I fell off a ladder last year. Having spent 40 years demonstrating no aptitude whatsoever for DIY, I’m not quite sure what possessed me to think I could change the very fiddly spot-lights in our kitchen. As I plummeted to the ground alongside the ladder, taking chunks out of various kitchen units on the way down, two things flashed through my mind: “I knew I shouldn’t have tried to do something this far outside my comfort zone” and “when my wife gets home, I’m a dead man”. Taking on a seemingly minor task with the best intentions, I’d somehow managed to destroy a sizable proportion of the kitchen.
Which brings me onto the UK government and financial regulators.
Nobody would argue that a key focus for the fund management industry should be to deliver the best value for its customers. It was always hard to see how the unbundling of sell-side research required under MIFID II reforms would help this. Any savings delivered would be de minimis and it would upend an entire ecosystem of research that had evolved over many years. In a shock to almost no-one in the fund management community, it has proven to be a less than effective. So much so, that a decade later regulators have decided to reverse course entirely. For various reasons, expertly outlined in this FT Alphaville article, this won’t work.
The oil & gas industry in the UK has also been impacted by continual government intervention. Norway’s oil and gas industry is thriving and continues to be a mainstay of its economy, despite optically high marginal taxation rates. Crucially, the Scandinavian country’s fiscal regime has been stable for decades and includes various incentives to reward development and responsible lifecycle field management. The UK used to have a similar reputation but over the past 15 years has seen frequent changes with windfall taxes and energy levies being introduced and removed on what feels like a yearly basis. What doesn’t seem to get factored into UK government decision making is the impact this has on investment. For a company to make an investment decision on a long-life, capital-intensive project in any given country, they need to have confidence about both its regulatory regime and political stability. Industry bodies have estimated that because of challenges like this, oil and gas projects worth roughly a year’s supply from the North Sea have either been removed or are less likely to be produced.
The toothpaste can’t be put back in the tube. Once you have destroyed an ecosystem or torched a reputation for political stability, reversing course won’t magically restore the status quo ex ante. I couldn’t reverse time and undemolish my kitchen. Heading into a general election campaign, this is a lesson that both main parties will hopefully heed.