Speech

The Changing Role of Regulation and Scrutiny in Scotland

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

The Advocate General considered Government initiatives since 2010 to tackle over-regulation in the UK.

I last addressed a similar Mackay Hannah conference in 2010, on the theme of “reforming the UK’s regulatory structures”. At that time I stressed that better regulation was a key priority, for the (then new) Coalition Government. Well-crafted regulation encourages and stimulates open, competitive markets. Bad regulation chokes innovation and stifles economic growth. We recognised then that bad regulation had become a huge problem and the new government was determined to tackle it.

Those were the early, heady days of the new Coalition – there has much been water under the bridge since then.

It is a general truth of modern government, equally applicable to the UK Government or to devolved governments in the UK, or to governments abroad, that where a problem arises there is a clamour for new regulation. This leads to a perception that there is over-regulation. As my colleague in the House of Lords, Lord Young of Graffham, noted in his report “Common Sense, Common Safety”, the perception of over-regulation can be as damaging as the actual regulation itself. Business can be stifled by the perception of a compensation culture. The widespread belief that health and safety rules are being over zealously guarded brings those rules – usually necessary and in the public interest – into disrepute.

Thus from the EU to the Scottish Government, and indeed, local government, all institutions that shape regulations must strive to operate efficient systems – and efficiency means that they minimise the cost to business of regulation.

This Government aimed to control the flow of new regulation by introducing a “One-In One-Out” system, which encouraged government departments to seek alternatives to regulation where possible, and if regulation was necessary then deregulation must be found to match the cost of new regulations. This was the first system to look at the total cost of compliance, not just the administrative burden: for every £1 of regulatory cost introduced, £1 had to be removed. By the end of December 2013, the Department for Business, Innovations and Skills (BIS) reckoned that the offsetting cost had been exceeded, with a £1.2 billion net reduction in costs to business.

That success led to a more ambitious programme: “One In-Two out. It meant that Government departments had to remove £2 of regulatory cost for every £1 introduced, and, although it was a more demanding target, it resulted in a credit of £662 million. Overall, the One-In, One-Out and One-In Two-Out initiatives will have saved billions in regulatory cost in the course of this Parliament.

Another initiative, the “Red Tape Challenge” is a cross-Whitehall programme to review the existing stock of regulation. It ran from April 2011 to April 2013, and during that period, every few weeks the regulations for a particular sector were published, and comments were invited from business and the general public. That allowed business and consumers to tell us where regulations should be removed or improved.

In the course of that two year period, in excess of 21,000 statutory rules and regulations in force in the UK today were considered, and more than 3,000 regulations identified for removal or improvement. That covered the whole field of UK (not devolved) regulation, apart from national security and tax – tax regulation is being considered as a separate matter by the Office of Tax Simplification.

It is also recognised that often the issue is not the weight or number of regulations, but how they are applied. Another initiative from BIS, announced in the 2012 Budget, “Focus on Enforcement” looked at how regulations are enforced by government and local authorities. The following year, “Business Focus on Enforcement” brought in trade associations and business groups to review how enforcement worked in their areas of business.

The Red Tape Challenge addressed the problem – which I think is acknowledged across the political spectrum – of the accretion over time of unjustified or disproportionate regulations. If unnecessary regulation is identified as a result of the Challenge, it can often be addressed by an administrative change, or by secondary legislation. However, it also became apparent that some kinds of reform need primary legislation. To this end, the Deregulation Bill was introduced early last year, and is now awaiting Royal Assent, later this week. The Bill (building on the good work of the Law Commissions in this area) is aimed at decluttering the statute book of obsolete or unhelpful regulatory legislation.

So, Schedule 21 of the Bill, for example, will simply repeal a number of 19th & 20th century statutes.

Clause 1 will exempt about 2 million self-employed people from the effects of health and safety legislation where that regulation is unnecessary to the work they are doing.

Clause 57 will remove criminal sanctions aimed at people who make mistakes with their household waste collection – it is thought that in these cases civil penalties are more appropriate.

Another provision, clause 75, will ensure that community film clubs will no longer need a licence to exhibit films.

The Bill is not, I should stress, some sort of wholesale overhaul of regulation. It is not quite a regulatory bonfire. Regulation has its place. What sort of safety record would, for example, the building and construction industry or our agricultural industry have without regulation? It protects responsible employers from unfair competition from careless and irresponsible rivals. Regulation can be, properly and fairly applied, a driver for economic growth. Free markets are free in large measure because they are regulated to ensure fairness.

But it isn’t enough to reform or improve national regulation. Tackling the cost of regulation also means tackling it at EU level. It has been suggested that about half of costly regulation in EU member states originates from EU institutions rather than national governments. The EU also recognises this issue and is making progress on it – Vice President Timmermans is conducting a better regulation review, about tackling EU red tape, and we can expect to hear its findings soon. As Vice President, Frans Timmermans sports an impressive array of titles – fit perhaps for a character from a Gilbert and Sullivan operetta – and one of them denotes his responsibility for “Better Regulation”. He brings some refreshing Dutch common sense and rigour to his job, and he offers a change of culture in an organisation which in his words (as quoted in a recent edition of The Economist), “has for generations believed that its purpose it to create legislation.” As an example, he has quoted an attempt (failed, I understand) by EU officials to regulate the use of olive oil jugs in restaurants.

So, the risk of over-regulation is not confined to central or devolved government, but neither is concern about it, and there is a determination to address this issue at a high level in the European Union.

There is also sometimes a perception that not only are we over-regulated by the European Union, but that regulation is being over-implemented. Many of us have heard the complaint over the years that directives and regulations are being implemented in the UK with a rigour that it is absent elsewhere in the UK. This view – sometimes called “gold plating” – is often based on anecdotal evidence which can’t be substantiated on closer examination. Those of you who are interested in this issue might wish to read the Report carried out by my predecessor as Advocate General, Lord Davidson of Glen Clova in 2006.

On “gold plating” we also need to bear in mind that just carrying out the minimum degree of implementation or simply “writing out” an EU Directive into our legal system, may be superficially attractive. But is it helpful to the end user? If EU law is to be expressed in our legal system in clear and helpful terms, that sometimes requires elaboration. To avoid doubt about what a regulation means (and to avoid disputes and litigation) it is sometimes necessary and desirable to expand on the source. Brevity may be the soul of wit, but it does not necessarily produce good law.

I recall discussing with Lord Davidson his report when, as a member of the Scottish Parliament, I acted as Reporter on an inquiry in to the transposition of EU directives in Scotland. We took evidence from many business and community organisations. Some were keen to challenge the conventional view on “gold plating”. I recall the Royal Society for the Protection of Birds saying

“Many complaints about ‘gold plating’ are often disguised attempts to undermine the original purpose of the Directive, or to seek an exception for a particular industry or geographic area (ie a competitive advantage from uneven implementation).”

The European Commission expressed a similarly skeptical view when they said:

“We are looking to make industry more competitive and to challenge the extent, scope and detail of regulation and the cost that it produces. We invite interested parties and businesses to tell us about the gold plating of which has been much informal discussion in corridors but of which…there is less concrete evidence.”

However, at that stage in 2005 to 2006, the EU Commission had already recognised the issue of overregulation and was preparing to set a target for reducing administrative burdens.

The think tank “Open Europe” reported recently that the burden of the most costly EU regulations – the top 100 regulations – was £33 billion to the UK economy. I make not comment on that, or the question of what benefits we receive to balance against that cost, but I note that Open Europe recognised that here is no regulation-free nirvana outside the union. If we wish the EU to have a leaner regulatory regime, I firmly believe that we have to be a member of the club. Only reforms within Europe, with Britain at the heart of those reforms, can reduce the cost of EU regulation.

What is sometimes called “the Norway option” or, perhaps more colourfully, “Britzerland”, means in reality being subject to EU rules but having no influence over them. The standards which we have agreed with our trading partners in Europe for goods and services would apply to any business or manufacturer in the UK who wanted access to European consumers, and perhaps even to other markets around the world. It may be that Norway and Switzerland judge that, even within the EU, they would have limited influence over EU law, but we in the UK do not have that excuse.

My former colleague, as Attorney General, Dominic Grieve, addressed this point in a lecture last week (“The Palliser Lecture 2015”) - many of you many have seen reports of this speech in the newspapers. Dominic noted widespread dissatisfaction with some aspects of the EU, with a desire by some for a British exit (or “Brexit”). Those who argued this position were, he said, confident that the UK would be able to negotiate a free trade agreement with the EU and consequently have access to the single market because it would be in the rest of the EU’s interest to do so. (As an aside – those who recently advocated a Scottish exit from the UK were equally bold in telling the rest of the UK what their best interests would be). But even those who thought this free trade agreement was likely, would have to accept that the UK would remain bound by the same rules of the single market which apply today, but without, like Norway, the power to influence those rules. He continued:

“The ease with which this argument is made today is strange given that influence was precisely one of the reasons why we joined the EEC. In 1971, the EEC’s legal enactments already amounted to some 13,000 typewritten pages of text. Sir Con O’Neill who headed the British delegation in those negotiations said “many of those laws were objectionable. But they had to be accepted, for the larger purpose. If Britain had been there, we would have never allowed a situation to develop which made it so difficult…” This dilemma will return because even if we leave the EU we cannot leave Europe.

As my colleague Owen Paterson has also stated, the requirements of any free trade agreement would make British removal from the clauses dealing with Freedom of Movement impossible, with the curious consequence that the single biggest cause of domestic irritation with the EU, immigration, would remain unaltered….”

Similar considerations can be said to arise in the relationship between Scotland and the rest of the UK. Those of us who argued, successfully, last year, for remaining in union with our neighbours in England, Wales and Northern Ireland, pointed out consistently that devolution was a product of that union and depended upon it. A system of government whereby we have decision making powers in Scotland, while continuing to have a say in decisions for the whole UK, depends upon our continued constitutional relationship with the union.

It is the view of this Coalition Government, and of my party, that, following that decisive vote on 18 September last year, the United Kingdom should now come together and move forward. That aim can only be achieved if we build a balanced constitutional settlement – one that is fair to all parts of the UK. The devolution settlements for Scotland, Wales and Northern Ireland, and, in time, for England, need to be fair to, and meet the needs of, the people of all those nations. That fairness and balance is more important than ensuring that each settlement is identical.

The referendum vote kicked off a timetable for constitutional reform, which is continuing and has, so far, been achieved. There was a command paper with devolution proposals in October, then Lord Smith’s proposals, published in November. In January, the Government translated those proposals into draft clauses for a new Scotland Bill – delivering on a commitment to produce draft clauses by Burns Night.

This has not been a Scotland-only process. For Wales, for example, proposals for an enhanced devolution process were promised in time for St David’s day – another target achieved. The Government has also published a command paper on the implications of devolution for England.

But for Scotland, this was an historic agreement – the first time a settlement for devolved government has been agreed by all the five major parties, representing nearly every voter in Scotland. We now have a period of engagement, when the draft clauses are being scrutinised by committees in the UK Parliament and by the Scottish Government and civic organisations in Scotland.

So, yes, it has been a very fast process – faster than we might normally expect for a constitutional development. But we must remember that it followed a period of two or three years of intense debate. And, after that debate, Lord Smith himself talked with people all across Scotland, and he considered contributions from organisations and communities throughout Scotland. His Commission published more than 400 submissions – from businesses, charities, political groups – all sorts of civic organisation. In excess of 18,000 emails were received from members of the public.

The powers that the Scottish Parliament will gain after the next general election – whoever forms the government – are substantial. The powers on income tax will build on those in the Scotland Act 2012, the result of which will be see the Scottish Government set its own Scottish rate of income tax from April 2016.

Half of all the Value Added Tax collected in Scotland will be assigned to the Scottish Government. Air Passenger Duty will be devolved.

The Scottish Parliament will be able to pass legislation on employment programmes, so that it can work with Scottish business and Scottish local authorities to provide jobs, and to address the problem of long-term unemployment.

In short, most of the money spent by the Scottish Government will be raised in Scotland. And with new tax powers will come new additional powers to borrow – recommended by the Smith Commission to allow the Scottish Government to ensure budgetary stability and manage economic shocks. These powers would be managed within the overall UK fiscal framework.

Substantial elements of the welfare system will be devolved, but again within the UK overall welfare framework (and safety net).

The Bill which follows from Smith will also include recognition that the Scottish Parliament is intended to be a permanent fixture in the UK’s constitution. Already, the UK Government has taken steps to devolving the power to extend the franchise to 16 and 17 year olds, so that the Scottish Parliament can pass legislation – if it wishes – in time for the 2016 election.

Your specific interest in this process is of course, regulation.

Much regulation, including Health and Safety, is of course reserved to the UK Government, and that ensures a level playing field for the single market within the UK economy.

Indeed, there was recognition by the Commission that in some areas the UK single market requires common regulation across the UK. And a similar conclusion was reached by the Calman Commission in 2009, which reported that

“The Commission does not recommend changes to the reservation of company law, competition policy, financial services regulation and consumer protection, which it considers are vital safeguards for the single market and wider economic union.”

What the Smith Commission, and the UK Government’s own Command Paper, add to this position is the recognition that in an area of reserved responsibility, there is still a role for the Scottish Parliament and Scottish Government. So, to take one example, the communications regulator, Ofcom is responsible for generally reserved matters such as telecoms, TV, radio etc. The interest of the Scottish Administration will be recognised by establishing a formal consultative role for the Parliament and Government; and the Scottish Ministers will have the power to appoint a member of Ofcom to represent Scotland.

It is worth recalling that the point of devolution is not only about devising Scottish solutions for Scottish problems, it is also about enhancing democratic accountability. Thus when a power is devolved to the Scottish Parliament, it might well result in a regulatory system which is not unlike that in the rest of the UK – the point being that a choice has been made, made at a devolved level, to support a framework which provides certainty for business on either side of the border. Also, there can be an enhancement of accountability without legislative devolution. But devolution does mean that there must be a greater degree of co-operation between governments to minimise the administrative burden on business.

The idea of collaboration between UK and Scottish Governments is where we should see developments in the months and year to come. The Smith Commission identified a number of areas where consideration should be given to co-operation, mostly regulatory in nature, including: country-of-origin food labelling; food levies; student visas; Jobcentre Plus; medicine and veterinary medicine; poisons; and health & safety. At present, therefore, health and safety is under review – the outcomes for health and safety for Scotland which both Scotland’s governments wish to see, can be achieved together within the reserved legislative framework.

Not only does further devolution follow, as I said earlier a long period of debate, but it is in line with the trend of Government policy for the last five years. This Government is rightly proud of its record on decentralisation.

And it is worth remembering that the principle of decentralisation of power does not just apply to Scotland, Wales and Northern Ireland. In England, this Government has given local authorities more control over their own finances, via the Business Rates Retention Scheme. And, across 38 Local Enterprise Partnerships, Growth Hubs have been created, with help from the private sector to set strategic direction.

Also, in England the government is creating a “Northern Powerhouse” for the great cities of the north of England. In November, the government announced the creation of the Greater Manchester Devolution Deal, followed shortly after by the Sheffield City Devolution Deal.

But the initiative which possibly has greatest resonance for Scotland is the “City Deal” – each one tailor-made for the individual city.

The underlying belief is that if power is transferred to cities it will be easier for them to achieve economic growth. The aim is create innovative cities, able to shape their own economic destinies, with their own local leadership looking to its own businesses and communities for solutions, rather than central government.

The City Deals initiative is UK-wide, now extending to more than 20 cities. As you may have seen in last week’s Budget, we are now committed to opening negotiations with local authorities and the Scottish Government on City Deals for Aberdeen and Inverness with the aim of enhancing their status as energy capital and Highland capital respectively. This follows an ambitious £1.3 billion City Deal for Glasgow and the Clyde Valley.

The final details of the Deals for Scottish cities are still being worked out. It is, for example, the first time that the UK and Scottish Governments have worked together on a project of this kind, and we also have to take into account the different structures of local authorities in Scotland and England.

The Government is open to discussions from areas or cities who are interested in greater devolution of power. So what I would anticipate for the future is the increasing use of bespoke devolution arrangements for different parts of the UK, depending upon the needs of each area.

I said earlier that all this constitutional change was not an overnight development. Scotland’s constitutional future, after all has been debated for over a century, albeit with some considerable intensity in recent years. In fact, we should sometimes step back a bit and allow ourselves some historic perspective.

In 1912, the Liberal PM, Herbert Asquith said in the House of Commons “This country starts from a congested centre, which needs, if it is to do efficiently, that which is common to the whole, to be relieved of everything else, and to delegate local interests to local management.”

How far-sighted. And come to think of it, not a bad template for better regulation and more effective accountability and scrutiny.

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