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Red Tape Britain

For months, at a conservative estimate, the EU referendum seemed to use up an ever-larger amount of the previous Government’s bandwidth.

This led to avoidable own-goals like the ‘steel crisis’, wherein a well-telegraphed reckoning between an ageing heavy industry and the UK’s high-cost economy caught the Department for Business completely off balance.

As the Government tries to refocus its efforts on the day-to-day running of the country, one area that deserves close attention is regulatory reform.

Tata Steel, for example, have cited high energy prices as one of the factors making their industry uncompetitive – and even former electricity regulators have gone on record to argue that over-regulation of the power sector has reduced competition and maintained high prices.

Plenty has also been written about why the new sugar tax is a bad idea, and elsewhere on this site I have written about how ill-conceived tobacco regulation undercuts small shops and boosts a very harmful black market.

These are just a few illustrative examples, but they show that the last government lacked any sense of strategic grasp on the production and implementation of new regulations. If this new Government is to live up to conservative principles, it must get a grip.

Theresa May’s blueprint for doing that began to take shape on the 11th August, when the House of Commons Library published an outline of the promised ‘industrial strategy’.

As indicated by the library’s summary, the strategy – insofar as it concerns business – focuses on how companies operate, including such areas as corporate governance and mergers and acquisitions.

In some of this, such as the talk of putting workers on boards, May seems to be borrowing wholesale from Labour. But if she wishes to steal the Opposition’s clothing, this could be much more fruitfully done by reviving and extending Tony Blair’s regulatory reform agenda. Below are a few suggestions as to how the Government might go about this.

The role of ‘BEIS’

The creation of a new department responsible both for ‘business’ and ‘industrial strategy’ offers the Government an opportunity to make sure that regulation is better coordinated. Any industrial strategy would be glaringly incomplete if it did not include the regulatory environment in which industry operates, so it makes sense to bring the two under one roof.

By making BEIS the gatekeeper for new regulations, May can make a decisive break with the current, dysfunctional model wherein individual departments – each under pressure from its own permanently-constituted lobby – advocates for new rules without the expertise or the remit to assess their wider impact on the economy.

Re-issue the Better Regulation Principles

Behold this astonishing document, printed in 2003 to set out the principles of Tony Blair’s Better Regulation Task Force. It lays down principles for sensible regulation with which few Conservatives could disagree.

For example, page two of the document lists alternatives to regulatory action which policy makers should always consider, including education, using the market, and (I jest not), “do nothing”. Or as they put it:

“Government consistently faces demands from interest groups and the media to take action, often in response to one-off incidents or tragedies. In many cases the most appropriate response is to do nothing, as government action may be unnecessary, or worse, have costly unintended consequences.”

The principles laid out in the BRTF pamphlet are excellent – and are still nominally the basis of Government policy today. These principles need to be re-issued and government departments should have to report on them annually.

Sunset clauses, failure criteria, and post-implementation reviews

I’m a big fan of sunset clauses – whereby a law or measure is time-limited and lapses if not pro-actively renewed. It prevents a “fire and forget” attitude towards rulemaking and encourages, if not mandates, that new laws and regulations be judged on their outcomes.

New proposals should be accompanied by a clearly articulated and measurable set of objectives, along with a clear set of criteria by which it would be deemed to have failed. If implemented, they should be reviewed after a trial period and rescinded if ineffective or counter-productive.

All departments should also regularly publish post-implementation reviews of their Impact Assessments (perhaps every six months), and new post-implementation consultations should be run to assess whether the new regulation is working and what side-effects it is producing.

Departments are likely to become more careful regulators if their work is regularly assessed, and this long-term approach will dilute the power of “what wins the news cycle” as a driver of regulation.

Greater sensitivity to small businesses

One major downside of any regulatory regime is the power it gives lobbyists – indeed, one of the criticisms levelled at the EU during the Brexit campaign was the role played by corporations in drawing up and driving forward regulations that choke competition.

But domestic government can also damage small business with catch-all legislation – as the above-mentioned tobacco licencing would, for example.

Another instance is George Osborne’s ‘National Living Wage’, which has been criticised by both the Association of Convenience Stores and the National Federation of Retail Newsagents, and which evidence suggests has already led to small retailers cutting staff hours.

A better-planned regulatory regime, overseen by the department responsible for business, would be better able, and more likely, to be more sensitive to the impact it had on different parts of the economy.

BEIS would need to be careful, however, to avoid the sort of sharp cut-offs that have left France with so many 49-employee businesses.

Ensure wide and impartial consultation

The Living Wage was introduced by the Chancellor as a political surprise in his Budget. Whilst good at winning headlines, trying to announce policies as surprises limits the extent to which they can be subjected to proper scrutiny and consultation. Philip Hammond should resist the temptation to follow suit.

Another area where the rules could be tightened up is with regards to so-called ‘public consultations’. One of the most egregious examples of regulatory malefaction in recent memory must be Transport for London’s bid to shut down Uber.

In order to buttress their proposals, TfL held a public consultation – and Uber supporters made sure to take part. The bias evident in the survey was genuinely astonishing.

Each proposal was outlined, with the arguments in favour of it, seemingly drawn from focus groups. The respondent was then invited to agree or disagree (leading wording, as anyone who remembers the Scottish referendum will tell you).

The government does have a list of principles for consultation exercises, but regularly fails to abide by these principles. For instance, we have been waiting nearly two years for the results of the consultation on a minimum excise tax for tobacco, which was issued in August 2014.

Rules and mechanisms should be put in place to ensure the accurate and impartial gauging of public opinion about new proposals. Public consultations should be conducted, or at least signed off and overseen, by a body independent of the one advancing the regulations under scrutiny.

Better engagement with implementers

Finally, more effort should be put into making sure that the people who have to implement new regulations are involved in their formulation and assessment. Rules are not improved by being drawn up without input from the people who will be living by them.

There should be a stage in the process of producing new regulation that ensures thorough consultation with implementers and makes sure that their feedback is actually taken into account.

Without this we end up with an imbalanced debate, which helps to explain recent shifts towards ill-conceived measures like plain packaging and tobacco retailer licencing, and facilitates regulatory capture – not by the industry, as per the traditional view, but by campaign groups.

We should trust the good judgement of our legislators, and their ability to assess the robustness of the case for new regulations after hearing both sides of the argument. Trying to shut the other side out is a sign of the weakness, and not the strength, of one’s case.

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