This note summarises the principal developments in the area of better regulation and deregulation after the Conservative/LibDem coalition government was elected in May 2010.
The Conservatives' policies had been outlined before the election in their Policy Paper on Better Regulation' Regulation in the Post-Bureaucratic Age: How to get Rid of Red Tape and Reform Quangos. The paper said that "We believe that the UK has become simultaneously and dangerously under-regulated in some areas (particularly systemic risks in the banking sector) but chronically and severely over-regulated elsewhere. It's clear that some regulation is both necessary and desirable in a modern, liberal democracy - everyone expects the food we eat to be safe, for example - but once we are properly protected from unscrupulous people and hidden dangers, that is where it should stop. Everything else should, wherever possible, be a question of individual choice rather than collective control." An incoming Conservative government would accordingly "... sweep away Labour's ineffective system of bureaucracy and replace it with a post-bureaucratic approach to regulation that makes use of new technologies and insights from social psychology and behavioural economics to achieve our policy goals in a less burdensome and intrusive way". This "... will require a fundamental culture shift amongst policy makers in Whitehall and beyond, which will only be made possible through significant structural reforms".
The paper's "key policy announcements" were:
- A Conservative government will introduce a powerful new 'Star Chamber' cabinet committee, to be chaired by Ken Clarke, which will enforce a stringent 'One In - One Out' requirement where any new law must include cuts in old laws which, together, produce a net 5% reduction in the regulatory burden. Professor Richard Thaler will be a senior advisor to, and member of, the Star Chamber committee.
- The public will be given the power to nominate the most poorly designed and burdensome regulations, which would be repealed within 12 months unless they were modified or approved by Parliament.
- A Conservative government will apply a 'Sunset clause' to all Regulators. During the first term of a Conservative government all Regulators will be re-assessed and their duties reviewed.
- Parliamentary Accountability for regulators and inspectorates will be strengthened with Select Committees holding the key public service regulators to account. In addition, the appointment process of Chairs of major Regulatory Bodies should be subject to Parliamentary Select Committee approval.
- A Conservative government will publish cost and value comparison measures for local councils that allow the public to see exactly how well their council is delivering on its value for money remit. This will replace the bureaucratic and expensive system of Audit Commission inspections and reports.
- The powers of Government inspectors will be drastically curbed by allowing firms to arrange their own, externally audited inspections and, providing they pass, to refuse entry to official inspectors thereafter. We will also introduce 'MOT style' inspection reports, quoting precisely which section of which law has been broken, to prevent regulatory 'scope creep' where laws are applied too strictly by overzealous inspectors.
- We will consult carefully on changes that may be required to the employment and discrimination tribunals system, to ensure the system offers fast, cheap and accessible justice, and that it is fair to all sides.
Comment: The paper was heavily influenced by Professor Thaler, a prominent US-based behavioural economist. Professor Thaler had previously co-authored Nudge: Improving Decisions About Health, Wealth, and Happiness, an interesting book which discussed how public and private organisations could help people make better choices in their daily lives. "People often make poor choices - and look back at them with bafflement! We do this because as human beings, we all are susceptible to a wide array of routine biases that can lead to an equally wide array of embarrassing blunders in education, personal finance, health care, mortgages and credit cards, happiness, and even the planet itself." Most UK policy makers and regulators were of course already well aware that individual instances of economic behavior could appear to violate traditional microeconomic theory, but somewhat less clear how to design effective policies and behavioural remedies in the light of this knowledge. It was therefore a little sad that Professor Thaler's name did not appear in the incoming government's action plan - see further below - perhaps because the Business Secretary was Vince Cable, a LibDem, rather than a Conservative politician.
The New Government's Action Plan
The incoming coalition government committed itself to the following actions in its Coalition Agreement published on 20 May 2010.
- We will cut red tape by introducing a 'one-in, one-out' rule whereby no new regulation is brought in without other regulation being cut by a greater amount.
- We will end the culture of 'tick-box' regulation, and instead target inspections on high-risk organisations through co-regulation and improving professional standards.
- We will impose 'sunset clauses' on [new] regulations and regulators to ensure that the need for each regulation is regularly reviewed.
LibDem Business Secretary Vince Cable then announced his own regulatory action plan on 2 June 2010, claiming that it would "bring an end to the excessive regulation that is stifling business growth" following the Prime Minister's commitment the previous week to "re-open Britain for business". Oddly enough, the action plan did not include the 'sunset clause' proposals despite their appearance in the coalition agreement - see above - and it was a little less far-reaching than the plan published by the Conservatives before the election - also see above. But it was still quite strong stuff in that it:
- Created a new Cabinet "Star Chamber" that would lead the Government's drive to reduce regulation which is stifling growth. This Reducing Regulation Committee would be chaired by the Business Secretary and would "enforce a new approach to new laws and regulations, ensuring that their costs are being properly addressed across the entire British economy". The committee would be supported by the Regulatory Policy Committee which had been set up by the previous government - see further below.
- Introduced the "one in, out out" rule, designed to change the culture of government, making sure that new regulatory burdens on business are only brought in when reductions can be made to existing regulation.
- Began an immediate review of all regulation in the pipeline for implementation which had been inherited from the previous Government. The cost of implementing this amounts was claimed to be £5bn annually before April 2011 and £19.1bn per annum thereafter. This was be the first action for the new Cabinet committee.
- Established a new Challenge Group to come up with innovative approaches to achieving social and environmental goals in a non-regulatory way. This team would work with experts including Richard Thaler, the US behavioural economist.
Introducing the package, Vince Cable recognised the tension at the heart of his new policies. On the one hand, he noted that "The deluge of new regulations has been choking off enterprise for too long. We must move away from the view that the only way to solve problems is to regulate." On the other hand, however, he acknowledged that "The Government has wide-ranging social and ecological goals including protecting consumers and protecting the environment. This requires increased social responsibility on the part of businesses and individuals. [The tension between these two objectives] is a real challenge and it will not be easy. We need to reduce regulation and at the same time meet our social and environmental ambitions. This demands a radical change in culture away from the tick box approach to regulation only as a last resort. It's a big task but one worth striving for."
It was subsequently announced that all micro businesses (those with fewer than 10 employees) would be exempt from most new non-EU regulation for three years from April 2011.
And there was to be a new Focus on Enforcement involving a rolling program of reviews of regulators and the regulation of industry sectors, beginning with food/drink manufacture, chemicals, and volunteer events (e.g. street parties). So the reviewers looked at the impact of local authority, Food Standards Agency, HSE and other regulation of the food and drinks sector and suggested ways in which it could be improved, better coordinated and so on. The non-economic regulators were also to be given a new legal duty to have regard to the need to encourage economic growth.
There was also general encouragement to regulators to work with the grain of the market. A new Food Hygiene Rating Scheme, for instance, involved the post-inspection hygiene ratings of restaurants, takeaways etc. being put on the web, so customers could avoid those with low scores. Businesses were also encouraged to publicise their scores, for instance by putting a sticker in their window, but this was not mandatory so only the highly rated businesses chose to do so. This was an interesting example of politicians not wanting to appear over-regulatory in the eyes of their small business friends, with the inevitable result that the initiative was less powerful and effective than it might have been.
But the resources devoted to this work within the Better Regulation Executive continued to shrink, rather more (proportionately) than the rest of the public sector. The once 120 strong organisation employed only around 40 people in early 2013.
The Young Review - 'Common Sense, Common Safety'
In December 2009 future Prime Minister David Cameron had made a speech at the Policy Exchange in which he referred to “...the nonsense of this over-the-top culture of health and safety and compensation...” and announced he would be asking Lord Young of Graffham to lead a review examining “...everything from the working of the Health and Safety Executive (HSE), to the nature of our health and safety laws, litigation and the insurance industry”; hereafter referred to in this note as the ‘review’.
Following the General Election in May 2010, Lord Young - a previous Secretary of State for Trade and Industry - was accordingly appointed as ‘Adviser to the Prime Minister on health and safety and the compensation culture’. The terms of Lord Young’s review were:
“To investigate and report back to the Prime Minister on the rise of the compensation culture over the last decade coupled with the current low standing that health and safety legislation now enjoys and to suggest solutions. Following the agreement of the report, to work with appropriate departments across government to bring the proposals into effect.”
Lord Young published his report Common Sense, Common Safety on 15 October 2010. The report examined the UK's perceived compensation culture and the impact of health and safety regulations on businesses and personal freedom.
The government accepted all Lord Young's recommendations and asked him to continue to work across departments to ensure his recommendations were carried through. His aim was to improve the perception of health and safety, to ensure it is taken seriously by employers and the general public, while ensuring the burden on small business is as insignificant as possible. He called for restrictions on advertising for 'no win, no fee' compensation claims and a revolution in the way personal injury claims are handled, as well as an extension to the simplified Road Traffic Accident Personal Injury Scheme to include other personal injury claims. This would provide a simple three-stage procedure for lower value claims, accessible via the internet, with fixed costs for each stage. Lord Young also proposed a common sense approach to educational trips, which currently entailed a plethora of forms to fill in, deterring teachers and others who work with children from arranging any trips at all.
The Lofsted Review
The Lofsted Report, published in 2011, focussed on the 200+ regulations owned by the Health and Safety Executive (HSE). Its principal conclusion was that, in general, problems lay less with the regulations themselves and more with the way they were interpreted and applied. In some cases this was caused by inconsistent enforcement, and in others by third parties encouraging unnecessary paperwork and activities that went above and beyond regulatory requirements.
Lofsted recommended, amongst other things, that
- the self-employed should be exempted from health and safety law where their activities posed no risk to others, and
- HSE should be allowed to direct local authority health and safety activity so as to encourage consistency and effective targeting.
The Regulatory Policy Committee
This committee continued to beaver away after the 2010 General Election, now commenting on all Impact Assessments being submitted to the Cabinet's new Reducing Regulation Committee. But its terms of reference precluded it from commenting on:
- the government's policy objectives
- negotiation positions on EU legislation (which includes much employment law)
- financial services regulation and budget and tax measures - i.e. most (any maybe all) issues within the Chancellor's remit, and
- proposals produced by government agencies whose decisions were not subject to Cabinet level clearance - i.e. the utility etc. regulators, the Environment Agency, the Financial Services Authority, the Health and safety Executive etc.
Sceptics noted that the above excluded areas include the majority of regulations which concern the majority of UK businesses, which sharply reduced the impact of the RPC.
But the power and effectiveness of the RPC was certainly enhanced (a) by the "one in, out out" rule and (b) by RRC Ministers' reluctance to consider a proposal for a new regulation if the RPC had given its regulatory impact assessment a red light. But the red light applied only to the quality of the assessment. The RPC could not stop an over-regulatory proposal being put to Ministers if the accompanying Impact Assessment showed that the proposal had resulted from a robust, evidence-based policy process. On the other hand, Ministers had agreed that the RPC's opinions should be published if the committee had said that the IA was 'not fit for purpose' but Ministers anyway chose to proceed with the regulation. At least four such opinions were published in 2011, albeit without attracting much publicity.
It was in practice hard to evaluate the effectiveness of the RPC or the RRC because their discussions were confidential and it is not possible to tell what decisions would have been taken had one or both committees not existed. Indeed, as the RPC now commented on draft IAs quite early in the policy development process, neither the draft IAs nor the committee's views could now be published, leading to a regrettable but obviously necessary reduction in the committee's accountability.
Michael Gibbons, the first Chair of the RPC, certainly sounded somewhat frustrated when he gave an interview to the FT in January 2011 in which he talked of Whitehall remaining far too prone to believing that new regulations are the answer to public policy questions, and said that Government departments had failed to provide sufficient justification for many of the 200 new regulations proposed since the previous September. And there has to date been no sign that the business community had noticed any difference in the flow or impact of government regulation.
On the other hand, regular Statements of New Regulation recorded useful progress on some fronts - see further below, including a link to an example.
Better Regulation Delivery Office
The Local Better Regulation Office - created as recently as 2008 - did not last long (at least as a separate entity) falling victim to the Coalition Government's determination to reduce the number of 'quangos' - but only, in this case, by bringing the work back within government.
It was accordingly announced in February 2011 that LBRO would be "replaced by a new organisation [the BRDO] that builds on the expertise of LBRO's staff and continues the expansion of the Primary Authority scheme, but is part of the Department for Business, Innovation and Skills. The new organisation will work closely with local enterprise partnerships across the country to find the best way to tackle red-tape at a local level and share this knowledge. It will also promote the Primary Authority scheme as a way to improve consistency in regulatory enforcement, reduce bureaucracy and create the right conditions for economic growth. This streamlined approach will also give a renewed focus on improving the way that regulations impact at the front line. The new organisation will work closely with the Better Regulation Executive, the Regulatory Policy Committee and national regulators to ensure there is a more joined-up approach on regulation and enforcement from across Government. ... In order to retain the crucial independence and technical expertise of LBRO, the new organisation will have special governance arrangements and a number of interested groups will be invited to form a steering group for the new organisation. This will make sure that it is accountable and relevant to the businesses and the regulators that it serves, while also improving the accountability of the new organisation."
The LBRO issued the following statement in February 2012:
'Plans to increase transparency, accountability and cost savings by reconfiguring LBRO (Local Better Regulation Office) as a new streamlined body within the Business, Innovation and Skills Department, have been given parliamentary approval. ... The Board of LBRO has welcomed this important step towards transition into Government, which will be complete by March 31. ...
The smooth passage of the necessary order through both the Westminster and Welsh legislatures reflects the general consensus that this is the right course for continuing the vital work of LBRO. The Board welcomes BRDO's clear delivery focus. Its work with businesses and regulators to simplify and improve the implementation of regulations will complement the Better Regulation Executive's focus on how Whitehall generates and designs regulation. The aim is to strengthen the overall package of regulatory reform by bringing these two elements together within government.
Feedback from consultation on LBRO, and on the Primary Authority scheme, shows that stakeholders value the organisation's work. They value the expertise of its staff and the way in which LBRO have represented their views whilst driving improvements in regulatory delivery. BRDO will build on the foundations of LBRO; retaining much of the current staff expertise; and continuing many of the current functions, its network of expert panels and stakeholder groups. BRDO will directly support Ministers in Westminster and Wales in their work to deliver better regulation.'
[The BRDO did not itself last long outside the Business Department. It became part of the department's Regulatory Delivery Directorate in 2016. This was in turn replaced by the Office for Product Safety and Standards ('though still part of the Business Department) in 2018.]
Prime Minister's Letter to Ministers
The Prime Minister wrote this letter to his Ministers in April 2011:
In our Foreword to the Coalition Programme for Government, the Deputy Prime Minister and I wrote that “there has been an assumption that central government can only change people’s behaviour through rules and regulations. Our government will be a much smarter one, shunning the bureaucratic levers of the past and finding intelligent ways to encourage, support and enable people to make better choices for themselves.”
We need to tackle regulation with vigour both to free businesses to compete and create jobs, and give people greater freedom and personal responsibility. Of course we need proper standards, for example in areas like fire safety and food safety. So where regulation is well-designed and proportionate, it should stay. But it is hard to believe that we need government regulations on issues such as ice cream van musical jingles, or the display of bed prices. We know we have inherited far too much costly, pointless, and illiberal government red tape.
That’s why, since coming to office, the Government has pursued an ambitious deregulation agenda. This has included:
- introducing a new one-in, one-out rule, meaning Ministers have to identify an existing piece of regulation to be scrapped for every new one proposed;
- a strengthened role for the Regulatory Policy Committee to review the costs and benefits of new regulation proposals,
- and a three-year moratorium on domestic regulation for very small firms and start-ups.
These things are about stopping unnecessary new regulations. But we also need to tackle the stock of existing regulation. Today, there are over 21,000 statutory rules and regulations in force, and I want us to bring that number - and the burden it represents - down. Indeed, I want us to be the first government in modern history to leave office having reduced the overall burden of regulation, rather than increasing it.
This is a bold ambition - and I am convinced we will only meet it if we try a new approach. Starting today we will publish, sector by sector, all existing regulations online ... . We will invite members of the public and interested parties to tell us which regulations:
- should simply be scrapped;
- have the right aim, but one which could be achieved without regulation;
- could be made simpler, better designed, or consolidated with other regulations
- could be implemented in a less burdensome way, or
- are well-designed, good ones that should be kept.
In the past, when governments tried to deregulate, Ministers were asked to make the case for abolition. In other words, the assumption was that regulations should stay, unless there was a good case for getting rid of them. We are changing that presumption; we are changing the default setting.
Our starting point is that a regulation should go or its aim achieved in a different, non-government way, unless there is a clear and good justification for government being involved. And even where there is a good case for this, we must sweep away unnecessary bureaucracy and complexity, end gold-plating of EU directives, and challenge overzealous administration and enforcement.
This marks a change from the old ways of doing things - and its success will depend on you and your department being fully behind this approach. So this is not a polite request to “reduce regulation if you can,” it is a change in approach that means Ministerial teams should see themselves personally accountable for the number of regulations contained within and coming out of departments, and the burden they impose. Be in no doubt: all those unnecessary rules that place ridiculous burdens on our businesses and on society - they must go, once and for all.
I look forward to welcoming rapid progress on this agenda in the months ahead. Make no mistake: this is essential work. It will help us build a more dynamic economy, and it will help to build a stronger society. Above all, it will help rebuild in our country the sense of responsibility that is so vital - and which has been so undermined by years of over-regulation.
I am copying this letter to all Government Ministers and Sir Gus O’Donnell is writing personally to all his Permanent Secretary counterparts, committing the civil service to make tackling unnecessary regulation a key priority for the whole of government.
The exercise announced by the Prime Minister was branded ...
The Red Tape Challenge
The crowdsourcing element of the exercise was unfortunately not a great success. Although the website attracted many thousands of comments, as well as many hundreds of private submissions, many of the comments ...
- indicated that more regulation was needed, or
- represented concentrated interests (road racing clubs, homeopathy), or
- evidenced clashes between concentrated interests (canoeists v. anglers).
Most businesses themselves - and especially smaller businesses - had other preoccupations or were reluctant to engage with the campaign on the record. Too much resource went into getting rid of 'zombie' regulations which no longer imposed any burden on business, but which cost £100 each to get rid of. And, within government, the campaign was weakened because responsibility was split between the Better Regulation Executive (in BIS - the Business Department) and the Cabinet Office, who had the digital skills and whose Ministers and advisers (in particular Steve Hilton) were keen to see successful crowdsourcing of government policy. Giles Wilkes, a BIS Special Adviser, later noted that:
'In [my] 4 years as Special Advisor, @SteveHiltonGuru and his Red Tape Challenge provided more moments of exquisite satirical lunacy than any other. I will never forget listening with delight to Steve and A Certain Cabinet Minister debate whether to lift the ban on inflammable nighties. At one point Steve suggested scrapping entirely the Consumer Protection Act, to see what would happen if we lacked rights for a bit.'
Sadly, therefore, observers concluded that crowdsourcing had failed to generate intelligent commentary by those burdened by red tape, the process had been no less expensive than more traditional consultations, and the outcome was not necessarily different from previous red tape bonfires. For more detail, do read Martin Lodge and Kai Wegrich's excellent discussion paper Crowdsourcing and Regulatory Reviews. (A more polished version was later published in the academic journal Regulation & Governance.)
But the exercise had triggered below-the-radar discussions between the trade associations and their friends in government which led to the fairly rapid scrapping or significant amendment of well over 1000 regulations such as building and health & safety regulations, and the deregulation of live music in pubs. The Government claimed in 2014 that the programme was on course to achieve £850m annual savings to business. The traditional consultation and debate elements of the exercise had therefore proved very useful.
The Beecroft Review
The Beecroft Report on possibly improvements to Employment Law was published in early 2012. It was perceived as a less-than-rigorous 'celebrity report' - see Jill Rutter's criticisms here. Part of the problem was that officials' underlying analysis was omitted from the report and subsumed in the wider Red Tape Review, though it was published later that year as Employment Regulation, Employment and Growth: Consideration of International Evidence .
2012 Red Tape Blitz
Newly appointed Business Minister Michael Fallon wasted no time in announcing a 'Red Tape Blitz' within a couple of weeks of his appointment in September 2012. The main components were as follows:
- Hundreds of thousands of businesses (in premises such as offices, shops and pubs) to be exempted from health and safety inspections
- New legislation to protect business from 'compensation culture' claims
- Over 3,000 regulations to be scrapped or overhauled
Much of this will have been based on preparatory work carried out under the leadership of Mr Fallon's predecessor. But the strength of the language was driven by the government's concern about the weakness of the UK economy. The FT reported that it 'kick[ed] off a week when the business department will try to show it is serious about helping the private sector drive economic recovery, after a cabinet reshuffle which signaled a more Thatcherite approach to business'.
Here is what actually happened following Mr Fallon's announcement:
- The increased emphasis on risk-based inspection was relatively uncontroversial and welcome, although most of the supposedly now-exempt low risk businesses will have seldom seen an inspector in recent years. I am not aware of any specific new legislation in this area.
- The attack on compensation culture turned out to be a number of legal aid and justice reforms which implemented (in April 2014 via the Legal Aid, Sentencing and Punishment of Offenders Act) much of the overhaul to litigation costs and funding recommended by the Court of Appeal judge Sir Rupert Jackson with the aim of making costs more proportionate to what is at stake. The overhaul touched all areas of civil litigation but it was in personal injury work where the impact was to be felt most. Until then, a successful injury victim represented under a 'no win, no fee' or conditional fee agreement (CFA) could reclaim from the other side his legal costs, plus the 'success fee' - an uplift of up to 100 per cent to reflect the lawyer's risk - and the cost of the insurance premium bought to protect against the risk of losing and incurring the other side's fees. From April 2014, claimants must pay the extra costs in bringing 'no win, no fee' claims - namely the success fee, capped at 25 per cent of any damages awarded, and also the insurance premium, giving them much more of a stake in the conduct of their case.
- Comment: It will be interesting to see whether the new legislation works. The increased tendency to reach for a lawyer is certainly worrying, especially as it encourages over-defensive medicine and policing, risk averse education etc. - more of a problem in the public than the private sector. At a deeper level, of course, compensation claims are an alternative to state-organised regulation, and it is slightly odd to be attacking on both fronts at once.
- Comment: It will be interesting to see whether the new legislation works. The increased tendency to reach for a lawyer is certainly worrying, especially as it encourages over-defensive medicine and policing, risk averse education etc. - more of a problem in the public than the private sector. At a deeper level, of course, compensation claims are an alternative to state-organised regulation, and it is slightly odd to be attacking on both fronts at once.
- The scrapping of the 3,000 regulations was to be achieved via The Red Tape Challenge - see discussion above.
Mr Fallon then announced, two months later, that "one in, out out" was to become "one in, two out". Click here for further information.
The Government also continued to publish six-monthly Statements of New Regulation. (As an example, click here to see The Fifth Statement of New Regulation, published in 2012.) Although they never made the front, or even the inside, pages of popular newspapers, and although the numbers in the documents were probably exaggerated, they were nevertheless a very useful resource for business organisations whilst simultaneously concentrating the minds of Ministers who would otherwise have regulated more freely.
Rights for Shares
The last, and possibly least, element of this particular 'blitz' was driven by Chancellor of the Exchequer George Osborne rather than his (possibly better advised) colleagues in the Business Department. Mr Osborne wanted new employees to be able to contract out of certain employment rights in return for being given shares in their employer's business. Opponents quite rightly pointed out that those looking for work were hardly in a good position to resist employer pressure to give up their rights. The Lords therefore insisted that such employees must be given free legal advice, and should also have a 'cooling off period', although these concessions will hardly overturn the initial imbalance in negotiating power.
On the other hand, one wonders whether employers will find the deal at all attractive - other than as a tax avoidance device. (The shares will, in effect, be a tax free golden hello.) This is because employees cannot contract out of their rights under EU law, so they will still be able to claim that they have been dismissed on account of their age, sex or race. And it is these claims - with their unlimited compensation - that worry employers most - and worry them a lot more than claims for unfair dismissal which cannot be brought within two years of recruitment, and where the potential liability is limited. A great fuss about nothing then?
It is also worth noting that public sector employers cannot benefit from this legislation (because they cannot issue shares). And it is public sector employers, who are most reluctant or unable to bribe their way out of avoiding litigation, who are most effectively deterred from dealing with poor performance for fear of being tied up in Employment Tribunals.
EU Legislation - Business Task Force
This body was appointed by the Prime Minister in June 2013 with the aim of identifying practical reforms to EU rules and regulations. Their first report Cut EU Red Tape was published later that year, and a progress report Cut EU Red Tape - One Year On was published in 2014. There is also a useful summary of achievements to date in the Ninth Statement of New Regulation.
The Government also re-committed to ending the so-called 'gold-plating' of EU legislation when transposing it into UK law - "unless it is clearly in the UK's interests to do so" - and updated its internal guidance accordingly. But this was pretty meaningless as no Government was ever going to admit to gold-plating when it is was not clearly in the national interest. A more detailed discussion of transposition and all that is on our sister Civil Servant website here.
2014 RPC Report
The Regulatory Policy Committee published a report in March 2014 which recorded that British businesses faced extra costs of more than £1 billion that year as a result of new regulations from Brussels, which were outside the committee's remit. The net costs from new European Union regulations had dwarfed the savings made by tearing up red tape produced in Whitehall.
Within the UK, 'one in, two out', appeared to be working. The RPC examined 76 measures in 2013 that cut the costs of red tape to businesses by about £274 million each year. It also examined 126 measures that increased the burden of regulation. Those originating from Westminster cost business a total of £128 million each year, including new regulations on shared parental-leave rights, which allow working families more choice about how they divide up the care of their child, and which had a cost to business of £17 million.
However, the 21 EU measures introduced in 2013 had added costs of £1.3 billion each year. Only three EU measures reduced costs, but only by £2.5 million. The vast bulk of the costs came from the Alternative Investment Fund Managers Directive, a measure regulating hedge fund and private equity fund managers.
The RPC found further bad news in that Whitehall’s track record for producing badly drafted regulations was deteriorating. It rated 75 per cent of new red tape as “fit for purpose” in 2013, compared with 81 per cent in 2012. Half of the regulations proposed by the Department for Education were deemed not “fit for purpose”.
The Regulators Code ...
... came into force in April 2014, replacing the previous Regulators Compliance Code and intending to provide 'a flexible, principles based framework for regulatory delivery that supports and enables regulators to design their service and enforcement policies in a manner that best suits the needs of businesses and other regulated entities'.
Its principal provisions were that:
- Regulators should carry out their activities in a way that supports those they regulate to comply and grow
- Regulators should provide simple and straightforward ways to engage with those they regulate and hear their views
- Regulators should base their regulatory activities on risk
- Regulators should share information about compliance and risk
- Regulators should ensure clear information, guidance and advice is available to help those they regulate meet their responsibilities to comply
- Regulators should ensure that their approach to their regulatory activities is transparent
The code did not apply to the economic regulators as they were understandably concerned that a statutory code would give companies endless grounds for appeal (and so delay decision-making) because they would argue that the regulator had failed to follow somewhat subjective (if innocuous) guidance.
The Government announced in July 2014 that its deregulatory program to date had reduced the annual cost to business by £1.5bn. But this figure was very misleading for a number of reasons.
Perhaps the biggest problem with the number was that it took credit for the supposed £3.3bn benefit to businesses of allowing them to switch from RPI to CPI (as a measure of inflation) when annually uprating the pensions paid to ex-employees. This change did not affect the administrative and managerial regulatory burden and so arguably should not have been counted (any more than a reduction in tax rates would have been counted). The £3.3bn number also depended very heavily on a number of assumptions about the future course of inflation.
And of course the £1.5bn number continued to exclude regulations emanating from Europe (see above) as well as some (all?) Treasury regulation, including that relating to financial systemic risk. All in all, therefore, the Reform think tank estimated that that Coalition Government had in fact introduced around £3.50 of regulation for every £1.00 that it had removed.
The numbers also exclude the huge administrative and other costs imposed on business as a result of the introduction of Workplace Pensions, whose legislation was introduced by the previous government back in 2008.
All in all, therefore, the Coalition could certainly claim that, like their predecessors, they had tried very hard to reduce the burden of regulation but, for very good reasons, they too had failed to do so.
Reform: How to run a country: the burden of regulation
The Reform think tank published the above-named report in December 2014. Here is its Executive Summary:
The call to action
The instruction from the Prime Minister, David Cameron, to his Ministerial team could not have been clearer:
“Today, there are over 21,000 statutory rules and regulations in force, and I want us to bring that number – and the burden it represents – down. Indeed, I want us to be the first government in modern history to leave office having reduced the overall burden of regulation, rather than increasing it.”
“This marks a change from the old ways of doing things – and its success will depend on you and your department being fully behind this approach. So this is not a polite request to ‘reduce regulation if you can,’ it is a change in approach that means Ministerial teams should see themselves personally accountable for the number of regulations contained within and coming out of departments, and the burden they impose. Be in no doubt: all those unnecessary rules that place ridiculous burdens on our businesses and on society – they must go, once and for all.”
These were not the words of a Conservative Prime Minister forcing through his agenda on an unwilling Coalition partner. Both the Conservative Party and the Liberal Democrats had made firm commitments to deregulate in their 2010 general election manifestos. In doing so, they were building on more than two decades of sustained regulatory activism – initially, a programme of “deregulation” under the Thatcher and Major administrations, followed by a programme of “better regulation” under the Blair and Brown administrations.
At first sight, this long-standing preoccupation with regulation is perplexing. After all, no government introduces a new regulation believing that, by doing so, it will make society worse. Yet successive regimes – of both the Left and the Right – have worried about the cumulative impact of regulation, particularly the impact on business. The approach taken by the Coalition Government has been twofold: with action not only to stem the “flow” of new regulation but also to reduce the “stock” of existing regulation.
The measure of success
In its latest self-assessment, published earlier this year, the Government reported that the sum total of its deregulatory programme to date has been to reduce the annual cost to business by £1.5 billion. In measuring its own performance, however, the Government has allowed itself some generous exemptions – simply ignoring the cost of any regulation relating to financial systemic risk and likewise ignoring all regulation originating in Europe. More controversially, the Government has broken its own rules in the calculation of its single largest regulatory “out”. Estimated at £3.3 billion, this single change is 11 times larger than the next biggest “out” and single-handedly pays for every single regulatory “in” recorded by the Government during its entire period in office.
Correcting these mistakes reveals that, instead of saving £1.5 billion, the Coalition Government has in fact increased the regulatory burden on business by at least £3.1 billion. Against an ambition of removing at least £1 of regulation for every £1 it introduces, the Government has actually introduced at least £3.50 of regulation for every £1 it has so far removed. The Prime Minister has comprehensively failed in his ambition to leave office with less regulation than he inherited.
Yet despite this failure, the Prime Minister must be congratulated for sheer determination of his Ministerial team to tackle over-regulation. It is probably fair to say that the Coalition Government has been more thoroughgoing than any of its predecessors in seeking to reduce both the ow and stock of regulation. The next government must build on this legacy by:
- being even more transparent and consistent in its analysis of new regulations;
- reverting back from the one-in, two-out regime to the one-in, one-out regime – but without the large number of unnecessary exemptions;
- making “intelligent regulation”: a core competence for the Civil Service policy profession.
RPC Report March 2015
The Regulatory Policy Committee published an interesting report in March 2015 summarising its activities throughout the about-to-end five year Parliament. Its main conclusions are below, although it is worth noting its comment that "a significant volume of regulation is currently outside the scope of the Government‘s One-in, One-out and One-in, Two-out policies". In short, the RPC reckoned that the overall impact of OIOO/OITO had been a reduction in regulatory burden of £2.2bn pa. However European legislation and 'out-of-scope' UK legislation added £2.3bn and £0.5bn pa respectively.
Here are some extracts from its Executive Summary:
The Regulatory Policy Committee (RPC) has scrutinised over 1,200 regulatory proposals affecting business and civil society organisations, of which 951 became law. This has resulted in the RPC issuing just over 2000 opinions on the quality of the evidence base supporting these proposals.
Over 500 proposals were in scope of the Government’s One-in, One-out or One-in, Two-out policies. These policies, together with the Red Tape Challenge, have encouraged Whitehall departments to consider removing regulations where possible. Overall, just under half of the proposals in scope reduced the impact of regulation on business and civil society organisations.
The overall impact of the measures that were in scope of One-in, One-out or One-in, Two-out has been positive for business and civil society organisations, leading to a net saving of £2.2 billion per year currently. However, just 15 significant measures generated over 90% of the costs and savings to business. Three-quarters of the measures cost or saved business less than £1 million per year each and accounted for less than 1% of the total value of the Government’s regulatory account.
Over 400 proposals were outside the scope of One-in, One-out or One-in, Two-out.
- The RPC has validated the costs of regulation of European origin since 2013. Two of the largest of these, the Alternative Investment Fund Managers Directive and the Bank and Recovery Resolution Directive, were introduced to protect against financial systemic risk and, together, impose a combined total of £1.6 billion per year in net costs on business. The RPC has validated the other EU measures from 2013 as imposing £730 million per year in net costs on UK business.
- The RPC has scrutinised a further 292 out of scope measures, estimating that they will impose £467 million per year in net costs on UK businesses. These costs include £137 million in EU costs implemented before 2013, £181 million for measures deriving from international agreements and £118 million from measures relating to changes to fees and charges where the scope of regulation is unchanged.
RPC scrutiny improved the accuracy of the estimates of the annual costs or savings to business from regulatory change by at least £585 million per year over the course of the parliament. Without this scrutiny, the net savings to business claimed by government from regulatory reforms would be around £505 million higher than the final validated figure of £2.2 billion per year currently.
Small Business, Enterprise and Employment Act 2015
This ambitious legislation, enacted only weeks before the 2015 General Election, entrenched in law:
- the setting of a Business Impact Target (i.e. a deregulation target),
- annual reporting of new regulatory burdens on business,
- including any gold-plating of European legislation, and
- established (where practicable) reviews (at least every five years) of whether post-2015 regulations remain necessary and appropriate.
Did Ministers Go Too Far?
Paul Almond certainly thinks so. In his Revolution Blues: The Reconstruction of Health and Safety Law as 'Common-sense' Regulation Professor Almond criticises the 2010-15 Coalition Government's encouragement of 'common sense' regulation - to the detriment of sensible regulation driven by effective, high quality consultation.
Did these developments directly or indirectly lead to the Grenfell Tower tragedy? It will be interesting to hear the Inquiry's verdict.