Speech

International Regulatory Reform Conference: closing remarks

Conference conclusion by Chairman Michael Gibbons OBE, stressing “If it is not necessary to regulate, it is necessary not to regulate.”

Ladies and gentlemen,

It is a pleasure and privilege to be invited to speak and I do thank the organisers for doing so.

First of all let me say how useful and interesting this conference has been once again; if not the Davos of the regulatory world, it is certainly a very good conference. We have experienced a series of pertinent papers and discussions which have provoked our thinking and action on many important topics. The experts and attendees at this conference are those at the forefront of their fields and ultimately make the conference the valuable occasion it is. So I think it is important that we thank the new sponsors and organisers, and in particular the German government, along with the Bertelsmann Foundation, the OECD and others, for their commitment and resources in keeping this conference alive, maintaining the standard of debate, and attracting such expertise.

From the observation that we have many of the leading practitioners here, it follows that in offering some closing remarks I shall stay close to my own area of expertise, as chair of the independent Regulatory Policy Committee (RPC), ie as part of the regulatory process and reform in the UK, though I hasten to add the thoughts that follow are my own.

I begin with a recent rather depressing experience. As you have observed I had a new hip installed 3 weeks ago. As a result I have had some frustrating time available at home and used it to sort out many old files including those relating to regulatory reform in the UK and across the EU. I have to say this was a disconcerting experience. Not, of course, because this experience demonstrated that major regulatory reform was a repeated, indeed annual and fairly top priority policy objective for the UK and EU; not because much has been achieved, and it has, but because so many of these recommendations, visions and initiatives still remain to be achieved, or at least fully achieved, and that the view from outside this room, especially the business view, remains that so much is still to be done.

Here are just a few examples of issues raised over the last 10 years or so:

OECD, 1997 ‘Many governments have no idea how much they are spending on regulations’
EPC 2004 Establish an independent Regulatory Audit Bureau to oversee the Better Regulation processes in all EU institutions. Preliminary impact analysis for each EC proposal.
Inter-institutional agreement on Better Lawmaking 2003 Increased use of consistent IA practices. Simplification of EU legislation and reduction in its volume.
6 Presidency initiative, 2004 The Council should review annually how the admin burden of EU regulation has changed. The Council and EP should make systematic use of EC IAs, as agreed within Competitiveness Council.
Romano Prodi, 2002 EU institutions should step up their commitment to simplify regulations in order to reduce the cost of doing business in EU.
Finnish presidency, 2006 Highlights lack of progress on the council carrying out IAs on substantive amendments

In summary

These examples – and others – refer to the need for better IA processes for new regulations across the EU institutions, more simplification, reduction in burdens, and indeed greater use of independent scrutiny – and they go back to various presidency initiatives and inter-institutional agreements over 10 years and more.

These issues remain on our agenda today.

So I felt I should pick up some of these longstanding issues and indicate where I think there has been reasonable progress in the UK, and why. And I hope that such insights may prove not a long way from being interesting for you.

Let us begin with Impact Assessments, certainly one of the key indicators of good regulatory process. I think most, if not everybody here would agree that if a new regulatory measure is to be proposed, the policy maker (like a business man requiring a business case) should be obliged to prepare an IA, ie set out the case for proceeding, in particular setting out what is the problem, what are the options for resolving it – including non regulatory options – and an estimation of the costs and benefits – economic, social and environmental - of each credible option. I would have thought that most countries represented here do that, and certainly that is the case at the EU level.

The challenge is how to make the most use of this discipline, to ensure that it is done to a high standard, to avoid an obsession with process and box ticking, to develop the estimates of costs and benefits that are the best available, and above all that the political decision makers are better equipped to take decisions on the basis of such evidence.

In the UK, from 2010, the then incoming government decided not only to ensure that an IA was produced for new regulations, both at consultation and final stage, but that it should in each case be scrutinised by an independent body, the RPC. The effect of that became very clear – from that decision to the present day the quality of UK IAs has increased from 56% Fit for Purpose in 2010, to 75% in 2011, to 81% in 2012. But the government did not leave it there. Government agreed that RPC Opinions should be published, and also that it did not expect to be asked to proceed with a regulation unless a positive independent RPC Opinion was in place. All these factors caused IA quality, and I trust policy-making quality to increase.

I want to highlight one aspect of this that I feel important, which is that in the UK a consultation stage IA is produced – and scrutinised by the RPC – and the IA therefore forms part of the consultation itself. It enables any consultee and certainly affected businesses to comment on the analysis and, critically, on the costs and benefits of the proposed measure. This opportunity and practise is much valued by UK businesses and it can only increase the quality of the IA and the decision making. I noted a lot of support for this approach in last year’s EU smart regulation consultation. And I noted Malcolm Harbour’s support yesterday evening for earlier engagement with IAs – in a two-phase process. I also felt I should briefly outline what I believe are the main reasons for independent scrutiny and evaluation of the IAs.

It is usually assumed that within policy making bodies, there is some potential bias toward regulation - whether because of the pressure, albeit often from minorities, to regulate, or from their involvement in or proximity to the regulatory process, or from a certain risk adversity in public policy making. We all know that while we have seen politicians grilled in the media about what they are doing, no aggressive journalist has ever challenged a minister to say why he is not doing less.

It enables external individuals, including those with direct experience of being regulated, or of business, to offer their expertise in assessing the analysis.

It is difficult to imagine officials working for government, being prepared at all times and on all subjects to be as robustly critical of their colleagues, if necessary in public, as independents.

Such is the typical relationship between governments and stakeholders that there is scepticism, to say the least, that government analysis is credible on the basis simply that government says it is.

It is for these reasons I can imagine that other member states could follow the Dutch, German, Swedish, Czech and British examples and create an independent regulatory watchdog.

At the EU level the commission has set up an in-house scrutiny body which goes some way toward the independent model, but could go further. The European Parliament is now scrutinising EC IAs and has begun work on its own proposed amendments – I can only imagine that the council will also wish and need to join the scrutiny club. And on this issue I leave you with the thought that when all that is happening it would make sense, wouldn’t it, for there to be a single, independent IA scrutiny body serving all EU institutions?

Ladies and gentlemen, in the opening session of this conference the moderator made mention of the statement in the High Level ‘Stoiber’) Group best practice report to the effect that there is nothing so annoying as a good example, and I am about to demonstrate how true that is. I want to take the example of a major regulatory innovation in the UK, which I am sorry to find often attracts resistance. But it is a very innovative example, and it does offer some learning, so I shall describe it.

I talk of course about, and no commentary on the UK experience of regulatory reform could possibly exclude reference to the ‘One In, One Out’ (OIOO) policy introduced by the government just over 2 years ago. My role as an independent is more to describe it than to promote it, albeit that the RPC has a unique insight into its development, and to invite you to form your own conclusions. First, to be absolutely clear, this is not merely a simplistic policy to remove the same number of existing measures,, whatever their burden, or indeed whether they are still relevant, ‘dead wood’ or trivial, as those which it is proposed to introduce. Simply counting the numbers of new and disappearing regulations would be largely meaningless. So for the avoidance of doubt, the UK OIOO policy requires each regulation introduced and removed, an IN and OUT respectively, to be expressed in terms of the estimated annual net cost to business and/or civil society organisations – this is about cost equivalence – and for those costs estimates to be verified (or not) by an independent body.

The policy background is interesting. The prime minister announced that his government should be the first in history to finish its term with the burden of regulation lower at the end then at the beginning. Accordingly, the OIOO policy to deliver this commitment requires that each IN should be at least balanced/offset by OUTs of equivalent cost. So what has happened? Two years on, not only was the aggregate costing of the INs fully covered by the aggregate net benefits of OUTs, but the outcome is an excess of OUTs – at £850 million pa or ca 1 billion Euros pa or thereabouts. As a result the government was motivated to change the policy from ‘One In, One Out’ to ‘One In, Two Out’ (OITO), ie for each £1 of net cost to be imposed on business in future, £2 of net benefit must be made available. This policy of OITO is now in place from the beginning of 2013, ie we are 1 month into it.

It is worth emphasising that the quantification of costs/benefits which are scored in OIOO/OITO must in every single case be scrutinised and validated by the independent RPC. This gives it credibility – stakeholders are wholly unlikely to accept the numbers promoted by government officials sponsoring the changes. Indeed, we have measured the effect of RPC scrutiny to date and it has been to increase the claimed INs and reduce the claimed OUTs by hundreds of millions of pounds per annum (representing a major reduction in the government’s capacity to bring in new regulation).

The background to the policy also has much to do with the fact that at this time, what all our economies badly need, right across the EU and beyond is growth. There is no disagreement that policy makers should stimulate economic growth. For many it follows that across the EU it should be a priority to reduce the overall EU regulation burden, wherever possible. The aim is to cut down the unnecessary costs to business and civil society organisations, and thereby give them more resources and thus a greater opportunity to invest in growth at this time when there is little money from government or elsewhere available to stimulate growth directly.

The British view that it should be a priority to reduce the overall EU regulatory burden has to be viewed very much in the context of enabling growth in the economy. And unnecessary red tape also affects the public sector – potentially taking nurses off wards, teachers from classrooms, police officers from tackling crime, and so on.

It seems to me regardless of your views on the need for deregulation, (Malcolm Harbour mentioned the d-word yesterday and survived!), and whatever your views of the specific methodology the UK has used to cost its INs and OUTs, there are a number of features of this policy that should be emphasised, particularly the following:

First and foremost, it seems clear that the policy is working. Effectively for the first time, departments of state are themselves bringing forward proposals for deregulation insignificant numbers. Before OIOO I do not recall any deregulatory measures being brought before the RPC – now each year scores of measures releasing hundreds of millions of pounds are being proposed.

Second, the flow of new regulation - the INs - has slowed a great deal.

Third, various business organisations have said they support the OIOO policy and many have said they are beginning to notice a difference. I am not sure that businesses are ever going to express pleasure in these circumstances, but a colleague suggested that there is perhaps a level of optimal dissatisfaction!

It would appear that OIOO/OITO has been much more effective in achieving its objectives than a lot of previous initiatives, bonfires of red tape, old simplification programmes, red tape reduction competitions burden reduction exercises etc, that I read about in my study after my surgery, so many of which seem to fall well short of what they intended.

I understand the difficulty and challenge of reducing the burden from existing regulation:

  • there will be resistance from those who fear the change and do not gain
  • businesses often get used to regulation and have less enthusiasm for further change, or don’t believe it will happen
  • parliamentary time constraints can be difficult

So why has OIOO been more successful?

Well, my experience, as a businessman, is that measurable, quantified targets enable good management. You can manage what you can measure. If you can measure it, you can manage it.

But OIOO has something more going for it. I think a critical key to this is that OIOO (and OITO) provides real incentives to officials/ministers, both to bring forward proactively deregulatory measures, and to resist unnecessary new regulation. We are talking about real culture change here.

The OIOO policy combined with the UK’s so-called Red Tape Challenge (RTC) – in which businesses and others have been invited, sector by sector, to propose regulations for scrapping or reduction has been useful and effective. There have been 30,000 comments on the RTC website. So far (it is ongoing) 4,700 regulations have been highlighted, and it has been announced that there will be action on 2,500. 231 have been implemented to date, saving over £155 million pa, which will typically qualify as OUTs for OIOO purposes. Which is why I said OIOO and the RTC have been mutually reinforcing.

And the theme is very much that the costs removed have been unnecessary costs. I am unaware of any substantive view that important protections have been lost.

And by the way, the introduction of the OIOO system did not need the passage of UK legislation, there is no clunky bureaucracy associated with it, and of course the policy and the costing methodology can be modified flexibly, as they have been.

My conclusion is that whether or not you take a view on having a balance between regulation and deregulation of 1:1 or 1:2, or indeed 2 in : 1 out, and whether or not you favour the particular sort of OIOO costing methodology used by the UK, or whether you just think that some kind of measurement of regulation flow would be a useful discipline, this approach to regulatory management has been shown to have very significant effects, and such offsetting processes should be commended to this audience, and beyond.

Indeed, I note that the European parliament approved a report in September recommending regulatory offsetting; I further note that we heard this morning of strong French support for this theme; I understand the Polish prime minister has spoken positively of the idea; and when the High Level Group (‘Stoiber’) Group was in Portugal, the Portuguese expressed interest in the UK OIOO policy; and most importantly I understand the Canadians are also already operating this kind of policy. Is this an idea whose time has come?

In closing, I should note that EU regulations are currently out of scope of UK OIOO, but the UK government decided from December that the RPC scrutinised net costs to business of EU regulation would be published, measure by measure, in the regular statements made by government of new regulations. Similarly many of us would like to see the European Commission publish the estimated total costs to business across the EU of measures in its annual work programme.

In summary, it has been my pleasure to have drawn your attention to my conclusions on the:

  • importance of Impact Assessments
  • role of independent scrutiny
  • usefulness of consultation stage Impact Assessments
  • operation of OIOO/OITO, but essentially regulatory budgeting

I leave you with the thought, with credit to the author, ‘If it is not necessary to regulate, it is necessary not to regulate.’