Deregulation 2023 -24

The Cost of Regulation Increases

The Government had previously announced that it intended to end the independent verification role of the Regulatory Policy Committee.  But it had not done so in time to stop the committee announcing in February 2023 that regulatory measures introduced over the last year has increased net direct costs to business by £9.9 billion!!  The total increase to date, in the Parliament, amounted to £14.3 billion.  This was even though the Government's Business Impact Target required there to be no increase over the current Parliament.

Social Market Foundation Report

It is well worth reading the detail of Reducing the Burden of Regulation by Stephen Gibson and others, published in March 2023.  Here is its Executive Summary (emphasis added):-

Government regulations can impose significant costs on businesses that are then passed onto consumers in higher prices. This paper considers the different approaches that the UK and other governments have adopted to try to reduce the burden of regulation, how successful these approaches have been, and what we can learn for current and future government policy. These approaches have included:

  • Regulatory offsetting – One-In-One-Out (OIOO), (followed by One-In-Two-Out and One-In-Three-Out) prevented the introduction of new regulation unless an existing regulation of equivalent or greater value was removed. Many other countries, including 10 EU member states, have introduced regulatory offsetting rules.
  • The Red Tape Challenge (RTC) sought to identify regulations that could be removed or reduced via ‘crowdsourcing’ suggestions sent to the RTC website. A similar approach was introduced in British Columbia.
  • The Business Impact Target (BIT) – where the government set itself a target for regulatory burden reduction.

An additional approach (which is currently being considered for retained EU law), is the sunsetting of regulations if they are considered no longer effective at achieving their objectives.

The data do not provide a clear picture of the relative performance of the different approaches. However, the BIT approach has been the least successful, with regulatory costs increasing significantly during its period of operation and the Government consistently missing the target it set itself for reducing regulatory burdens.

Regulatory Reform Group

The first report from this group of Conservative politicians - The Purpose of Regulation - was published in April 2023.   Despite its political nature, it made some very interesting criticisms of the current state of regulation in the UK, as can be seen from these extracts from its list of contents:

David Henig commented that the report was 'Dull ... in the best possible way, which is to say this takes an important but overlooked subject, the entire regulatory framework that is so important to policy making, and makes some sensible suggestions such as single points of oversight in Parliament and government.'

Giles Wilkes also thought the report was a useful contribution to debate, but was less impressed than David Henig.  Here is his blog:  Regulating the regulation of regulation

Within politics the topic of regulation is one wrapped in layers of cliché. It is deeply unoriginal to go on about government red tape, of course: your first-ever glimpse of Sir Humphrey from Yes Minister, forty years ago, shows him unspooling yards of the stuff. 

Politicians vowing to Stop the red tape or Slash Regulation is also a horrible cliché, a rite of passage for lower-level ministers and the PM equally, it seems. I cherish the 1995 story from John Rentoul commenting on the tenth war on red tape since the election three years earlier.  And, yes, this is all so well-observed that it has become a cliché to moan or snark about the anti-red-tape efforts, as I have from time to time – including in probably my most-remarked-upon piece on a bad prime ministerial adviser (it glanced at just one of the half-dozen tilts at Regulation embarked upon by the Coalition Government, the Red Tape Challenge, created on the charming misconception that the public would do the work. Insert a pause to collect yourself).

Sorry, but prepare for more cliché.

A group of well-meaning MPs are hoping to write a new chapter in the tale of the regulatory wars with something called the Regulatory Reform Group. I wish it all the best. It is surely true that the UK could do better in this regard. “Dynamism” is often cited as a reason for the US growing faster than Europe ....  I am not immune to pointing out how much more quickly processes (like the creation of a new aircraft) seemed to happen 50 years ago.  The speed and effectiveness of the Vaccines Taskforce is rightly held up as proof of processes that can be radically improved, when the incentives are right.  There is a particular interest in whether scientific research is now too slow, to which the government has responded with a review of bureaucracy.

I don’t mean this blogpost to be a criticism of this RRG, except in three regards. First, it feels odd to write that “During our years within the European Union, the UK hollowed out appropriate democratic oversight of regulators, in effect outsourcing this oversight to Brussels”. I just don’t see that. How we enforced rules, whether they originated over there or here, has always been down to us.  Second, it is very odd to go on about the £265bn spent by “Arms’ Length Bodies” as a useful contextual fact here. That sum is simply a way of saying: we operate the NHS, schools’ system, research and tax credit system through certain bodies. I don’t get the relevance. 

Finally, given the political nature of most regulatory frustrations, it seems arguable that inserting more politicians into the process is any kind of answer, and that is what they seem to want: a Joint Committee of both Houses to be overseeing all the regulators. It sounds like a recipe for the regulators spending less time doing what they should be doing. If any of you can explain how this leads to matters becoming much more nimble and proportionate, I would love to hear it. Maybe with the right politicians …

But the RRG have made an interesting contribution, with useful case studies, and I recommend it be read and thought about. 

Instead, I would like to suggest a few obvious ideas to improve how regulations work.  How about this:

  1. Force officials to publish an assessment of what the cost of a regulation should be, and have their work checked by outside experts to stop them marking their own homework.
  2. Create a body of officials whose job it is to advise on how to make regulations in a more sensitive way, publish best practice and so on.
  3. Try to address the problem of regulators failing to coordinate together or share information by setting up a network
  4. Remember that regulation is not fire-and-forget, but set up processes by which they are reviewed after implementation to see if they are working as designed
  5. Do not leave out politicians, who have a role to play in representing various interests, such as the consumer or the interest of economic growth.  Set up a parliamentary committee around that.
  6. Create code to guide how regulators actually behave towards the regulated, and to which they can be held accountable.

If it is not already obvious, all these things have existed and most still do. 

The first is the process of “impact assessment”, overseen by the Regulatory Policy Committee. [See, for example,] its green verdict on some Gas Safety Management Regulations (1996).  More amusingly, [they have absolutely roasted] the Retained EU Law Bill.  ...

The second is the Better Regulation Executive. I think it dates to New Labour or before. There is a big document describing the whole architecture of regulatory control here.  

The third is the UK Regulatory Network. UKRN itself describes its objective as  “to facilitate cooperation and communication between our members, to promote better outcomes for consumers and the economy” and its website is festooned with workplans and newsletters and guidance and other signs of virtuous busy-ness. 

The fourth, a process of Post Implementation Review, is described in the BRE, and I believe is required by law, the law being one we passed in 2015 .... 

The problem of the politicians not being involved enough has never really existed, in my view. Up to 2021 there was in fact a Regulatory Reform Committee in the House. I do not know if much attention was paid to it – it depends on the state of politics and the stable majority, I bet.  But whatever the exact committee structure, whenever anything important happens there is usually some kind of committee of MPs eager to scrutinize the sweating regulator.  Just choose your regulator and google alongside “select committee appearance” if you like. I am very confident that they take these uncomfortable occasions very seriously.

And, sixth, yes there is of course a Regulators Code already.  Its principles seem absolutely fine.  I don’t know how much it guides their behaviour, but I imagine it provides an awkward focus around any political conversations that might ensue after some egregious event.

Is this all evidence that the whole system is fine, leave it well alone? Of course not – though my first advice would be to scrutinize whether the existing things are working well, rather than go off on some spree of invention. The RRG group of MPs are the serious, outcomes-based sort you want working on this.  

But – personally – I would not start with new Westminster or Whitehall structures, but pick some activity or process that has become really difficult to do, and is economically significant, and work your way up towards finding out why that is.  Focus, please (like the Coalition Government’s Focus on Enforcement) . A good target is provided by [an] excellent and disquieting Economist story from last November on how slowly infrastructure is built. Its opening anecdote concerns a road upgrade first proposed in 2003, and only due to be completed in 2026.  Departmental dithering and judicial challenge, endless consultation, and the ruthlessness of special interest objectors appears to lie behind a general slowdown in what sound like far-from-damaging schemes, everywhere.

A good way of summarising the problems is “politics”.  And, as the REUL bill example shows, it is no good having a good process if the politics is bad; that damning assessment is not enough to stop such a damaging bill.

So look at the politics – that is where you will find the problems, and maybe even the solutions.

May 2023 Announcement, inc. Revised Better Regulation Framework

The Retained EU Law Bill was abandoned in May 2023 and the following proposals were announced the same day:

  • Reducing the business burden. We will reduce time-consuming and disproportionate reporting requirements for specific elements of the Working Time Regulations, while retaining the 48-hour week requirement and upholding our world leading employment standards. This could save employers around £1bn a year. We are also simplifying regulations that apply when a business transfers to a new owner.
  • Ensuring regulation is, by default, the last rather than first response of Government by reforming the Better Regulation Framework. The new, smarter framework will ensure future regulation of our changing economy is streamlined, minimises business burdens, and puts forward-looking regulation at the heart of Government decisions.
  • Improving regulators’ focus on economic growth by ensuring regulatory action is taken only when it is needed, and any action take is proportionate. Following Professor Dame Angela McLean’s review of the regulators’ Growth Duty, the government intends to consult on refreshed guidance on how regulators deliver their growth duties. The government will also consider the merits of commencing statutory reporting and how best to promote growth with utilities regulators, who are currently not in scope of the Growth Duty.
  • Promoting competition and productivity in the workplace by limiting the length of non-compete clauses to three months, providing more flexibility for up to 5 million UK workers to join a competitor or start up a rival business after they have left a position. The change will also provide a boost to the wider UK economy, supporting employers to grow their businesses and increase productivity by widening the talent pool and improving the quality of candidates they can hire.
  • Stimulating innovation, investment and growth by announcing two strategic policy statements to steer our regulators. We are today publishing the first of these statements for consultation, on energy policy, which will be followed soon after by the Government’s strategic steer to the Competition and Markets Authority (CMA).

These proposals were incorporated in the the revised Better Regulation Framework - Guidance published in September 2023.

The Regulatory Policy Committee were generally very pleased with the revised framework, particularly the move to earlier RPC scrutiny and the increased focus on monitoring and evaluation plans and post- implementation reviews.  However, it did have concerns over three potential weaknesses.

Post-Brexit Deregulation

Business Secretary Kemi Badenoch launched yet another post-Brexit bid, in October 2023, to reduce burdens on business, this time focussing on regulators.  Here is the announcement.

The UK Government is today announcing an in-depth review into all regulators across the country. The 12 week call for evidence will seek to capitalise on our post-Brexit freedoms to bring about Smarter Regulation to the economy. The review will seek to ensure regulators are working efficiently and delivering on reforms needed to help grow the economy and protect consumers.

The 12 week call for evidence will seek views of businesses, consumers and regulators to establish areas that are working well as well as where regulators could improve. It comes as part of the wider Smarter Regulation Programme, which aims to bring about more effective and less burdensome regulations across the economy.

There are 90 regulators in the UK, and 39 per cent of small businesses say red tape holds them back. This review will identify the changes to the regulatory landscape that will really make a difference to economic growth, as well as improving the outcomes for consumers and our environment.

Businesses have made clear that burdensome regulations have hampered growth, which is why we are taking this action – the UK government is firmly backing business.

Kemi Badenoch, Secretary of State for Business and Trade, said:

“I want us to use our Brexit freedoms to scrap unnecessary regulations that hold back firms and hamper growth. It’s clear that the regulators that enforce the rules can also sometimes be a blocker to businesses, so our review will seek to root out the bad practices with the aim of making companies’ lives easier and reducing costs for consumers.”

The principal focus of this call for evidence is to understand what works well and what could be improved in how regulators operate to deliver for the sectors they serve.

It seeks views on regulatory agility; proportionality; predictability and consistency of approach. It will also consider whether there are any further steps we can take to reform the existing stock of regulation on the UK Statute book (both Retained EU Law and wider regulations).

Regulators play a crucial role in protecting consumers rights,  workers’ rights and the environment which is why no reforms will come at the expense of the UK’s already high standards.

It comes as many businesses, consumer groups and other industry leaders have expressed their concern over the operation and enforcement of regulation by independent regulators. Broadly, these criticisms fall into three categories:

  • The regulatory landscape is a crowded space, with too many regulators having too many duties to trade-off against each other meaning consistency across regulators and a clear direction on what good looks like is essential.
  • Regulator behaviour, risk appetite and overall performance is not as it should be. Businesses/industry groups argue that regulators are overly risk averse and focus too heavily on process, and that this is at the expense of delivering the best outcomes.
  • Regulator powers and accountability have not moved in tandem, in part because of the increased decision-making power of some regulators now that decisions are taken at a UK- (not EU-) level.

This work is complementary to existing work in train, including the more specific review of Ofgem, Ofwat and Ofcom - which also forms part of the Smarter Regulation Programme.

This is the next step in the government’s programme of Smarter Regulation and deregulation. We have already launched a series of consultations and reviews into the growth duty for larger regulators, the UK’s product safety review and fire safety for domestic appliances – these have all been aimed at improving safety, cutting business burdens and improving regulations for the economy.

Across the UK, there are 90 regulators, and 39 per cent of small businesses say red tape holds them back. Which is why this review will work to identify the changes to the regulatory landscape that will really make a difference to economic growth, as well as improving the outcomes for consumers and our environment.

The findings will help to improve regulators right across government to ensure they are more accountable, effective and responsive to the needs of the sectors they represent.

RPC Annual Report Makes Grim Reading

The RPC had reported in March that 63% of Impact Assessments had been rated weak or very weak in one or more key area. Its subsequent Annual Report was even more depressing.  Here is a self-explanatory Substack newsletter that I published in September 2023:

The Regulatory Policy Committee published its annual report earlier today.

“There has been a concerning increase in the number of red-rated Impact Assessments that are ‘Not Fit For Purpose’, as well as an increase in Impact Assessments submitted late by departments (in some cases where the legislation was already before Parliament) …

… Another disappointing trend has been the failure of departments to complete post-implementation reviews of their regulations despite it being a statutory requirement.”

Call me ‘old fashioned’ etc. but …

What was going through the minds of the civil servants who decided that they did not need to write timely IAs that were fit for purpose, let alone comply with post-implementation review legislation?

It looks as though they were in clear breach of the Civil Service Code which requires them to:

always act in a way that is professional and that deserves and retains the confidence of all those with whom they have dealings; and

comply with the law.

Does it matter? The Code also says that:

[Compliance with this Code ensures] the achievement of the highest possible standards in all that the Civil Service does. This in turn helps the Civil Service to gain and retain the respect of ministers, Parliament, the public and its customers.

Did officials care? Did they object? What did their Permanent Secretary say when the failures were drawn to their attention?

Post Implementation Reviews

There was other evidence that deregulation activity had become increasingly performative, seeking friendly headlines but lacking any intention to have a real-world effect.  A 2023 Social Market Reform paper by Stephen Gibson drew attention to the Government's failure to carry out timely Post Implementation Reviews (PIRS).  Here are some extracts:

PIRs are an essential part of the framework for ensuring best practice regulatory policy making by government and regulators. The evaluation of regulations after they have been implemented allows policy makers to see if regulations are operating as expected and achieving the intended objectives, or alternatively if they are leading to unintended consequences or imposing disproportionately high costs relative to the benefits that they offer. This then informs decisions over whether they should be retained, revised or removed. PIRs can also lead to a better understanding of the regulation and the problem it was meant to address; support improved future regulatory interventions; and inform broader stakeholders about the impacts and success (or otherwise) of government regulatory policy.

The UK [has] a statutory requirement to either include in the secondary legislation a provision to review the measure within a set period or publish a statement explaining why it is not appropriate to do so. ... However, the UK has issues with compliance, with less than 40% of PIRs being completed on time, and the National Audit Office (NAO) noted in their 2016 report: “although HM Treasury guidance says that departments should monitor the ongoing impact of their regulatory decisions, they rarely do so. This means that departments could miss opportunities to adapt policies in ways that would help businesses. Lack of evaluation means that the government cannot know the real impact of its efforts on business”. An NAO report published in 2023 identified a backlog of 63 PIRs in one government department alone (DEFRA), despite it being a statutory requirement to undertake a PIR.

Several reasons have been offered to explain the lack of PIRs undertaken despite the statutory requirement (in the UK) and the policy benefits from ex post evaluation that governments almost universally recognise. These reasons include limited political benefit, lack of prioritisation and concern over exposing previous policy failures.

A classic example of a failure of the framework was the PIR of the UK measure to reduce the litter and environmental damage from discarded single use plastic carrier bags (SUCBs) by introducing a mandatory 5p charge for SUCBs. This PIR was undertaken in May 202149, 3 months after the February 2021 decision50 to increase the charge from 5p to 10p and extend its scope to cover small retailers (with less than 250 employees) and airport and charity retailers. The purpose of the PIR of the 5p SUCB charge was to inform decision makers about the potential need for a revision to the charge or an extension of the policy approach. Increasing and extending the charge before the PIR was undertaken defeated the whole point of the PIR and meant that the subsequent decision was taken without a full understanding of the effectiveness of the previous measure - as discussed in the Regulatory Policy Committee opinion of the PIR which was rated ‘not fit for purpose.

The Starmer Government

The 2024 General Election put the previous government out of its misery and installed Prime Minister Kier Starmer.  He and his ministers faced pressure to toughen environmental regulation and introduce further regulations to improve workers' rights.  But they also had a 'growth agenda' which would appear to require deregulation.  Sir Kier told potential inward investors in November 2024 that he wanted to "back the builders, not the blockers".  The Times' Dominic O'Connell shortly afterwards published this perceptive review of the recent history and future prospects of regulation/deregulation state of play at this time:

Chief executives’ favourite pastime, aside from rising at 4am for 30 minutes of meditation, an hour in the gym and a cleansing herbal tea, is bitching about red tape. At a dinner last week two property bosses complained to me about the impossibility of getting developments through planning, the susceptibility of the process to any nimby attack and the shortage of people at every stage, from council officials through to the fire-safety experts needed to put together new post-Grenfell risk assessments.

This was the audience Sir Keir Starmer was trying to address at this week’s innovation conference, when he said he wanted regulation that would “back the builders not the blockers”. It remains to be seen whether the prime minister’s zeal will percolate all the way down to the officials who actually deal with new developments, but it struck me that there had already been plenty of deregulation in the past few years.

Many seem to have forgotten that the previous government made big changes to stock-market listing rules, City bonuses, audit reform and directors’ duties. There is more to come too, with an important change expected next year on the rules governing when listed companies need to produce a prospectus. The red tape might be piling up in drifts around physical infrastructure but in capital markets and corporate governance it is being stripped away.

The largest of these changes were by omission rather than commission and resulted from a Conservative leader spiking the carefully laid plans of one of his predecessors. It seems lost in the mists of time now — it was in fact only eight years ago — but Theresa May came to power promising a crackdown on corporate bad behaviour. She was reacting to a public mood soured by a string of corporate scandals, notably the collapses of Carillion and Patisserie Valerie and the chaotic demise of BHS. Her speech to the CBI in 2016 spelt it out. “The behaviour of a limited few has damaged the reputation of the many … it is clear that something has to change. For when a small minority of businesses and business figures appear to game the system and work to a different set of rules, we have to recognise that the social contract between business and society fails and the reputation of business as a whole is undermined.”

This set in motion the full machinery of government reform. There were inquiries into the different scandals and expert reports on reform of some basic business plumbing. Sir Donald Brydon, the plain-speaking former chairman of London Stock Exchange Group and Royal Mail, was enlisted to rewrite the rules on company audits and auditors themselves. Sir John Kingman, one of the key Treasury officials during the 2007 banking crisis, devised a wholesale reform of the accounting regulator, the Financial Reporting Council. There were also inquiries and recommendations for change from the Insolvency Service, the business and pensions select committees and the Financial Conduct Authority (FCA).

This burst of reforming zeal was wrapped up into a set of new regulations that would have completely changed the nature of audits and put hefty new duties on directors to make sure that company accounts were not works of fiction. Uncontroversial stuff, you might think, but the whole thing was tossed out of the window by Rishi Sunak. A year ago the Companies (Strategic Report and Directors’ Report) (Amendment) Regulations were dropped. The press release that marked the decision dismissed them as “burdensome legislation withdrawn in the latest move to cut red tape for businesses”.
That was one big deregulatory step and there were more to come.

Anguish about the sluggish performance of the London stock market led to a relaxation of the listing rules. The ban on dual-class share structures has been dropped (to permit charismatic and dynamic founders to take their companies public but still retain control) as has the need for shareholder approval of large transactions. These changes have been cheered to the rafters by those who benefit from more listings — the exchange and the army of lawyers, bankers and accountants who feed on the fees — but given the raspberry by some investors. As my colleague Patrick Hosking reported recently, the group that represents council pensions thinks that they are a big backward step and risk “ ‘poisoning the well’, making the UK an unfavourable place to allocate capital”.

There is another change in the works that may provoke fresh rage among pension investors. The FCA consultation on changes to the prospectus regime closed on Friday. There are some amendments to the rules on float documents, when a company is selling shares on a public market for the first time, but the big one is on capital raises by companies already on the market. At present if you want to sell new shares worth more than 20 per cent of your market value you must issue a prospectus. That is expensive, time consuming and potentially embarrassing. Prospectuses often reveal more about the murky inner workings of a company than the management would like. The proposed new rule lifts the threshold to 75 per cent. If that is carried into law, almost all fundraisings by listed companies will no longer require a prospectus.

That is almost a red-tape bonfire in its own right, one you could keep burning with the scrapping of the cap on bankers’ bonuses and, as we revealed on Friday, the proposal to cut the deferral period on those bonuses from eight to five years. If you fear running out of fuel there is also the mooted watering down of the banking ringfence, the biggest single measure to emerge from the post-mortem examination of the 2007-08 banking crisis.

None of this, of course, will in any way ease my chief executives’ complaints about the difficulties in building stuff. Compared with clearing the way for railway lines or housing developments, opening up capital markets and financial regulation is easy. It is also the kind of deregulation that comes with big risks. It opens the doors to another round of corporate scandals: a repeat of the ones that created the rules in the first place. It can also, as the council pension funds argue, create markets that are less attractive to investors, not more. Starmer needs to ensure that he is backing actual builders, not just people pretending.

RPC 15 Year Review

The Regulatory Policy Committee was 15 years old in 2024 and published a very interesting and readable review of its history and of the issues and problems that it had faced.  Well worth reading!

Martin Stanley

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