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18 OPINION THURSDAY 2 MARCH 2017 CITYAM.COM FORUM EDITED BY TOM WELSH Absurd EU data regulations are more likely to take your job than a robot ECONOMIST John Maynard Keynes once suggested, tongue only just in his cheek, that if governments want to create jobs, they could fill bottles with cash and bury them, so companies would hire workers to dig them up. The EU’s incoming General Data Protection Regulation (GDPR), its attempt to strengthen and unify data protection laws, looks like Keynesianism’s evil twin: while Keynes’s idea would benefit the unemployed with paying jobs and companies with bottled government cash, the GDPR looks set to create pointless work, destroy productive jobs, stifle innovation, and cost everybody money. Brexit will do nothing to spare the UK economy from this, because digital minister Matthew Hancock has already said the government intends to amend UK data protection law to mirror the GDPR. This is one rule that both the EU and Britain really should ditch. A report by the International Association of Privacy Professionals (IAPP), a trade association representing privacy specialists, estimates that businesses around the world will have to appoint at least 75,000 data protection officers to help them comply with the many complex requirements of the GDPR. Filling these positions will be costly and difficult, and it will divert money away from investments that would create more productive jobs and benefit customers through lower prices and better product features – including privacy-enhancing ones. The EU should amend the GDPR to reduce its complexity and prevent member states from obstructing the development of the Digital Single Market with additional, even more complex privacy BUSINESS rates reform is crucial for the health of local communities across the country. Retailers pay a quarter of all business rates and it is the single largest tax paid by the industry. Put simply, the burden of property taxation is too high. It is a disincentive to invest in physical space. A system where rates are the highest in the G7, and have risen from a third of rateable value in 1990 to half today, is not financially sustainable. We have long made the case that, to maintain a competitive tax environment for business, further measures to reform business rates are needed to fix a tax that is no longer fit for purpose and that continues to discourage local investment in jobs and growth. While for many business rates may sound dreary, the topic has attracted considerable attention over the last two weeks, as it’s become caught up in a perfect media storm. The significance of the impact of the coming revaluation, and the realisation that the transitional relief scheme is much less generous than last time around, regulations that go well beyond the GDPR. Some may wonder what sort of Dickensian miser would complain about the creation of 75,000 jobs. The problem with the GDPR is that it will eliminate at least as many potential jobs as it creates, and those lost jobs would have contributed to better products and services, whereas data protection officers will be even less useful than workers digging up old bottles. Data protection officers’ primary role is not, as some might think, to protect customers’ privacy. That comes through better design, where the market is already well ahead of regulators. Data protection officers help shield their employers from regulators, whether those regulators act in the public interest or not. Besides being unproductive, data protection officers will also be difficult to hire, as experts in European privacy law are scarce in most non-European countries, where many companies that would be subject to the GDPR are based. This will exacerbate costs that, one way or another, will be passed on to European consumers through higher prices, more advertising, less innovation, and restricted choice. Firms will have to offer generous salaries to persuade qualified people to come and work for them. Some major firms – especially in the US – already have considerable in-house privacy expertise among their staff, but even these people will require additional training, and will become harder and more expensive to retain as demand for European privacy specialists grows. Moreover, full compliance with the GDPR will require expertise that almost no one has, inside or outside the EU. Article 39 of the GDPR stresses that in addition to understanding EU is hitting home. It has shone the spotlight once again firmly on the inequities of the system. Government data showing that nearly three-quarters of businesses will see no change, or even a fall, in their business rates after the revaluation overlooks the significance and real world impact of the increase. The other quarter of businesses face a rise of up to 42 per cent and that is after taking into account the upward cap available under the transitional relief scheme. For any retailer, large or small, operating in a highly competitive market with narrow margins, an eye-wateringly high rates bill is the last thing they need when the decision as to whether to keep a store open or invest in it may already be hanging in the balance. Local communities up and down the country need that investment. The theory is that these rate increases for businesses in geographical areas deemed to have done well should be offset by lowering rates for businesses that may have suffered in areas which have performed less well. This further Nick Wallace Smaller foreign firms are likely to shun Europe, while European startups will find it costlier to get off the ground in the first place privacy regulations, data protection officers must monitor compliance with each member state’s own privacy laws as well. That means understanding the unique and often obscure regulations of 28 countries with 24 official languages, and being aware of the vast differences in how member states apply Union rules. Realistically speaking, firms cannot hope to find such an encyclopedic knowledge in any one job candidate, meaning they will have to hire multiple experts and shell out on legal consulting fees to cover all the bases. At first blush, it might appear these costs will mostly fall on non-European companies: the fact most of these jobs will be outside the EU highlights just how far behind Europe already is in data innovation, as there are fewer European firms processing enough personal data for them to have to appoint data protection officers in the first place. But the truth is American tech giants are already better equipped than most to fill these positions, so the GDPR will actually tip the competitive balance further in their favour. Smaller foreign firms are likely to shun Europe and focus their comparatively limited resources on more accessible markets, while European startups will find it costlier to get off the ground in the first place. These problems come alongside many other costs and limitations imposed by the GDPR, which will limit European attempts to benefit from data innovation. One could argue that the passage of European legislation is always slow and messy, that the GDPR’s passage was slower and messier than usual, and that nobody in Brussels has much appetite to amend it lest they have to re-live the last four years of tedious negotiation, lobbying, and horse-trading. This is all true, but until the EU amends the GDPR to reduce its complexity, Europe will be marching into the data economy with a self-inflicted limp. Member states can at least lessen the damage a little by exercising discretion and restraint in how they transpose and implement the GDPR, but the only effective solution is legislative change at the Union level. The fact this is unlikely to happen anytime soon just highlights the danger of over-regulating a new and rapidly-changing field that policy-makers do not yet understand. They should learn not to be so overzealous. £ Nick Wallace (@NickDelNorte) is a Brussels-based senior policy analyst with the Center for Data Innovation, a data policy think tank. Tinkering with business rates won’t fix a fundamentally broken tax on investment Helen Dickinson calls into question the logic and sustainability of a tax system which disproportionately penalises businesses looking to upscale and invest. The divisive framing of the current debate, which isolates “winners” from “losers”, misses the real point that there can be no winners from a fundamentally broken system. Limited targeted relief that benefits some but not all merely acts as a sticking plaster and deflects the real need for reform of business taxation in its entirety. Instead, we need a system which is flexible, simple and competitive, focused around promoting economic growth rather than just raising revenue. First, the government should commit to three yearly revaluations together with bringing forward the switch from RPI indexation to CPI. This will allow the tax to flex with economic conditions. Second, the chancellor in his Budget should seize the opportunity go further with the transitional relief scheme and implement the same protections for all those facing increases that were in place during the last revaluation in 2010. Finally, there must be potential to address the disconnect between a tax system that acts as a disincentive to innovate and invest and the government’s commitment to a low tax economy which works for everyone. Only through this fundamental reform of the system will we continue to enjoy the benefits of growing numbers of new local jobs, especially in deprived areas, improved productivity, the delivery of training and apprenticeships and, critically, the successful reinvention of our high streets and town centres. £ Helen Dickinson OBE is chief executive of the British Retail Consortium. DEBATE Q: With Francois Fillon limping on, is centrist Emmanuel Macron going to be the next French President? Famke Krumbmüller YES Once he qualifies for the second round, Emmanuel Macron will win it against Marine Le Pen. The ex-Rothschild banker is able to attract votes from across the political spectrum and is hence best placed among all candidates to beat the far-right (with 61 per cent). The main hurdle Macron needs to take is the first round, but he is extremely well positioned for three reasons: first, he has managed to create momentum, and the polls reflect it: he has surged to 24.5 per cent from 16 per cent. Second, he benefits from his main opponent’s, the Republican candidate Francois Fillon, loss of support (from 30 per cent to 20 per cent), which is likely to continue as he will be placed under formal investigation for the alleged fictitious employment of some family members. Finally, Macron will be able to collect votes on the centre-right, given Fillon’s social conservatism, as well as on the centre-left – from the social-democrat wing of the Socialist Party – given that candidate Benoit Hamon is from its left-wing, antigovernment faction. £ Famke Krumbmüller is partner at OpenCitiz, the political risk consultancy. Naomi Firsht NO If the polls are to be believed, Emmanuel Macron could well be in with a chance of becoming the next President of France. Many think he is the best option for keeping Front National Marine Le Pen out of the Elysée. But while his exuberance attracts the young, metropolitan set, there are many he is not reaching. As a centrist candidate he risks being not enough to the left or right to tempt traditional voters. And it is unlikely that French people will ignore his political inexperience once at the ballot box. Besides, much of Macron’s rise can be put down to pure luck, in what is turning out to be one of the most volatile elections in modern French history. The unexpected incidents of Francois Fillon’s scandal and Benoit Hamon winning the left primary have played in his favour. But in a constantly changing political climate, some new surprise may be thrown up, and Macron may find that his luck has run out. £ Naomi Firsht is a staff writer at Spiked and co-author of The Parisians’ Guide to Cafés, Bars and Restaurants.
CITYAM.COM THURSDAY 2 MARCH 2017 OPINION 19 WE WANT TO HEAR YOUR VIEWS › E:theforum@cityam.com COMMENT AT:cityam.com/forum LETTERS TO THE EDITOR Bridge the Thames As the Spring Budget approaches, we call on the chancellor to guarantee the earliest possible delivery of a new Lower Thames Crossing (LTC) in order to boost national growth and productivity. The Dartford Crossing remains the only road across the Thames, east of London. While it may have been fit for purpose when it was constructed half a century ago, it is creaking under the pressure of 50m crossings a year. This lack of capacity means the region’s road networks are routinely gridlocked. With so much of the country’s international trade conducted through ports in the South East, this poor connectivity is hampering the UK economy at large. Added to this is the detrimental impact that a road network at breaking point is having on air quality, public safety and commuter productivity. Clearly, action is required. And it’s critical that the benefits of any future crossing are not undone by punitive user charges. The government’s LTC consultation closed around this time last year and received 47,000 responses, making it the largest ever public consultation for a UK road project. Yet the thousands of stakeholders who have long demanded a new LTC have been promised nothing more than a decision on the proposal in “due course”. This is simply not good enough. Our current infrastructure network threatens to bring the South East to a standstill. It’s high time for the government to demonstrate its commitment to infrastructure investment and a strong economy with the development of a new LTC. Sue Terpilowski OBE, London policy chair, Federation of Small Businesses David Milham, Kent & Medway Federation of Small Businesses Natalie Chapman, London & South East head of policy, Freight Transport Association Tim Waggott, chief executive, Port of Dover Colin Stanbridge, chief executive, London Chamber of Commerce & Industry THE GOVERNMENT yesterday unveiled its digital strategy – an action plan for growing the digital economy and making the UK the best place in the world to start and grow a digital business. This ambition is undoubtedly very welcome. London is already the best place in Europe for digital startups and scaleups, boasting excellent access to finance, the most developed venture capital industry in Europe and a booming alternative finance sector – not to mention a mature support system that includes numerous accelerators and coworking spaces. One area where London compares less favourably with other places is in its digital infrastructure, such as rather limp broadband, so it is great to see further commitment to the “next generation infrastructure” promised in the Autumn Statement. This could help the UK close the gap with Eastern European cities such as Bucharest and Riga, which already benefit from ultra-fast fibre BEST OF TWITTER France-Germany 10-year yield spread narrows to 64 basis points on assumption that Fillon’s troubles are net benefit to Macron. @MNIEurozone In French politics, you’re not dead until you’re really dead. Pompidou said it once, Fillon is proving it again. Again: don’t write him off. @MxSba Macron retaining his position as “Europe’s luckiest politician”. @DuncanWeldon UK no longer heads G7 growth league – pipped at post by Germany! But all G7 growing sub-2 per cent – very weak by historical standards. @asentance Latest Westminster voting intention (27-28 Feb). Con 42 per cent; Lab 25 per cent; LD 11 per cent; Ukip 12 per cent; Oth 11 per cent. @YouGov One reason Trump speech succeeded: very little on foreign policy. @ianbremmer internet. London’s is distinctly creaky in comparison. However, startups face more substantial constraints in the capital: principally, the cost of talent and the cost of accommodation. The UK’s world-class universities provide a steady stream of skilled graduates, but it is inadequate; many digital firms still report access to talent – particularly, data science skills – as one of their largest bottlenecks. The government’s move to provide digital training (and retraining) to millions, in conjunction with big businesses like Barclays and Lloyds, stands to reap rewards for the sector and wider economy. It’s also a pragmatic acknowledgement that government can’t tackle this all by itself. But that is a longer-term solution to a current problem. In the face of a hard Brexit, businesses and policy-makers must work together to ensure that London’s burgeoning digital sector can access the right skills from across the world. In fact, research from Nesta and Forget the trivial Single Market: A revival of self-reliance will be Brexit’s true economic dividend IN ORDER to understand the longterm impact of Brexit on the UK economy, imagine a river running upstream to downstream and out into the ocean. With this in mind, view conventional long-term economic performance as very much downstream, at the mouth of the river, with an emphasis on the performance of productivity and competitiveness. But that, of course, begs the question as to what causes the performance. Is there an explanation which can be found further up the river mid-stream? Mid-stream explanations focus on the role of institutions. Institutions are the rules of the game, such as tax, regulation and the impact of the state, all of which affect performance (most notably explained by Daron Acemoglu and James A Robinson in their international bestseller, Why Nations Fail: The origins of power, prosperity and poverty). The essence of Acemoglu and Robinson’s hypothesis is that: “Economic institutions shape economic incentives: the incentives to become educated, to save and invest, to innovate and adopt new technologies... as institutions influence behaviour and incentives in real life, they forge the success or failure of nations.” You know the next question. If institutions determine performance, what determines institutions? Acemoglu and Robinson argue that critical junctures in history, such as the Glorious Revolution at the end of the seventeenth century in Britain, have determined institutions. They reject Christopher Haley Non-EU nationals make up a higher share of the UK’s tech sector than those from the rest of the EU Graeme Leach the idea that there could be an explanation further upstream, towards the source of the river, in the form of culture. Their rejection is understandable, as defining culture is no easy task. At times it’s akin to trying to nail jelly to a wall. But this does not mean we should ignore culture. Culture is the set of values and beliefs people have about the way the world works, as well as the norms of behaviour derived from those values. Essentially, culture is the underlying worldview people hold. One of the world’s leading economic historians, David Landes, wrote in his book The Wealth and Poverty of Nations that “if we learn anything from the history of economic development it is that culture makes all the difference.” This is not to deny that institutional change can occur without a shift in culture. The culture first rule is not absolute. But it does provide a fascinating insight into the consequences of Brexit. Extending the river analogy, imagine Brexit as a change in the rules of the game, a mid-stream institutional shift that will impact economic performance downstream. Leavers will Tech City UK has identified that non-EU nationals make up a higher share of the UK’s tech sector than those from the rest of the EU, which should be kept in mind when designing schemes for highlyskilled migrants. The matter of accommodation is much more difficult for the digital strategy to address. The international attractiveness of London has proven to be something of an Achilles’ heel, causing property prices and office rental costs to soar skywards. West London now contains some of the most expensive real estate in the world. This isn’t a problem unique to London – even tech workers in Silicon Valley earning seven-figure salaries report prices there spiralling beyond their reach – but failing to address affordability for the entrepreneurs and workers that flock to London could mean that competitor cities become more attractive to tech startups. Certainly, many European cities are trying hard to lure young firms away from London, and the fact that business- :@cityam argue positively, Remainers (mistakenly in my view) the opposite. But this is not the end of the story. Adapting Acemoglu and Robinson’s critical junctures argument, Brexit could be seen as potentially transformative of both culture and institutions. What might this mean in practice? Brexit could help stimulate a greater sense of economic liberty, responsibility and vitality. Economic freedom is paramount for prosperity, in shaping perceptions of how much freedom and control people feel they have over the way their lives unfold. With regard to responsibility, the more that is taken on by the individual, the less that is required of the state, thereby enhancing economic efficiency. There is one final element, and that is vitality. This would involve a recognition that post materialist values can be negative for growth and future prosperity, and that vitality has been lost inside the EU. The link between vitality, competition and innovation has been described by the Nobel Laureate Edmund Phelps as the “imaginarium” economy. The greatest windfall from Brexit would be if it helps change culture and institutions in the UK, to shrink the state. This would be an even greater Brexit dividend. Arguments about the Single Market are trivial when set against this. £ Graeme Leach is chief executive and chief economist of macronomics, a macroeconomic, geopolitical and future megatrends research consultancy. The cost of talent and housing threaten London’s digital crown es could save two-thirds of their accommodation costs by moving to cities like Berlin or Lisbon is an obvious temptation. London is already leading the charge when it comes to attracting new digital businesses and helping them grow. The new digital strategy should strengthen the resolve of such firms, despite the unknowns of Brexit. However, what the sector will be hoping to see in next week’s Budget are actions which reinforce the digital strategy, as well as the recent industrial strategy – such as a review of the tax environment for R&D that encourages businesses to invest in digital innovation to boost productivity, that doesn’t detract from existing investor incentives, and promotes corporate-startup collaboration as a mechanism for achieving scale. Anything which can tackle the capital’s cost of living would also be hugely welcome. £ Christopher Haley is executive director of policy and research at Nesta, the innovation foundation. www.nesta.org.uk Fountain House, 3rd Floor, 130 Fenchurch Street, London, EC3M 5DJ Tel: 020 3201 8900 Email: news@cityam.com Certified Distribution from 02/01/2017 till 29/01/2017 is 90,319 Editorial Editor Christian May | Deputy Editor Julian Harris News Editor Tracey Boles | Digital Editor Emma Haslett Business Features Editor Tom Welsh | Lifestyle Editor Steve Dinneen Sports Editor Frank Dalleres | Creative Director David Riley Commercial Sales Director Jeremy Slattery Head of Distribution Gianni Cavalli Distribution helpline If you have any comments about the distribution of City A.M. please ring 0203 201 8955, or email distribution@cityam.com Our terms and conditions for external contributors can be viewed at cityam.com/terms-conditions Printed by Trinity Mirror Printing, St Albans Road, Watford Herts, WD24 7RG
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