Rees-Mogg will need Johnson’s full backing if he’s to deliver regulatory reform

February 25, 2022

All domestic Covid restrictions in England will end today, marking an important milestone as we emerge from an exceptional period of crisis. The macro-economic response to the pandemic understandably focused on damage limitation and maintaining employment, which has had a significant impact on the public finances. The painstaking work of supply-side reform has either taken a backseat or simply been overtaken by events.

As I noted in my previous column, sections of the Conservative Party has been growing impatient at the pace of the Government’s efforts to reform regulation post-Brexit. This week, Iain Duncan Smith, who co-led the Taskforce on Innovation, Growth and Regulatory Reform (TIGRR), complained that the Government had done little to act on the 100 or so recommendations in last year’s TIGRR report.

The Government stresses that it has started the process of reforming inherited EU rules in the areas of financial services and data regulation, but more politically sensitive policy areas such as social and employment regulation have received less attention.

Against this backdrop, Jacob Rees-Mogg has approached his new role as Minster for Brexit Opportunities and Government Efficiency with gusto, urging the public to come forward with proposals for regulation that could be scrapped. He has told this site that “everything that is an EU legacy rule is on my agenda” and he has also suggested that employment law remains an area that the Government should look at.

The challenge will not necessarily be finding inherited EU rules that are ripe for reform.

For example, on the topic of employment law, the Royal College of Surgeons has long called for reform of how EU working time rules operate with regard to doctor training. In the aftermath of the EU referendum, it noted that, “By limiting the amount of hours someone can train and creating inflexible shift working patterns, we have undermined the ability of doctors to receive high quality education and training in the UK”.

A 2021 report from the Regulatory Horizons Council identified the UK’s departure from the EU as an opportunity to build a UK-specific regulatory system for medical devices to respond more quickly to new advances in technology, and to work with like-minded countries in shaping international regulation. This week, Jonathan Djanogly called for reform of EU inherited novel foods regulation to introduce a new and faster approvals process to bring new products such as lab-grown cellular meat to market.

Meanwhile, on Monday, the Government fired the starting gun on reforms to EU financial services regulations by announcing its plans to overhaul Solvency II rules for the insurance sector. The unintended impact of MiFID II on reducing equity research coverage and market liquidity is another area of regulation that could usefully be reviewed.

However, attempts by previous governments to tackle the stock of existing red tape illustrate that substantive changes to individual regulations are always likely to meet with some political resistance in the form of advocates for the status quo. The challenge will be getting any changes through the government and parliamentary machine. Ministers note that the forthcoming “Brexit Freedoms Bill” will ensure that the Government can more easily amend or remove outdated EU law in future.

Nevertheless, operating from within the Cabinet Office, Rees-Mogg will need the cooperation of other Ministers in identifying reforms and in pushing them through their own departments. Ultimately, he may need to call on the authority of the Prime Minister if faced with resistance.

While it is vital that governments and regulators look at existing rules to assess whether they are fit for purpose, it is just as important to look forward. Governments will always introduce new regulation and divergence with the EU is therefore inevitable in the future. This is an important opportunity for systemic change to establish a regime that is more responsive and user friendly, better at promoting innovation, and plays to the UK’s competitive strengths internationally. This is the objective of Policy Exchange’s Re-engineering Regulation Project.

For policymakers devising such a system, some fundamental questions have been amplified by Brexit. Within the EU, the European Parliament and ministers representing the member states thrashed out new regulation in great legislative detail. For example, the EU opted to implement the Basel III international banking standards through primary legislation. In contrast, in the US, Australia, and Canada regulators were given the discretion to implement the rules.

The approach set out in the Treasury’s Financial Services Future Regulatory Framework Review will move away from the EU model, granting UK regulators greater discretion to set detailed rules, within the statutory framework set by Parliament. There appears to be a direction of travel towards this model in other sectors.

There are strong arguments for delegating day-to-day regulatory duties to expert regulators. It allows for a more agile regime that can adapt to often fast-moving market conditions, address new or unforeseen risks, and foster innovation.

However, such an approach makes the persistent question of who regulates the regulators even more pertinent. Having “taken back control” of regulation from the EU, Parliament must beware of outsourcing more power to regulators without a commensurate increase in democratic scrutiny and accountability.

For example, Parliament’s select committees have traditionally fulfilled the role of applying scrutiny to regulators. However, in practice, the majority of select committees have several different roles and it is questionable whether they currently have the resources to conduct detailed scrutiny of regulators’ objectives and how they exercise their powers. This architecture should be reformed to ensure that democratic scrutiny is meaningful and effective.

Continually removing or reforming individual rules that are overburdensome or not fit for purpose is a worthy but complex endeavour, which ideally should be baked into the system. The major prize on offer is systemic reform to establish a regulatory regime that is more user-friendly, adaptable, and tailored to UK interests and, just as importantly, more democratically accountable.

This was also published on ConservativeHome


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