Facts, Analysis and Comment.

Deregulation 1948-2006

This note summarises:

Brief History

Concerns about the burden of regulation are hardly new. Ministers generally ignore them for some years, and then respond by announcing a flurry of initiatives, which seldom achieve much more than a temporary reduction in the flow of regulation, given the separate pressure that Ministers are always under to "do something".  The Manchester Guardian reported on 1 November 1948 that President of the Board of Trade (later to be Prime Minister) Harold Wilson was soon to announce a "further bonfire of controls". This sort of phrase has been repeated by many more recent politicians, including Michael (later Lord) Heseltine who promised a "bonfire of red tape" whilst he was Wilson's successor in the early 1990s - see further below.
The incoming Conservative administration mounted a deregulation initiative shortly after it won the 1983 election, arranging official scrutinies of the compliance costs imposed by 7 departments. This led to the publication of the report Burdens on Business in March 1985. The report recommended a number of new anti-regulation processes, including the preparation of a structured analysis of the the impact of proposed legislation, covering the the costs and benefits, the impact on businesses and an assessment of alternative options. These ideas were followed though into the White Paper Lifting the Burden. In 1986 they published a further White Paper Building Businesses ... Not Barriers which announced the creation of the Enterprise and Deregulation Unit (the EDU) with extensive deregulatory duties, as well as Departmental Deregulation Units. The EDU had an Advisory Panel. In late 1900 or early 1991 the EDU was renamed the Deregulation Unit (DU).
The Deregulation Initiative was relaunched following the 1992 election and the Deregulation Task Force (DTF) was created in 1994, replacing the EDU's Advisory Panel. In 1995, the Government published Deregulation - The Way Forward.
The incoming 1997 Labour administration knew that it would be introducing significant new regulations, but wanted to do so in a sensible way after high quality consultation and with proper regard to the burden on industry. It accordingly renamed the DTF and DU, with 'Better Regulation' replacing 'Deregulation' - hence Better Regulation Task Force (BRTF) and Better Regulation Unit (BRU). The Better Regulation Guide, published in August 1998, introduced Regulatory Impact Assessments (RIAs), replacing the previous administration's Guidance on Deregulation, Compliance Cost Assessment, and Risk Assessment. The PM decided in early 1999 to require all legislation and regulations to be cleared with the BRU and the unit was subsequently renamed the Regulatory Impact Unit (RIU).

By October 1999, there already existed a comprehensive 'forward look' at legislation in the pipeline, the RIU had already set up a unit to tackle regulatory burdens facing the public sector (teachers, police etc.), and the Minister for the Cabinet Office said that "we need to explore the use of regulatory budgets'. In November 1999, the Prime Minister appointed a Minister for Regulatory Reform in each of the key departments, asked the Chair of the BRTF to have bilateral meetings with the Ministers in charge of the seven key regulatory departments with a view to tackling the stock of existing regulation, and set up a regulatory 'star chamber'. But the then Chancellor, Gordon Brown, made it pretty clear that he did not regard Better Regulation as a high priority, and he did not engage with the Chair of the Task Force.

The UK was not, of course, the only country to be concerned about the burden of regulation.  The photo opposite, taken in 2003, shows a number of US regulators, taking a chainsaw to a pile of documents in "to highlight the Bush administration's commitment to reducing regulation".  Back in the UK, and despite the fact that the UK economy is probably less regulated than many others, the issue began again to receive a good deal of attention from early 2005, partly driven, no doubt, by the Government's need to be seen to be business-friendly around the time of the May 2005 general election.

There were several strands to the activity, including a yet further strengthening and renaming of the unit - this time to become the Better Regulation Executive - "the BRE". Each of the main strands of the activity is summarised below.

1. Improving [Regulatory] Impact Assessments

Concerned about the poor quality of RIAs, the BRU/RIU had suggested in 1998/9 that the National Audit Office (NAO) should begin to audit these important documents. But it took a while for this to happen as the NAO reports to Parliament, not to the Government of the day. However, the House of Commons Public Accounts Committee recommended, in April 2002, that the NAO should evaluate a sample of RIAs each year. The NAO's first such report was published in 2004 (click here to read it) and the next in 2005. To no-one's surprise, the NAO found that there was "scope for significant improvement" in the quality of Government Departments' Regulatory Impact Assessments. There were said to be two principal problems. First, RIAs were often drafted too late, and after the policy had in practice become irreversible. Second, they had become complex, including all sorts of impacts such as on the legal aid bill! It was therefore difficult to see the wood for the trees and, because some of the many impacts were inevitably hard to assess, it had become acceptable to be quite vague about all the impacts, including very important ones.

There were subsequent BRE-led efforts to improve things, and the NAO produced two further reports in 2006 and 2007. The first of these concentrated to a greater extent on departmental cultures, but none of the reports seemed to make any difference, demonstrating, perhaps, that it was impossible fully to overcome the two fundamental problems with such documents:

2. Measuring Administrative Burdens & Simplification Plans

These proposals, together with the later proposal of regulatory budgets are summarised in a separate note.

3. The Hampton Report

The third development in March 2005 was the publication, by the Treasury, of the Hampton Report: "Reducing Administrative Burdens: Effective Inspection and Enforcement". The report was principally aimed at increasing the efficiency of, and reducing the burden on "honest businesses" of, inspection and enforcement. In other words, it targeted the third of the problem areas listed towards the beginning of the separate note on the burden of regulation. But a good deal of Treasury-inspired politics lay behind the creation of the Hampton Review, and the report was of course written by Treasury officials. Philip Hampton is an excellent and sensible man, but was too busy with his 'day job' (Chairing J Sainsbury plc) to take a detailed interest in the report written in his name. The report was certainly not aimed at reducing the overall burden of regulation - which would have brought it up against a number of Treasury-created burdens, including tax credits - and in particular was not allowed to look at the inspection and enforcement activities of HM Revenue and Customs - surely the department with which almost every business comes into most frequent contact. In practice, therefore, the review team concentrated on inspection and enforcement in the areas of environmental protection and health and safety, and sensibly looked at the interaction of national and local government in these areas.

The report recommended that:

The report also recommended that:

The above principles in due course became known as The Hampton Principles and were summarised as follows: Proportionality, Accountability, Consistency, Transparency, Targeting.

The Government accepted all the report's recommendations. (This was hardly surprising as government officials had written it!) Chancellor of the Exchequer Gordon Brown accordingly announced a Better Regulation Action Plan in May 2005. This involved "a new risk-based approach to regulation", a one-third cut in inspections, a reduction in the number of regulators from 29 to 7, a 25% reduction in form-filling and the creation of the Better Regulation Executive reporting to a Better Regulation Commission. Where legislation was to be necessary, this would take the form of legislation to be introduced in early 2007 as well as separate legislation (see further below) to make it easier to amend outdated legislation etc.

However, many of Hampton's recommendations were less straightforward than they first appeared:

An update document "Implementing Hampton: from enforcement to compliance" was published in November 2006.

4. The Legislative and Regulatory Reform Act 2006

This legislation, enacted in November 2006, introduced new powers to reform outdated, unnecessary or over-complicated legislation, to be used in particular to implement government departments' simplification plans (see above) and uncontroversial Law Commission proposals. It also gave Ministers the power to implement the structural reform of regulatory bodies, as recommended by Hampton (other than the major changes being implemented in the separate Bill - see above), and the power to encourage a risk-based and proportionate approach to regulation and inspection. This was to be achieved by requiring certain regulators to follow a Code of Practice (see item 8 below) which will require regulatory activities to be carried out in a way which is "transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed"..

Much of the Act was uncontroversial, although the regulators themselves were concerned that it would offer rogues yet another opportunity to challenge actions which might thwart their roguery. But the first part of the Act gave Ministers sweeping new powers, exercisable via secondary legislation. They can now create new criminal offences for which people can be imprisoned for up to two years, and they can remove "administrative inconveniences" - a pretty wide definition in the wrong hands.

Ministers argued that the Act merely removed technical obstacles to the operation of the Regulatory Reform Act 2001 (which itself went further than the previous Deregulation and Contracting Out Act 1994). All three pieces of legislation were, or are, intended to allow the Government to use secondary legislation ("orders") to amend primary legislation. However, as the Government's consultation document said :- "The powers in the [2001] RRA, building on those in the DCOA, are constitutionally ground-breaking. They allow wide ranging reforms across a number of Acts without the mechanisms for formal debate on the floor of the House, which would normally be afforded to any amendment to primary legislation. They were designed to deliver better regulation measures that were technical and consensus-driven. Effective consultation and detailed scrutiny in Parliamentary Committees guarantee appropriate use of the powers."

Because of its constitutional sensitivity, the early drafts of the 2006 legislation were said by the Government to make sensible improvements to the old legislation, without going way beyond its purpose. But not all consultees agreed that it met this test, and many MPs shared their concerns. One academic called it the "Abolition of Parliament Bill"! Others claimed that it could be used to introduce house arrest, re-write the rules on immigration and make other dramatic changes. Marcel Berlins, writing in the Guardian in February 2006, accepted that there were safeguards to prevent this sort of dictatorial behaviour, but pointed out, quite rightly, that such safeguards can "look better on the page than they perform in practice".

It was therefore perhaps no surprise that the Government announced, in April 2006, that the Bill's proposed powers were to be curtailed. "At the moment ... the Bill deliberately seeks to take a wide power. We're going to focus that power more on regulatory outcomes, such things as productivity, competitiveness and reducing bureaucracy, rather than replacing legislation". House of Commons and Lords committees were also given the power to block any proposals.

It is also worth noting that it is now fairly common for primary legislation not only to provide for detailed regulations to be introduced by means of secondary legislation, but also to contain "Henry VIII powers" which permit the Government to amend the detail of the primary legislation itself by means of orders. The use of these powers is controversial, and discussed further here.

5. The Macrory Review

Hampton's proposed review of penalty regimes - which he hoped would give regulators the power to impose quicker, stronger penalties - was carried out by a team led by Professor Richard Macrory. Its report, published in November 2006, argued that the current system was too heavily reliant on criminal prosecution, and that a more flexible set of regulatory sanctions, including an element of redress for the harm caused by culprits, would resolve many cases more quickly and effectively. The Government accepted all the recommendations, though it was some time before - in February 2010 - the Environment Agency and Natural England became the first regulators to be given new civil powers include the power to impose fixed and variable monetary penalties and issue compliance notices. The accompanying press release noted that "the sanctions will provide an alternative to criminal prosecutions for regulators which is more proportionate and reflects the fact that the majority of non-compliance by businesses is unintentional." But there was no mention of 'redress for the harm caused by culprits'.

6. Transposition of European Legislation:- The Davidson Review

This review of whether the UK had over-implemented European legislation was carried out by a team led by Lord Davidson QC and was published in November 2006. The review concluded that some over-implementation had certainly occurred, but may not be as widespread in the UK as is sometimes claimed. Click here to read a detailed discussion of this interesting subject.

7. Better Local Regulatory Enforcement & the Rogers Review

This "new front in the Government's drive to [improve] regulation" was opened in November 2006. Noting that 80% of business inspections are carried out by local (not national) government, it was announced that Peter Rogers would lead a review which would "identify five national priorities for local authority enforcement so as to reduce regional variations and to reduce the burden caused by heavy handed enforcement on low-risk issues". His report, published in 2007, led to the establishment of the Local Better Regulation Office (LBRO) and the Primary Authority principle - see the section, below, on the Regulatory Enforcement and Sanctions Act 2008.

8. The Regulators' Compliance Code

Another outcome of the Hampton Review, the Government intended that this code, replacing the old Enforcement Concordat, would be enacted by Autumn 2007 (in the form of an order made under the Legislative and Regulatory Reform Act) and come into force in April 2008. The 2012 version, now renamed the Regulators Code, may be accessed here.

9. The Regulatory Enforcement and Sanctions Act 2008

Many of the above recommendations were implemented via this Act which: