Oral statement to Parliament

British Chambers of Commerce Annual Conference speech 15 March 2012

Good afternoon. I’m grateful for this opportunity to speak to the British Chambers of Commerce and its many members. I value the strong and …

Good afternoon. I’m grateful for this opportunity to speak to the British Chambers of Commerce and its many members. I value the strong and honest relationship that we enjoy: one fully maintained with John Longworth as your CEO.

It’s fair to say you have played a critical role over the past year, working extensively with the government as we have got on with our core task of implementing a new economic strategy.

One centred on boosting rates of private investment, increasing exports to growing markets in Asia and beyond, and encouraging start-ups throughout the country. You are providing valuable help to UKTI up and down the country to encourage inward investment, and are vital partners in our Business in You campaign.

For me, personally, it is visits to local chambers that tell me what business conditions are really like, rather then how they appear from Westminster. I am sometimes accused, for example, of being somewhat OTT in my criticisms of banks; this is at least in part the result of talking to Chambers across the country.

The BCC’s frankness and insight have been invaluable, if at times rather bracing, and I am grateful for it. In particular, you have kept the government on its toes over efforts to hack through the thicket of red tape and bureaucracy that we inherited.

I concentrated on the deregulation agenda when I spoke at this conference a year ago, and I would like to do so again today, outlining the progress we have made and where we intend to go next.

Let me explain where I am coming from. I am not a believer in laissez faire. Government has a useful role in promoting innovation, training, better infrastructure and creating a framework of rules and standards which business needs to function. Thanks to a Whitehall mole my views on the need for an active industrial strategy are well known (and actually what a lot of business leaders say).

But I also believe that heavy-handed interventions from government - reaching for the statute book every time a new policy issue arises - have a negative effect on enterprise.

That is not to say all regulation is harmful. It isn’t. Carefully calibrated consistent interventions can help markets function better, give certainty to business, and confidence to consumers. But I do believe that an unthinking rush to regulate has been the default position in Whitehall for too long.

Red tape challenge and OIOO

The Red Tape Challenge, which I launched at this conference last year, has begun the process of drastically reducing the number of regulations affecting business to a more sensible level.

We are systematically working our way through all of them, organising the regulations by theme and publishing them on the website, so companies can tell us which ones are causing problems. Which ones are out of date. Which are out of all proportion with their original purpose. Which ones are just outlandish and need to go.

We have examined 16 themes and announced plans for five - retail; manufacturing; hospitality, food and drink; road transport; and employment law. I am pleased to report that of the 1,200 rules examined so far, well over 50% are being scrapped, consolidated or simplified. The first of these decisions were implemented in October last year, with more to follow in April.

As a result of the Red Tape Challenge, we are, for example:

  • completely overhauling the entertainment licensing system to help small venues;
  • rationalising food labelling regulations - down from 31 to 17;
  • and bringing together 12 separate items of consumer legislation into one streamlined consumer bill of rights.

We will shortly be announcing the results of the environmental theme in the Budget, which will simplify the requirements business must meet while maintaining essential protections.

Taken individually, these may seem like small steps. Yes, they are. But that is how the burden built up - in small steps. The BCC has always been clear that it is the cumulative burden than is unbearable, and removing that burden will also take many small steps.

Alongside these efforts to clear the welter of regulations already on the statute book - and more importantly - we are also changing the prevailing culture of government, which has historically viewed regulation as the easy option rather than the last resort.

The One In, One Out rule - the first of its kind anywhere in the world - has begun to turn back the tide since it took effect in January 2011. Under its provisions, a minister who wants to introduce a new rule which generates costs for business must first identify a corresponding cut in regulation elsewhere with the same value. The process is designed to force departments to exhaust all the alternatives before seeking to legislate.

I have to tell you that most of my ministerial colleagues regard One In One Out as an absolute pain; every time they bring forward a new regulation there is a big hurdle to cross. There will normally be a wounded-sounding letter saying “I am 100% with you on fighting regulation. But you surely didn’t mean me? My regulations are good!”

So cultures do not change overnight. And proving progress to you will not be easy - after all, it is hard to show you what we stopped. But this simple yet revolutionary principle will enable us to cap and, over time, cut the costs of regulation borne by business - especially small business.

It is backed by a commitment to publish regular progress reports. The latest such report, the third Statement of New Regulation, was published just over a fortnight ago. It shows that the volume of deregulation far outweighs measures introduced - in the first six months of this year the government will introduce 19 deregulatory measures, generating net savings of over £16 million for business. It also shows that, since the introduction of the One In, One Out regime, it has delivered a net reduction in regulation costs for business.

Europe

But any successful attempt to cut back on red tape and bureaucracy must take account of the fact that a substantial proportion of the burden emanates from Brussels. Our first step was to end the gold-plating of new European Union directives. We are now looking at how to scrape off the accumulated gold plate of recent decades.

However, if we want to tackle the issue at its roots we have to be much more active and engaged with the EU, and at a much earlier stage in the process. That means building alliances with other likeminded member states, so we speak with a louder voice and are better able to protect the interests of UK businesses.

We have had some success in winning over a growing number of Member States to the view that reducing the overall burden of EU regulation is critical for the continent’s long-term growth prospects. Italy’s recent shift in favour of deregulation is a very welcome development.

This alliance-building has started to yield real results. In November we secured from the Commission a presumption that micro-businesses will be exempt from future EU legislation, unless there are compelling reasons to the contrary. Alongside that was a commitment to examine current and forthcoming EU legislation to identify areas where SMEs could be subject to a light-touch regime.

In addition, the UK’s persistent lobbying has finally delivered an exemption for micro-businesses from EU accounting rules - benefiting around 1.2 million UK SMEs and saving small firms across the EU up to €3.5 billion each year.

And, following UK lobbying, a new impact assessment unit is to be set up within the European Parliament to quantify the costs of its amendments to legislation. This should foster greater awareness among MEPs of the cost implications of their proposals and encourage more responsible decision-making.

One of the areas where EU rules have proved most contentious is in relation to employment law. So let me make it clear that I am completely committed to fighting hard against intrusive and unnecessary burdens coming from EU that are damaging to Britain, with the working time directive as an obvious example.

We will delay and obstruct bad EU regulation using every means at our disposal.

But we can’t blame the EU for everything, convenient as that would be.

Employment law

In the field of employment law, there are undoubtedly problems that have been created in Westminster rather than Brussels, and we have been striving over the past year to unblock them in a systematic way, where the evidence is compelling.

Reading certain newspapers you could be forgiven for believing that nothing was happening or that government was rent by ideological conflict on this issue. Nonsense.

A great deal of work is taking place to reform employment law. This is all set out in the report that I’m publishing today on our Parliament-long review of employment law.

We are right to proceed carefully, because uniquely in this area, employment law affects millions of employees - themselves a huge part of the economy. Acting clumsily might have serious consequences for certainty and confidence.

Much of this work has focused on overhauling employment tribunals which, for many businesses, have proved to be bureaucratic, time-consuming and costly - even when tribunals ultimately find in their favour. The fear of a tribunal has a particularly chilling effect.

Large companies will, in most cases, have a specialist HR team which can deal with any cases that arise. Small firms do not have that luxury, so a tribunal means valuable days lost from getting on with the day job of building the business. The average tribunal claim costs £4,000 and takes 24 weeks to resolve: small wonder that some employers settle rather than contest the claim.

And large numbers of employers are finding themselves caught up in the system - over 200,000 claims a year, on latest figures. It’s time to reform and streamline the regulatory framework that governs them.

We first set out our plans to tackle the issue in the government’s formal response to the Resolving Workplace Disputes late last year. The overriding objective is to cut the number of disputes going to tribunals each year - and cut the associated costs for business.

So, from next month, the qualifying period for the right to claim unfair dismissal will double from one to two years. The legislation was debated in the House of Commons on Tuesday. This will encourage employers to recruit new staff, and allow more time for these new relationships to take root.

And we will legislate so all claimants have to submit their complaint to ACAS, ensuring the two sides have the option of resolving their differences through conciliation before they can go to a tribunal.

Even where conciliation doesn’t succeed, it should be possible in many cases to reach a settlement without a tribunal. So we are taking steps to simplify compromise agreements, which enable the parties to reach a no-fault deal in exchange for a guarantee not to bring future claims.

Inevitably, some complaints will not be resolved through negotiation, and in these cases we are looking to improve the current system. Work is underway to develop a ‘Rapid Resolution’ scheme as a quicker and cheaper process for straightforward matters, and we will consult on our proposals in due course.

There is also substantial scope for improving the bureaucratic and expensive tribunals system. I have asked Mr Justice Underhill to undertake a root-and-branch review of the rules governing employment tribunals, in order to modernise them and ensure we have a system that supports business expansion.

Finally, we have moved towards introducing fees for individuals who wish to take their employer to a tribunal, consulting on two options. They will not be a barrier to justice for those with a genuine claim. But fees will encourage potential claimants to think carefully about the validity of their case - leading to more realistic expectations for individuals and greater certainty for employers, and getting the users of the system to bear some of the costs. That consultation has closed and the Ministry of Justice is considering the responses.

Taken together, these reforms are tackling the unnecessary red tape and bureaucracy; the excessive costs; and the time wasted on lengthy employment tribunals. Our governing principle has been to do away with the perverse incentives that can dissuade responsible employers from hiring new staff, for fear of what may ensue if it doesn’t work out.

There have been some suggestions that it’s too difficult in the UK to deal with under performing employees, and that this is a barrier to effective workforce management. Small companies, which don’t have in-house legal or HR expertise, may be particularly affected. It is sometimes said that if it was made easier for small firms to fire there would be more hiring.

Nevertheless, there are obvious risks for millions of good, conscientious employees and denting job security at a time when the economy and consumer confidence remain fragile.

So we have launched a call for evidence on where the balance of the argument lies: whether dismissal might be made simpler, quicker and clearer; but without weakening the confidence and security of employees. We are also seeking views on the concept of ‘compensated no-fault dismissal’ for businesses with fewer than 10 employees. But let me stress that no decisions have been made to go down that path: we would only do so if there is strong and credible evidence to justify it.

We also need to remember, in the politically heated debates around dismissal, that on almost every measure Britain has one of the Western world’s most flexible labour markets. That is how many firms managed to get through the financial crisis and recession. And compared with France, or even Germany, our laws are very accommodating to employers. We have put out the Employers Charter to remind managers of the rights and flexibilities they enjoy.

The progress we are making on all these fronts - the Red Tape Challenge; the One In One Out regime; stemming the flow of EU legislation; overhauling the employment law framework - adds up to a co-ordinated plan of action designed to change the regulatory culture within government and seriously to cut back on red tape. The Coalition Government is working together to deliver this agenda.

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