Speech

Deregulation and economic growth: priorities for government reform

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Explains how the government is reducing regulatory burdens on business and enforcing regulation sensibly to enable UK economic growth.

The Rt Hon Sir Michael  Fallon MP

Let me summarise the actions we are taking to reduce regulatory burdens on business and to tell you about the progress we are making in meeting the Prime Minister’s objective “to be the first government in modern history to complete its term having reduced the overall burden of regulation rather than increasing it”.

We are all familiar with the idea of deregulation, but I suspect we are less used to thinking about sensible enforcement of regulation as an enabler of growth.

The broader context

We face perhaps the most challenging economic climate for a century, despite encouraging growth figures. Our priority remains returning the economy to sustainable growth.

By cutting needless red tape we can free Britain’s entrepreneurs to concentrate on what they do best: growing their business, innovating, opening markets and creating jobs, driving our economic recovery.

In tackling red tape our strategy has been to:

  • stem the flow of new regulation through the introduction of ‘One-In, One-Out’ and now the more punishing ‘One-In, Two-Out’ rule
  • tackle the existing stock through the Red Tape Challenge
  • establish an EU taskforce to identify and tackle European rules that inhibit growth
  • improve how regulation is enforced

Action on the ‘One-In, One-Out’ rule, under which any increase in the cost of regulation must be at least matched by reduction elsewhere, will have saved businesses around £1 billion in regulatory costs by this summer.

But from January 2013, I tightened the screw with the ‘One-In, Two-Out’ rule. Now departments must find £2 of saving for every £1 of extra cost imposed. It is now much harder for ministers to regulate!

We have also reviewed the existing stock of regulation through the Red Tape Challenge. Unlike previous reviews, our starting point is that regulation should go unless there is good justification for the government being involved. We have committed to scrap or improve at least 3,000 regulations that affect business through Red Tape Challenge. Over 3,500 regulations have already been identified for reform, with 650 changes implemented to date, saving businesses over £215 million per year, with many further savings not yet quantified.

And in June, the Prime Minister announced the creation of the EU Business Taskforce. The taskforce have worked with us, and businesses across Europe to identify rules and practices that inhibit growth. They published an excellent report on 15 October with concrete proposals for reform and we are pressing the EU and fellow governments to act on it and address the very serious issues identified.

Improving enforcement

But it’s not just about how much regulation there is. It’s also about how we enforce the regulation we have. For me, there are 2 crucial elements.

First, enforcement ensures that regulations are meeting their intended aims of protecting consumers, and creating a level playing field for business.

But just as vital, regulators must recognise when they’re getting in the way. When enforcement becomes heavy-handed and inefficient, it acts as a drag preventing growth and job creation.

In 2011 we consulted on enforcement - to hear first-hand, from business, regulators, consumers and others, what worked well and what does not.

You told us, broadly, 3 things. We need:

  • a more mature relationship between business and regulators
  • a more transparent system of local regulation
  • a simpler and more understandable regulatory landscape designed more around those who are regulated and protected, rather than Whitehall priorities

This outcome resulted in the launch of a series of Focus on Enforcement reviews. This initiative has taken a fresh approach. Rather than looking at the picture from Whitehall, we have looked at the totality of regulator and enforcement action as it is experienced by an individual company in a series of sectors. The picture we have uncovered shows excellent practice by some regulators, but all too often the picture has been far from pretty. Overlapping, conflicting and duplicated regulator requirements, delays, incomprehensible guidance and companies wanting to comply left frustrated and bewildered as to where to turn.

The good news however is that when we have presented to regulators the unfortunate consequences of their combined action, they have been keen to address the problems industry face.

Concordat

One good example is the way government and regulators have listened and responded to the frustrations of business in the area of coastal developments.

The Focus on Enforcement Coastal review identified that developers and others wanting to invest in projects along the English coast, were hitting major hurdles that regulators were inadvertently putting in their way.

Because they affect both land and sea, coastal developments involve multiple regulators. They need permission from the local planning authority. On top of that, a business might need to deal with the Marine Management Organisation for a marine licence, the Environment Agency for a water discharge permit, and Natural England to advise on the impact on wildlife. This could mean multiple requests for the same information so that each body could have their own environmental impact assessment done according to their own processes and timetable. We also heard about industry thinking they’d been through all the hoops, only to find that they should have spoken first to the local planners, or vice versa.

This is extremely costly for industry, and causes delays during which there is the ever present risk of investors and customers going elsewhere.

So, we urged the key government departments and regulators, along with the Special Interest Group of Coastal Authorities of the local government association, to do better – and they agreed the new Concordat launched in November 2013.

The Concordat creates:

  • a single point of entry, so that no matter where a business bumps up against the regulatory machine, you will not be told to go elsewhere, but will have the process explained to you
  • a single body will help you find your way through the system
  • a lead agency will rapidly be agreed so wherever there is the opportunity cut overlap and duplication, it will be taken - providing the same information 4 times to 4 different bodies should become a thing of the past

It is vital that this new approach is embraced and I strongly encourage all coastal authorities to adopt it whenever they have the opportunity.

And to continue the theme of making it easier to comply, businesses have also told us that they need a more transparent system of local regulation. So that is why this year, the Enterprise and Regulatory Reform Act substantially extended the Primary Authority scheme. Hundreds of thousands of businesses are now eligible to join through their trade associations or franchise groups. In doing so, we have significantly lessened the burden of regulation delivered by local authorities. To date 880 businesses are in partnerships with 112 local authorities covering over 70,000 premises.

Systemic issues: Better Enforcement Programme

In addition to evidence found in specific enforcement reviews we also found that whatever the sector examined and whichever regulator was responsible for it, a group of the same issues kept coming up. In addition to sectoral issues, we found cross cutting or systemic problems common across the piece. We found:

  • regulators failing to see businesses as stakeholders
  • regulators lacking knowledge of the businesses they regulate
  • inconsistent, disproportionate enforcement decisions
  • a lack of clear, consistent advice
  • regulators failing to consider the impact of their decisions in terms of growth
  • a lack of effective appeals processes
  • perverse incentives created by regulator fees and charges regimes

In response the government announced in the 2012 Autumn Statement a package of measures to bring about necessary reforms. The key 5 projects of the Better Enforcement Programme are:

  • introduction of a new Regulators’ Code
  • introduction of a legal ‘growth duty’ to ensure that economic growth forms a part of regulators’ decision-making
  • a new initiative: Accountability for Regulator Impact
  • a review of regulators appeals processes
  • removal of perverse financial incentives from regulators

There are so far 57 non-economic regulators in scope of the programme with a combined budget of just under £2 billion and equivalent to 25,000 employees. In the current economic climate, this is a huge resource with the power to help or hinder business.

Focus on Enforcement and the Red Tape Challenge have shown it is possible to get a clear picture of the impact on a sector of regulation and its enforcement within a few weeks and identify areas for significant improvement. These initiatives highlight the benefit of new challenge in areas which cut across multiple regulatory regimes.

Published 12 November 2013