Before the general election, Bill Gross, the boss of Pimco, the world’s biggest bonds investor, famously remarked that the UK was sitting on a bed of nitroglycerine. At the time, gilt yields were creeping up in a way that would eventually have been dangerous, and it is only because markets still believe the coalition’s austerity plans will materialise that the UK has emerged as a relative safe haven.
Yet instead of cheering ultra-low borrowing costs, I worry – not just about the possibility of US-triggered default catastrophe (that goes without saying and ought to keep everybody up at night) but also about the ridiculously low rate of interest payable on government debt. How can anybody think it makes sense for yields on 10-year gilts to be 2.97 per cent (less than inflation), and for US Treasuries to pay just 0.03 per cent more? Massive distortions and interventions from the monetary authorities worldwide have created gigantic, multi-decade bubbles in the bond markets; we’ll all be in trouble when they burst.
I had an equally glass half empty reaction to the latest deregulatory proposals. Shops will soon no longer need a licence to sell chocolate liqueurs, they will no longer have to notify the authorities whenever somebody buys a TV and the age limit for buying Christmas crackers will be cut from 16 to 12 – in some cases only after a consultation process, however. Several other useful changes will be made by Vince Cable, the business secretary. But these reforms, while great as far as they go, are merely the easiest, least controversial deregulatory moves possible. Many of the other regulations that will be abolished are obsolete and unused. The claim that 130 out of the 257 rules covering retail firms will go, and 30 be simplified, is meaningless. All the really big stuff (Sunday opening limits, labour market rules and so on) aren’t included, that list in reality is much longer – and there’s lots more red tape coming that it is hugely more important and costly than all of the semi-trivial rules that are being abolished put together.
Next year, a huge avalanche of bureaucracy will hit every company in the country (and cost them lots) when the new national auto-enrolment pension scheme is launched. There will be more than 45 staging dates. Separately, firms across the country are scrambling to change their procedures to comply with anti-bribery legislation. Of course, corruption is completely wrong – but the way the act has been phrased, the fact that it is a unilateral decision from the UK and the continuing question marks around what it does and doesn’t ban are very serious issues for UK Plc. Both those pieces of legislation are turning out to be very costly and burdensome. Meanwhile, a truly good piece of deregulation– the so-called Tesco law, which will inject real competition in law and change the structure of many law firms, has been delayed again.
Hopefully, all will be well in the end. The US won’t implode; the UK will tackle its bureaucracy. We can but dream.
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