Regulation

Facts, Analysis and Comment.

Deregulation from 2015

The 7 May General Election saw the Conservatives returned to power without (as they saw it) being constrained any longer by the Liberal Democrats. I doubt that those in Shoreditch whose wall is pictured above will have voted for the new government but Sajid Javid, who succeeded LibDem Vince Cable in the Business Department, wasted no time in burnishing his deregulation credentials. He set this challenging Business Impact Target when speaking on 20 May:

During the election, we promised to do more for business. Much more. As one of our first acts, we’re introducing the enterprise bill. … let me describe the next steps on deregulation – on paring back bureaucracy. The manifesto promises a further £10 billion of cuts in red tape over the coming Parliament. This £10 billion is going to be harder to slash than the previous £10 billion. Recent reforms have already started to make a big difference.

We already have the lowest burden of regulation in the G7. But now we’re going to tackle European regulation head on, pressing EU institutions to reduce needless burdens on business, ensuring we implement EU law in a way that doesn’t put UK business at a competitive disadvantage.

Over the next 5 years, we’ll build on the success of One in, two out to put a strict brake on new regs.

For the first time, the actions of regulators will be counted towards achieving the overall £10 billion in cuts.

This will be the first time in modern history that government has successively reduced red tape and continued with reductions in the next parliament. And business will be our partner, giving us the evidence we need to roll back the state.

He also announced a simplification and extension of the Primary Authority Scheme (see items 7 & 9 in this note) so as to make it more easily accessible to small firms.

Comment: Mr Javid's £10bn of previous (and future) savings was potentially misleading. The previous government had delivered savings which eventually reached £2.2bn pa*. I assume, therefore, that Mr Javid was quoting five years' worth of future savings to business - but there is no reason (other than the five year length of a Parliament) to use five years in preference to any other period. And the £2.2bn figure ignores the much larger cost of new regulation of European origin, and other regulations outside the scope of One in, one/two out.

But his annual target, whatever it is, would be somewhat easier to achieve if (some?) regulators were - as promised - brought within the scope of his initiatives, though it remains to be seen how this will be done without threatening their independence.

It was announced in July 2015 that the Regulatory Policy Committee (RPC) had been appointed as the Independent Validation Body that would 'provide independent assurance on the Government's progress in meeting its commitment to cut £10bn of red tape over the course of this parliament'.

*More detailed information is in the 2014 Ninth Statement of New Regulation which includes the following table.

Meanwhile in Brussels ...

The European Commission - the only European institution that can propose legislation - responded to growing euroscepticism and concerns about European red tape -at least in Northern states - by proposing a Better Regulation Strategy. In particular, it said that it wanted both the European Parliament and national governments (in the European Council) to agree that substantial suggested changes to draft legislation should be considered by three-strong expert panels, one member appointed by each of the three institutions. Campaigners such as the Friends of the Earth saw this as a 'huge power grab' by the Commission. The Commission itself said that it was 'not seeking to reduce the political scope of the Parliament or Council. It is merely asking them to consider the impact of any major amendments they propose'.

Cutting Red Tape Programme

The Government announced this programme in July 2015. It consisted of rolling programme of sector-based reviews, focussing initially on Energy, Waste, Adult Care Homes, Mineral Extraction and Agriculture. Further sectors were added later, including local government in 2016.

One interesting feature, for Whitehall watchers, was that the programme was billed as a partnership between the Department for Business and Innovation (i.e. the Better Regulation Executive) and the Cabinet Office. The latter may have become involved so as to increase the clout of the BRE in its dealings with other departments.

What About the Impact on Society?

RPC Chair Michael Gibbons published an interesting blog in August 2015 in which he noted that: "To date, the focus of the RPC and the red tape challenge has been on business – and they are an important stakeholder. But much of what government does has benefits – and imposes costs – on society more widely and it is important that departments show clearly how they have assessed these. However, RPC analysis shows that departments did not provide a detailed assessment of the impacts of regulation beyond business in a third of cases during the previous parliament. This means that ministers are being asked to make decisions on some new regulation without a complete understanding of their impacts. It also means that there is currently no systematic way for ministers to ensure that only those regulatory proposals that balance total potential benefits to society with the lowest costs to business and others are taken forward.

For some measures it may not make sense, or be proportionate, to put significant resources into quantifying all impacts. But the fact that departmental performance is variable, with some much more capable of identifying and assessing wider impacts, clearly suggests more could, and should, be done. In 2014, for example, the Department for Transport identified wider costs and benefits in more than 60% of its impact assessments, while some other departments did not estimate any wider impacts.

One way to overcome this problem would be to ensure that impact assessments supporting new regulation so they do not just focus on the impact of regulation on business. That is, the framework should be reformed to require departments to report more transparently the impacts of the Government’s regulatory reform programme on the welfare of consumers and wider society.

The RPC would like to see the societal impact of a policy reported alongside the business impact. This could improve incentives for departments to prioritise analysis, further research and the development of analytical methods to help monetise wider impacts and emphasise the inclusive benefits of better regulation."

Comment: The fundamental role of the RPC is to ensure that the cost of regulation - and especially the cost to business - is properly recognised. It is therefore fair enough for them to want the government also to identify costs which fall on wider society, before establishing the balance to be drawn between cost and benefit. But I am not sure that it makes sense for a lot of effort to go into quantifying ('monetising') the benefits of regulation which often depend very much on arbitrary values being put on (say) improved environment or safety.

2015 Enterprise Bill

This Bill was published pretty quickly after the 2015 General Election, and hard on the heels of the enactment of the Small Business, Enterprise and Employment Act 2015. Given that it is the job of many regulators to take firm action against businesses, it was interesting, and arguably worrying, that the Bill proposed that national regulators should in future fall within the scope of the Business Impact Target, and should be subject to the Growth Duty and Regulators Code. This will surely make them more cautious and less effective in carrying out their regulatory duties.

One In, Three Out

Mr Javid ratcheted up the deregulatory pressure when he confirmed, in March 2016, that One-In, Two-Out was to be replaced by One-In, Three Out which would of course improve the chances of the Government hitting its now statutory Business Impact Target of £10m. He also confirmed that most regulators, including the non-economic activities of the economic regulators, would become subject to one or more of:

The irony of imposing all this additional regulation on the regulators was presumably lost on Mr Javid.

Regulatory Delivery Directorate

The Better Regulation Delivery Office was (in March 2016) merged with National Measurement and Regulation Office (NMRO) - another bit of the Business Department - whose aim had been to simplify technical regulation for the benefit of UK businesses. The new organisation was called the Regulatory Delivery Directorate.

 

Martin Stanley