, Ministers need to defend them.
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Author: Fred de Fossard
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