The Government’s regulatory reform plans. We know a lot about the principles…but not much about the practice

February 11, 2022

Regulatory reform tends to receive far less attention than government policies on taxation and spending, but it is just as vital to the UK’s economic success and the country’s post-Brexit future.

Last week, the Government published The Benefits of Brexit: how the UK is taking advantage of leaving the EU to mark the second anniversary of the UK’s withdrawal from the EU. The document sets out how the Government is using post-Brexit freedoms to implement new policies in different sectors. From immigration to trade, and agricultural policy to government subsidies.

The White Paper also identifies future opportunities to develop distinct post-Brexit regulatory and policy approaches across a range of headings including: science, data, and technology; business and industry; infrastructure and levelling up; climate, the environment and agriculture; and Global Britain. Many of the opportunities identified correspond to those outlined in last year’s Policy Exchange report Post-Brexit freedoms and opportunities for the UK.

Critics have a point when they note that, so far, the Government’s rhetoric has been appreciably more ambitious than its actions. Regulatory reform is complex and individual reforms, be it to data protection or agricultural land management, are always likely to be politically contested.

Fundamental changes require a strong political focus because there are inevitably tensions between industry, consumers, government, and regulators. The pandemic and the fraught negotiations over the Northern Ireland Protocol have understandably used up much of the political oxygen and impetus required to drive changes through.

For example, in the financial services sector, reforming the Solvency II regime for insurance regulation has long been seen as an opportunity to diverge from EU rules for competitive advantage and to free up more capital to invest in long-term infrastructure projects.

However, the industry has warned that the Treasury and the independent regulator have been pulling in different directions. There is a risk that the UK ends up being less ambitious and less competitive than the EU, which is pursuing its own reforms of the rules.

Aside from individual rules, the major post-Brexit opportunity is to improve how the UK regulates, through reforms to the wider regulatory regime. This includes looking at the relationships between industry, customers, elected politicians and regulators. The impact of regulation on the UK’s global competitiveness is another crucial factor.  For example, the Treasury has proposed giving the UK’s financial regulators a greater focus on growth and competitiveness in new statutory objectives.

Systemic and cultural change takes time. However, the prize on offer is a regulatory system that is more –

  • Agile and dynamic, allowing regulators to act quickly and decisively, as we saw in the development and authorisation of covid vaccines;
  • Proportionate, sensibly weighing consumer/citizens’ welfare against innovation and investment;
  • Responsive and accountable to UK interests, without the need for qualified majority voting among EU nations or co-decision with the European Parliament.
  • Focused on the challenges and opportunities of the future, on new technologies and new consumer realities.

The Benefits of Brexit paper provides the Government’s response to a wide-ranging consultation on reforming the better regulation frameworkand sets out five new regulatory principles to make the UK the “best regulated economy in the world”.

There are several welcome statements of intent outlined under these principles: regulating only where absolutely necessary, ensuring regulators have the right powers and duties, working more collaboratively with businesses to ensure there is a clear feedback loop between the regulated and the regulators, a target to cut the cost of EU inherited red tape, and a greater focus on reviewing the real-world impact of regulation that has been implemented.

However, there is little detail about how the Government intends to put these principles into practice. Ministers announced over a year ago that the current Business Impact Target, which measures the costs of regulation to business, would be replaced. But we still have little sense of what the new system to measure the impact of regulation will be.

Meanwhile, the White Paper’s £1 billion target to reduce the costs of inherited EU red tape to business appears relatively unambitious. But the real problem with such a target is that there is no agreed baseline of total regulatory costs against which to even assess the level of ambition. Last year’s consultation raised the prospect of measuring and baselining the total regulatory burden in the UK, as Canada, Denmark and the Netherlands have done, but there is no mention of such an exercise in last week’s White Paper.

The Government has also ruled out a return to the ‘one-in, two-out’ policy adopted by previous governments. The case for such a regime is that it enforces regulatory discipline by requiring departments to identify regulatory savings before introducing new rules.

However, it can also be argued that ‘one in, two out’ is a blunt instrument. Poor regulation should be identified and amended or repealed as a matter of course, rather than overlooked or deliberately kept until an offset for a new regulation is needed. The central question is how to ensure that departments and regulators are incentivised to routinely root out poor or overly burdensome regulation.

This poses another fundamental question, which is one of political oversight and application. Lord Frost was the driving force for this agenda across government from the Cabinet Office and, in the weeks after his departure, it was unclear where responsibility for regulatory reform would reside. This week Jacob Rees-Mogg has been given the responsibility in a new Cabinet Office role as Minister for Brexit Opportunities and Government Efficiency. Such an agenda requires long-term commitment throughout government and, ultimately, strong support from the Prime Minister.

The Government has set out principles which promise a more coherent and modern regulatory regime. The challenge now is to move from these statements of intent to implementation and tangible reforms. Over the next six months, Policy Exchange’s Re-engineering Regulation Project will take evidence from those in the private and public sector, and provide the concrete policies required to turn such a vision into a reality.

This was also published on ConservativeHome


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