The UK government will abolish more business regulators and scale back welfare spending in a bid to kick-start its stagnant economy.
Chancellor of the Exchequer Rachel Reeves is summoning eight of the UK’s main regulators, including the Financial Conduct Authority, to Downing Street on Monday to discuss her plan to cut regulatory costs on business by a quarter. Work and Pensions Secretary Liz Kendall is expected to unveil plans on Tuesday to cut the welfare bill by up to £6 billion ($7.8 billion) to encourage more people to work.
Ministers say red tape and low workforce participation is stifling economic activity. Britain’s growth outlook was slashed by the Organisation for Economic Co-operation and Development on Monday, as the fallout from US President Donald Trump’s trade war threatens an economy that was already struggling. In an interim update of its projections, the Paris-based think tank cut the UK’s 2025 GDP forecast by 0.3 percentage points to 1.4% and trimmed 2026 to 1.2%.
While that would be the second-fastest among the Group of Seven economies behind the US, the weaker economic outlook is likely to be a major constraint on the Labour government’s budget plans.
Reeves is trying to meet her fiscal rule that current spending must be paid for from tax receipts, without raising taxes further. She left herself a historically slim £9.8 billion of headroom against that in her budget in October, a margin which has since been wiped out by higher borrowing costs and stagnant growth.
“It’s not sustainable, both morally and economically, to spend quite so much money on social security,” Treasury minister Emma Reynolds told Sky News on Monday. “We are determined to ensure that the system stops failing everybody.”
Personal independence payments — a benefit designed to help those with disabilities cope with resulting additional costs of living, which isn’t tied to work — have more than doubled over the past five years to an annual £21.7 billion. They’re projected to almost double again in the next six years. Still, more than half of the cabinet urged Reeves last week to rethink her plans to scale back welfare and wider departmental spending, seemingly prompting her to drop plans to freeze a key disability benefit.
Kendall told the Sunday Times that it was an “absolute principle” for the government to protect payments for those unable to work, and said she’ll instead offer a “right-to-try guarantee” for the disabled and sick who want to find jobs without risking the loss of their benefits.
The Resolution Foundation on Monday warned that Reeves should avoid hitting the living standards of lower income families and instead raise taxes to meet her fiscal rules. It warned that cutting PIP by £5 billion in 2029-30 could see around 620,000 people losing £675 per month on average, with 70% concentrated on families in the poorest half of the income distribution.
“The Chancellor must act decisively to meet her fiscal rules. But with the jobs market in recession territory, lower income households shouldn’t bear the brunt of any consolidation,” said James Smith, Research Director at the Resolution Foundation. “With Britain’s fiscal pressures more likely to intensify rather than fade away, continuing to rule out tax rises is going to make future Budgets even more challenging to deliver.”
Meanwhile, Reeves will fold in the regulator for community interest companies into Companies House alongside recent moves to ax NHS England and consolidate the Payment Systems Regulator into the FCA, the Treasury announced Monday. This will allow firms to avoid duplicative disclosure requirements, it said. The Treasury is also placing the Financial Ombudsman Service under review and will ask cabinet ministers to suggest other potential regulatory cuts by summer.
“Today we are taking further action to free businesses from the shackles of regulation,” Reeves said in a statement. “By cutting red tape and creating a more effective system, we will boost investment, create jobs and put more money into working people’s pockets.”
The Treasury will also put in place a single lead environmental regulator and remove the need for low-risk and temporary projects to agree environmental permits that it says is slowing planning decisions. It will also review environmental guidance given to planning authorities on protecting bats, after plans for a £100 million “bat tunnel” to shield them from a new high-speed rail line was ridiculed.
Reynolds, a former lobbyist for the City’s financial sector, added that the UK’s layers of regulation are “not doing anybody any favors — it’s not securing better outcomes, it’s just slowing down the system.”
A streamlined process will also be put in place for major projects such as the Heathrow expansion and the Lower Thames Crossing, subject to planning approval, the Treasury said.
“The UK’s Gordian knot of regulations hinders investment with compliance costs that are too high, leaving us trailing the international competition,” Rain Newton-Smith, CEO of the Confederation of British Industry said. “Today’s announcement signals a shift towards a more proportionate, outcomes based approach that should deliver more sustainable growth and investment.”
Written by: Ellen Milligan — With assistance from Joe Mayes @Bloomberg
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