Stephen Booth is Head of the Britain in the World Project at Policy Exchange.
Regulation affects all areas of our lives, from business to the delivery of public services. It advances social and environmental benefits that modern societies expect. And it is increasingly one of the primary instruments by which the state interacts with and exerts authority over its citizens. Traditionally, political arguments about regulation tend to be fought on a predictable and highly polarised battleground. Calls for a bonfire of rules and red tape are met with accusations of a lowering of standards and rights.
But is this the right debate to have? Is there not an argument for suggesting that the discussion which really needs to take place is about what kind of regulation currently exists in this country? Is regulation fulfilling its intended purpose, and what are the unintended consequences of regulation?
Policy Exchange is today launching a major new project entitled Re-engineering Regulation, which will explore how the UK can embrace smart regulation in the post-Brexit post-Covid world. The objective is to make regulations and regulatory systems more efficient, more effective, and more user-friendly for the organisations and individuals who must put them into practice.
Our project will be chaired by the former Cabinet Secretary, Lord Sedwill, and will draw on a multi-disciplinary advisory council comprising leading figures across the public and private sector, and from both sides of the regulatory fence.
The breadth of this council reflects the fact that many factors are shaping the regulatory landscape – rapid technological change in the private and public sector, Brexit, the pandemic, and great power competition, particularly between the US, China and the EU, to set global rules in emerging fields. All these factors call for a modernising regulatory agenda fit to meet the challenges of the future.
Over the last two decades, successive governments have adopted an evolving programme of regulatory reform under the banner of “Better Regulation”. These policies are designed to improve how rules are made and enforced, and to act as a check on the temptation to impose ever more regulation on businesses and individuals. However, there are big question marks against whether previous approaches have worked effectively or provide the right framework for the challenges that fast paced and complex modern societies now face.
In 2016, the National Audit Office (NAO) highlighted serious shortcomings with the old approach. For example, the NAO noted that efforts to reduce the cost of regulation on businesses were effectively impossible to evaluate, since government does not really know how much cost businesses incur as a result of the existing stock of regulations. At present, there is not a credible baseline against which to measure success or failure.
In addition, previous cost reduction targets lacked credibility, since many rules, including those from the EU, were exempted from the target, potentially allowing departments to ‘game’ the system. Equally, the metrics used to evaluate regulatory performance tend to focus primarily on business impacts. They do not always consider the wider societal benefits of regulation, such as to the environment.
Too often, regulation amounts to the triumph of process over outcomes, which can undermine the policy objective and give rise to negative unintended consequences.
For example, an academic study of anti-money laundering regimes across the globe, published last year, estimated that “compliance costs exceed recovered criminal funds more than a hundred times over, and banks, taxpayers and ordinary citizens are penalised more than criminal enterprises.”
A 2017 government review of the UK’s anti-money laundering regime noted that banks felt under so much pressure from supervisors to focus on customer identity checks that resources were diverted away from more effective anti-money laundering prevention and detection functions – such as the monitoring of suspicious transactions.
Meanwhile, an overwhelming focus on the use of hard copy identity documents has prevented people, particularly those vulnerable to financial exclusion, from being able to access bank accounts altogether.
Equally, the public sector is too often ignored in the debate about regulation. The growth of regulation in the public sector is often driven by the laudable aims of improving service standards and accountability. However, this becomes counterproductive when unnecessary bureaucracy and regulatory complexity diverts a significant proportion of frontline staff away from patient care, policing or the blackboard.
It also negatively impacts these professionals’ wellbeing, job satisfaction and stunts innovation. For example, a survey conducted this year by the National Education Union, found that 35 per cent of teachers polled were confident they would not be working in education in 2026.
When asked why they would be leaving, two of the most common reasons cited were workload (51 per cent) and the internal and external accountability regime (34 per cent) of performance tables, inspections, and appraisals.
Across Whitehall, there has been a tendency to regulate and then forget. Departments produce detailed impact assessments estimating the potential impact of regulation before it is introduced, but there is often much less interest in how rules work in practice. Regulators cannot get too close to those they regulate.
But there should be effective structures in place to systematically harness the experience of those on the receiving end of regulation – and the customers/citizens they serve – to ensure that the system is self-cleansing and able to correct instances of ineffective regulation or overzealous implementation.
It is welcome that the current Government has placed the UK’s Better Regulation regime under review. There is unlikely to be a silver bullet. There is a constant tension between governments’ impulse to regulate and an acknowledgement that regulation places costs on organisations and limits the freedom of individuals and their capacity to exercise judgment.
Systemic reform is required, which improves incentives and changes the culture across government and within regulators. The beneficiaries of an improved regulatory system would not just be businesses and wider society, but the many professional workers and individuals in the private and public sector whose daily lives are negatively affected by the poor implementation of regulation.