---

Mr. Redwood: Surely all one needs for an effective single market is the Cassis de Dijon judgment, which states that if a product is of merchandisable quality in one country, it should be deemed to be of merchandisable quality in another. One does not need to set out how to make a tyre, steering wheel or windscreen in regulation.

Malcolm Bruce: That is a nice, neat hope and belief, but the right hon. Gentleman knows perfectly well that all negotiations on the single market are designed to ensure a fair and level playing field. This is not the time or place to debate whether Britain should be in or out of the single market and what effect that might have. All I am saying is that as long as regulations in the single market affect businesses in the United Kingdom, an early, proactive intervention to help shape regulations and to argue the British case is far better than leaving an empty chair. The Conservative Government were not present to argue the case, and the UK had to accept the outcome at the end of the day. That policy did not serve the national interest then, and it will not serve it in the future.

It would perhaps be better if all hon. Members acknowledged that regulation and deregulation are complex issues, and that none of us has the complete right answer. It is unreasonable to pretend that we can sweep away a load of regulations with no downside effects.

At the same time, we should never be complacent. We need to find mechanisms to get rid of unnecessary regulations, to make regulations that are justified and renewed through sunset clauses, and to play a proactive role in reducing and simplifying regulations as much as possible. I maintain that a smaller Department for deregulation instead of a large Department for dreaming up new regulations would be in the better interests of British business.

6.15 pm

Mr. Archie Norman (Tunbridge Wells) (Con): I draw the House's attention to my declaration in the Register of Members' Interests.
 
30 Jun 2004 : Column 389
 

In the 25 years of my business career and my 18 years serving on the boards of major British companies, I do not think that there has been a single year in which the burden of regulation has lessened. Throughout that period, business has complained about the growing problem of regulation. Lucy Neville-Rolfe of Tesco has said that the burden of regulation has increased every year since Gladstone, and I suspect that she is right. It is equally true that business men and the enterprise community will always complain about Government and regulation—that is as natural as farmers complaining about the weather. I agree with the hon. Member for Gordon (Malcolm Bruce) that this is a complex subject that is not easily resolved by simple banalities or through a deregulation committee or even a better regulation taskforce, but what is new about today's situation is the volume of regulation, the way in which it is enforced and the context in which business operates.

First, there can be little doubt that there has been an acceleration in business-affecting and employment-affecting regulation over the past seven years. That is not merely a political debating point: it is a fact. It is a matter of counting regulations and assessing the Government's own regulatory impact assessments, which I shall discuss later. It is also a function of Europe and, in this country, of the development of a claims culture and changes in the legal system. Consequently, regulation that is designed to be light-touch and to have a benign effect often has a much more pernicious effect on the workings of business.

Secondly, there has been a major change in the competitive environment in which British business operates. We now operate in a far more global market in which the regulatory effects and burdens on businesses in Korea, Singapore and Thailand have a significant effect on the profitability and investment prospects of British business. We need to face the fact that nice-to-have legislation may result in fewer jobs and a lower quality of life for our own people.

Thirdly, the business culture of this country has changed. The days when people went to work just to earn a daily crust, when it was the priority to protect employees from poor employers, and when there were widespread problems of bad employment have largely been eroded, although not entirely. Of course, to be competitive in today's British business world, management and employers have to provide a better-quality working life for their employees, because that is part of the way in which companies compete. The whole nature of business regulation therefore needs to adapt to reflect that context by rewarding and encouraging the successful, not trying to hold the best companies back in the interests of mitigating the downside effects of a few poorly managed ones.

Regulation is a chronic problem that is in the political system, and unless solutions are designed to be systemic they will not succeed. The regulation of business is driven by the popular tide—it is the popular thing to do. Ministers are unlikely to be promoted for doing nothing. They are unlikely to be promoted for introducing deregulatory orders, but are likely to be promoted for getting new legislation on to the statute book. Legislation is tangible, but costs are diffuse; nevertheless, they are borne by British business over time. It is hard to withstand the pressures of the popular
 
30 Jun 2004 : Column 390
 
media for new legislation, even though the long-term effect on the economy, and therefore on business, can be detrimental. It does not matter whether the legislation deals with maternity rights, minimum pay or pensions. All such legislation is understandable, and often benign, but the cumulative impact is death by a thousand cuts.

The House is not divided by the recognition that regulation has been and is a problem. Indeed, the Chancellor of the Exchequer has been forceful in identifying the burden from which British business suffers in inspection and the overlap of enforcement regimes. He is committed to a sector-by-sector review. The House is divided on understanding that the problem cannot be solved by rhetoric or good intentions but lies deep in the political system; resolving it is fundamental to the competitiveness of the British economy.

The problem is becoming acute. Of course, some of the cost of regulation is unquantifiable, but the Government measure most of it. The Minister for Small Business and Enterprise claimed that the British Chambers of Commerce calculation of £30 billion of cumulative extra cost was invalid. He may want to deal with that in more detail when he replies, because he knows that the BCC calculation is none other than the simple addition of Ministers' assessments of those costs through regulatory impact assessments.

It is fair to say that the cost is cumulative and not annual, but it is equally fair to point out that it is a gross cost, which does not take benefits into account. It does not do that because, in 75 per cent. of cases, Ministers could not be bothered to quantify them. It is therefore hard to do that, but costs of £30 billion add up to a substantial reduction in the profitability of British business and in investment. That also means a substantial reduction in profit and therefore in corporation tax revenue for the Government—probably some £8 billion that could be spent on employing new health and safety inspectors or, even better, on schools, hospitals and public services. The effect on profitability, business and the public sector is tangible.

Mr. Redwood: Does my hon. Friend agree that if, with good intentions, Britain and/or the EU imposes much higher environmental standards on our business, we could end up with the opposite of the desired effect when the business closes in Britain because the costs are too high and transfers to somewhere with practically no environmental standards? We thus lose the jobs and get more environmental degradation.

Mr. Norman: My right hon. Friend makes a profound point. We operate in a global market and there is no point in exporting quality jobs that become low-quality jobs elsewhere in the world.

It should not be a matter of debate between us whether regulations have increased under the Government. There have been 23,322 new regulations. A substantial proportion of them have come from Europe, but the figure represents an increase of 53 per cent. on the number of regulations that the previous Government introduced. That constitutes acceleration and a chronic problem, which needs to be tackled. The Minister for Industry and the Regions prayed in aid the Organisation for Economic Co-operation and Development. However, the same report that she cited stated that flexibility in the UK had been steadily eroded by ever-increasing regulation.
 
30 Jun 2004 : Column 391
 

We are worried not only about the additional costs that regulations entail but about their long-term impact on the effectiveness of British business and our competitiveness in world markets. The Minister for Small Business and Enterprise has some weeks of experience of the business community and he knows that regulation also reinforces the power of big business. The small shopkeeper cannot afford the cost of regulation.

When I was chief executive of one of the largest supermarket chains in UK, we could employ a department of bureaucrats to handle any new regulation—whether it was new labelling or new food safety standards, we could handle it—but the individual shopkeeper could not compete. Regulation reinforces the power of the large enterprise at the expense of the small; it creates a barrier to entry.

The lobbying culture and the need for businesses to protect themselves against Brussels and the Government also reinforce the power of the large enterprise. British Telecom can afford to employ a regulatory department of more than 100 people to work with Ofcom, which in turn employs 800 expensive people to try to administer sector regulation. That opportunity is simply not available to the small technology company endeavouring to compete.

Secondly, the effect of regulation is to reduce our effectiveness in the growth of new industries. Although we are seeing a better performance in the British economy today than in some of our European competitors, we are not seeing comparative success against the far east or the United States in the new industries such as information technology and biotechnology. The test of whether we are developing a future capability is in our competitiveness in those industries.

---