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Written on 12 Aug 2021 by Martin Stanley

Reforming regulation: is it really what businesses need and want?

In his second blog on reforming regulations, former civil servant Martin Stanley discusses some of the ideas on BEIS's Better Regulation Framework and urges businesses and trade organisations to read and respond.

Adopting a proportionality principle

A recent government consultation document, Reforming the Framework for Better Regulation, looks important. It argues that ‘some of the current regulatory standards the UK has inherited from the EU are based on an overly restrictive interpretation of the precautionary principle’.  It suggests, therefore, that ‘a new ‘Proportionality Principle’ … should be mandated at the heart of all UK regulation. Under this principle, the Government would focus on regulating in a proportionate way.’

This is the weakest section of an otherwise high quality consultation.  It provides no evidence that the precautionary principle has ever been taken too far, whether in the EU or the UK.  And the suggestion that regulation should be ‘proportionate’ is, on the face of it, what all good regulators should do anyway.  The limited discussion in the document leads me to suspect this is a bit of fluff rather than anything that would make a big difference in the real world.  Contrary views would be welcome!

Innovation

Regulators might be given duties to promote competition and innovation.  This would be in addition, in many cases, to their current statutory obligations ‘to design their service and enforcement policies in a manner that best suits the needs of businesses and other regulated entities’ and consider ‘the potential impacts of their activities and their decisions on economic growth’. 

This would require regulators yet again to make subjective and in effect political judgments for which they are not properly accountable at the ballot box.  (One particularly bad example is the Financial Conduct Authority which was recently given six considerations to take into account to add to its four objectives, its competition duty, and its eight regulatory principles. One of these requirements was that the FCA should have regard to the competitiveness of the City of London – a particularly vague and troubling objective, especially as watchdogs should not also be cheer-leaders for the industries that they are supposed to be policing.)

Government ‘helping’ regulators improve

The Government suggests that it…

‘… could invite regulators to survey all of the businesses they regulate to receive ideas on how they can do that more efficiently from the point of view of the businesses being regulated. Regulators could then be invited to explain what they have learnt from this exercise and what changes they propose to make in response.

‘The Government could also conduct a series of deep dives into individual regulators and act as a critical friend to develop recommendations for the regulator to consider (in a manner that would respect the independence of regulators).  (Emphasis added)  Such deep dives could involve shadowing the regulator to look at its practices and procedures, scrutinising the regulators’ appraisals of regulatory change, and talking to its customers directly, and would be used to identify areas where change could be introduced to smooth processes for the regulated businesses. The results of the survey outlined above could help inform these deep dives and help inform areas of focus.’

These suggestions are apparently innocuous and won’t trouble those regulators who already have a good and transparent relationship with their sponsoring departments.  I was Chief Executive of two regulators and, if anything, felt that my colleagues in central government knew too little about the way we worked, and the challenges we faced.

But … I suspect that many regulators will, quite rightly, feel somewhat threatened by these proposals.  It is not hard to imagine that a strongly pro-business and anti-regulation administration could deploy business surveys and deep dives to deploy serious pressure to encourage light touch regulation.   Strong and truly independent regulators could no doubt withstand such pressure, but many would fold.  And let’s not forget what light touch financial services regulation led to in 2007/8. 

Earlier scrutiny?

The Regulatory Policy Committee currently scrutinises regulatory proposals only…

‘…after ministers have agreed to the policy they want to take forward and a decision has been made to regulate to achieve the policy aims. This can be too late in the policy development cycle and does not ensure scrutiny of the decision to regulate (in the form of legislation) rather than using non-regulatory approaches to achieve the desired aim.  …  Scrutiny of policy proposals could happen at the beginning of the policy development cycle, when policy options are developed and appraised and the alternatives to regulation are considered. This process could start when a decision has been made by a minister to regulate; an early document could be produced setting out the options that have been considered and why none of them are as suitable as regulation.’

This proposal seems eminently sensible, even if one harbours doubts about whether it could or would work in practice, given ministers predilection for making policy announcements well before thinking through the implications, let alone having a properly resourced and practical implementation plan.

Finally, should we resurrect…

One-in, X-out?

There is an interesting critique of the limitations of the government’s Business Impact Target which has lain at the heart of most recent assessments of regulatory policy. (The target has been five times the annual total of new regulations’ Equivalent Annual Net Direct Cost to Business (EANDCB).)

The obvious problem with this measure is that it excludes all the regulations’ indirect benefits and non-monetised benefits, such as environmental and social benefits.  This approach is however consistent with the government’s approach to financial expenditure, much of which is similarly constrained by annual limits, whatever the longer term benefits of the expenditure.

The one-in, three-out policy was abandoned in 2017.  Its faults are well summarised in this subsequent real world example in the consultation document.

'Following the 2018 Gaming Machines Review, the maximum stake on fixed-odds betting terminals was cut from £100 to £2. This measure scored a large cost on business (EANDCB: £450million per annum) but that made immaterial any effort to save businesses a few £m in other regulatory areas for the overall government target. Also, the Department expected there to be significant benefits to society, including from reduced government expenditure in areas linked to gambling-related harm such as healthcare or the criminal justice system, but these could not be monetised or accurately quantified.

'In a one-in, X-out system, presumed to use this same metric, government would therefore have needed to find £450m pa (or £900m pa or £1350m) offsetting savings (‘OUTs’) to have enabled the stake cut to have been made. (By way of comparison, £450m pa is almost the total savings of all the Red Tape Challenge initiatives over 2011-2014, involving amending or revoking over 2000 regulations.)'

It seems pretty clear from this example that HMG has no intention of resurrecting this deeply flawed policy.

These two blogs have only listed the most interesting of the many ideas in this consultation. They have the potential to bring about real change in the UK’s approach to regulation.  I would therefore urge all those interested in regulation to read and respond to the document on or before Friday 1 October 2021. 

Read first part: Reforming regulation: how should good post-Brexit regulation operate?

  • About the author

    Martin Stanley

    Martin Stanley is the editor of Understanding Regulation - www.regulation.org.uk – a website written for legislators, journalists, academics and others who wish to understand the recent rapid growth of the regulatory state, and how regulation should best be designed and enforced. Martin was previously a senior civil servant, and Chief Executive of (what is now) the Better Regulation Executive, the Postal Services Commission and the Competition Commission.

    Martin Stanley