Scissors, not Chainsaws

How Starmer can boost Britain's productivity by reducing the regulatory burden on business without going ‘full DOGE’.

In his search for a solution to Britain’s persistent productivity gap, Keir Starmer has identified his chief culprit: over-regulation. “Thickets of red tape”, he argued in January, have been “allowed to spread through the British economy like Japanese knotweed”. Rachel Reeves has also joined the anti-regulation bandwagon. "Every regulator”, she argued recently “has a part to play by tearing down the regulatory barriers that hold back growth. I want to see this mission woven into the very fabric of our regulators through a cultural shift from excessively focusing on risk to helping drive growth." The benefit to the UK economy of cutting red-tape could, they estimate, be as high as 3-4% of GDP, or around £70bn.

Having identified regulation as public enemy number one, the regulatory purge is now picking up speed. In January the Chair of the CMA was fired for being insufficiently pro-growth. And last week the former science minister David Willetts was appointed to Chair the Monty Pythonesque ‘Regulatory Innovation Office’, a new department tasked with “reducing the burden of red tape and speeding up access to new technologies that improve our daily lives”. The result of this regulatory blitz, Starmer commits, will be that “compliance costs for businesses will be cut by a quarter by the next election”.

And yet, even as Labour and the Conservatives unite in a shared (and justified) desire to reduce the regulation that constrains what a business can do, both parties neglect to reconsider the much more important regulations that define what a business is.

From 2018 to 2022, I ran Uber’s UK business through its very public bust-up with Transport for London (TfL), which regulates taxi and private hire in London. When TfL stripped us of our licence to operate in 2019, I appeared on TV and radio to declare their decision “extraordinary and wrong”. Looking back on it now, though, it is clear that TfL was right not to renew our licence. TfL is far from a perfect regulator: their over-reliance on a periodic licence renewal process is too crude a tool to sanction operators in such a fast-moving industry and their failure to enforce a common safety standard across the industry is strangely at odds with the government’s stated regulatory best-practices of “transparency” and “consistency”. Nonetheless, despite these quibbles, TfL’s public challenges made Uber a much safer operator and the investments we made to comply with its demands have actually accelerated the company’s growth by convincing riders that Uber is one of the safest ways to get around London. Regulation, when done well, is like a corporate hallmark: it builds trust and catalyses growth, rather than, as Starmer worries, only being the “knotweed” that slows growth down.

The underlying cause of over-regulation is not, as most people believe, hyper-active and self-serving civil servants. Instead, we have too much regulation because we are locked in a bureaucratic vicious circle where a pervasive lack of trust in business - only 35% of UK adults expect business to behave ethically - creates a public pressure for ever-more regulation stipulating what businesses can and cannot do; this regulation slows growth, which creates further pressure for the government to establish new pro-growth regulations and even new pro-growth regulators! Excessive regulation is a symptom of a deeper and more concerning problem: the public’s declining trust in companies.

As a result of misdiagnosing the problem, we are regulating the wrong things. We are trying to regulate corporate behaviours where we should instead be regulating corporate purpose. Most people today believe that regulation defines the rules of the game within which companies must play and that the purpose of the company is the pursuit of profits while operating within these rules. The problem with this conception of regulation, however, is that, for as long as the purpose of the company is the pursuit of profits, regulations are hindrances to be avoided or, even worse, instruments to be turned against potential competitors.

In order to reduce the regulations that stipulate what companies must not do, therefore, we must first revise the regulations that define what companies are. Generating profits is necessary for a company’s continued existence, just as breathing is necessary for life, but it does not constitute a company’s purpose. Companies make money to exist, they don't exist to make money. As George Merck, the founder of the eponymous pharmaceutical company, argued almost a hundred years ago: “we try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear.”

That companies exist to benefit the societies of which they are a part can be seen by looking back in history. The company’s earliest ancestors, the collegia, were established over two thousand years ago by the Roman state, which granted the benefit of ‘incorporation’ - that is, legal personhood, or the right to enter into legal contracts and own assets independently of any of its members - in exchange for a reciprocal commitment by the company to fulfil a designated public purpose, such maintaining the city’s buildings, educating its children or collecting its rubbish. When these early companies ceased to provide this public good, the state could revoke their right to incorporation. And so it remained until the 1850s when Gladstone passed the two Joint Stock Companies Acts, which for the first time in history severed the link between the benefit of incorporation and the obligation to fulfil a public purpose. Gladstone made incorporation, which had previously been granted by Parliament only when it believed doing so was in the public interest, a benefit obtainable by anyone through a simple act of registration.

Rights and duties, however, must always be linked. History shows us that companies have no preordained right to incorporation or to the associated benefits of perpetual existence and limited liability. Instead, these benefits are granted to companies by the state in the expectation that doing so will enhance the common good. When the state no longer believes that companies make a sufficient contribution to the public good, it is entirely justified – indeed it has an obligation to its citizens – to revisit the terms of Gladstone’s exchange.

To fix Britain’s productivity gap, therefore, Starmer and Reeves must address its underlying cause - that is, our (unfortunately justified) lack of trust that business will, when left to itself, do the right thing - rather than only cutting back on the “thickets of red tape”, which are mere symptoms. They must act to reverse the declining trust in companies by passing new regulations - sometimes you need to first take a step backwards in order to move forward! - that re-embeds purpose at the heart of everything that companies do. This new regulation must ensure, in the words of Colin Mayer, the founding dean of the Oxford University’s Saïd Business School, that “the purpose of corporate governance is the governance of corporate purpose”. Companies that fail to contribute to the public good should have the benefits of incorporation, perpetual existence and limited liability removed, causing them to become partnerships, which live and die with their members who are held personally liable for their actions.

In deregulating the UK, Starmer must avoid the scorched earth path currently being blazed by Musk and DOGE in the US. He must ensure that every company that receives the benefit of legal personhood also accepts the obligations of social and moral personhood as well. Only with our corporate foundations firmly restored, can the regulatory bonfire truly begin.