The Minister for Employment Relations and Postal Affairs (Mr. Pat McFadden): I beg to move,

The Chairman: With this it will be convenient to consider the Draft Legislative and Regulatory Reform (Regulatory Functions) Order 2007.

Mr. McFadden: It is a pleasure to debate these orders under your watchful eye, Mr. Amess. It is a particular pleasure for me to debate these two complementary instruments, which were laid before Parliament on 15 October, because in my past I had some association with the Legislative and Regulatory Reform Act 2006 that partly gave rise to them. At the time, I did not realise that I would meet them again in a later life, but here we are.

The purpose of these instruments is to deliver the Government’s commitment to promote effective, risk-based enforcement. That will make a real difference on the ground to those who are regulated, without compromising the UK’s regulatory outcomes. That is the first point that I want to make about the order and the code, and it is important to stress that that is the outcome we seek. We cannot, and should not, live in a risk-free society. Indeed, we would not want to, for some element of risk is part of daily life, and it is certainly part of a successful, enterprising and dynamic economy. At the same time people want effective regulation which, for example, ensures that they are safe at work and gives them appropriate environmental and consumer protection.

The code and the order seek to ensure that regulators act in a manner that achieves optimal outcomes, that they focus their efforts where they are most needed, and perhaps do less of the routine work—the box ticking—that has sometimes been a feature of regulation in the past. The aim is not to choose between the optimum outcome and burdens on business but to achieve the best outcome in the most efficient way and not to water down that outcome.

The draft code gives effect to the recommendations in the Philip Hampton report, “Reducing administrative burdens: effective inspection and enforcement”, while the draft order specifies the regulatory functions to which the code and the Better Regulation Commission’s five principles of good regulation apply. Those principles require that regulatory activities should be carried out in a way that is transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed. The Government accepted the recommendations of the two reviews and introduced the Legislative and Regulatory Reform Act to implement them.

The draft code is made under section 22 of that Act, while the draft order is made under section 24. Section 22 enables a Minister to issue a code of practice relating to the exercise of regulatory functions, and requires any person exercising a specified function to have regard to the code in exercising the function. Section 24 allows a Minister to specify by order the functions to which the code and the five principles in section 21 apply. When the House debated the Act, hon. Members warmly welcomed both the Hampton principles and the principles of good regulation. They supported, too, part 2 of the Act, which gives effect to both sets of principles. As I said, I was responsible for taking the Act through some of its parliamentary stages and while some measures were controversial in some parts of the House and in the other place, I think I am right in saying that that was less so with part 2, which has given rise to the order and code.

Much has been achieved by regulators since the Government launched a radical and far-reaching agenda for better regulation. For instance, since the publication of the Hampton report, the Environment Agency’s risk-based assessments have enabled it to identify more cases that require inspection, thus leading to a 20 per cent. reduction in the total number of inspections, while, at the same time, focusing its efforts where they are needed and can have the most impact. That can only be good for those whom regulation protects, such as consumers and those with a keen interest in the environment, as well as for honest and hard-working businesses, as it has resulted in lower compliance costs. If carried through, that approach would allow regulators to be more efficient and effective in their work. We recognise that we need to do more and promote a lasting change in regulatory culture, embedding the risk-based approach to enforcement among all regulators. That will deliver further significant benefits to business through better-focused inspection activity, increased use of advice for business, reductions in form-filling requirements, and more consistent penalties.

I stress that we do not want to achieve those benefits at the expense of regulatory outcomes, because a risk-based, targeted and proportionate approach to enforcement enables regulators to direct resources, which are inevitably limited, to the areas of greatest need, while reducing burdens on lower-risk, honest and compliant businesses. Finally, I should like to emphasise the extent and depth of consultation with interested parties on the draft instruments. The instruments have been intensively discussed and debated since March 2007. For a period of over six months, officials proactively engaged with different stakeholders to ensure that the draft instruments do the job we want them to. As a consequence of those consultations, changes were made to the instruments to reflect, as far as possible, the views expressed by stakeholders. I therefore hope that I am right in saying that the instruments enjoy broad support among key stakeholders and will help us to carry forward a better regulation agenda, which I am sure enjoys wide support on both sides of the Committee.

Mr. Jonathan Djanogly (Huntingdon) (Con): The statutory instrument and the associated code relate to part 2 of the Legislative and Regulatory Reform Act 2006. As set out in the explanatory notes, part 2 contains provisions that are intended to promote more effective inspection and enforcement by regulators and to ensure that they exercise their functions in a way that is consistent, coherent and proportionate, without compromising regulatory standards or outcomes. To achieve that, the Act establishes statutory principles of good regulation based on the Better Regulation Commission’s principles of good regulation.

Section 21 of the 2006 Act sets out the principles of good regulation. As the Minister said, those principles require that regulatory activities should be carried out in a way that is transparent, accountable, proportionate and consistent, and should be targeted only at cases in which action is needed. The Legislative and Regulatory Reform (Regulatory Functions) Order 2007 provides a list of regulatory functions. Anyone exercising those functions must have regard to the principles in carrying out those functions.

Section 22 of the 2006 Act provides a Minister of the Crown with the power to issue a code of practice in relation to the exercise of regulatory functions. Any person whose regulatory functions are specified in the order must have regard to the code of practice when determining general policy or principles, setting standards, or giving guidance in relation to the exercise of those functions. The draft code of practice is laid before Parliament for approval.

The 2006 Act imposes a duty to consult relevant stakeholders. The Government undertook a 13-week public consultation on the draft compliance code and the order specifying the list of regulatory functions. The consultation highlighted the fact that there was support for the compliance code and the principles of good regulation. The consultation was certainly a good thing in itself, but will the Minister explain why it has taken so long to produce the code? As he recognised, as far back as Second Reading of the Legislative and Regulatory Reform Bill, I expressed the view that the Conservative party welcomes the introduction, through part 2, of the statutory principles of good regulation in the Hampton report, which have been used to inform a code of practice to which specified regulators must have regard.

The order specifies the regulatory functions to which those principles apply and sets out a draft code of practice. We welcome those developments in the broadest sense, as well as the sentiment of the code, which is designed

which, I assume, consists of non-governmental organisations. The code applies, too, to “other regulated entities”. We are always keen to support measures that ensure that business and other regulated entities are not subject to over-regulation. We want to reduce unnecessary red tape and burdens on business, the public sector and voluntary organisations and we believe that the code of practice is a move in the right direction.

I am happy that the consultation on the compliance code and the principles of good regulation produced what the Government described as overwhelming support for the measures. However, they made it clear that business respondents, although generally positive about the impact of the code, expressed concern about the way in which it would be implemented and followed by regulators:

Most business respondents

The Government, in their response to the consultation, made a commitment to consider

Will the Minister explain how business respondents’ concerns about non-compliance with the code by regulators were addressed, particularly in light of the fact that the draft code states at paragraph 2.6:

I would like some comfort that the code will be followed by regulators. I should like to know, too, whether the Minister has received any further feedback from businesses on the draft code, which was updated after the consultation.

The executive summary of the Government’s response to the consultation on the code and on the application of the principles of good regulation states:

The majority of national regulators who responded to the question in the consultation about whether the code strikes the right balance between regulators achieving their regulatory outcomes and the elimination of unnecessary burdens on regulated entities thought that the code was skewed too much in favour of business and other regulated entities. Again, I am concerned about how we can ensure that regulators follow the code, particularly in light of the fact that there appears to be a belief among some regulators that it is skewed in favour of business.

I welcome the Government’s response that they do not accept that the code is imbalanced. However, is the Minister confident that regulators who believe that the code puts too much of a burden on them will not simply follow the get-out clause in paragraph 2.6 of the code, which states that regulators are not bound to follow a provision of the code

How have the Government dealt with the concerns of groups such as the CBI, which wanted to know how the code will be enforced? How have they dealt with the concerns of most of the business respondents including the Federation of Small Businesses and the Forum of Private Business which, according to the results of the consultation, thought that the phrase “properly conclude”, in part 1 of the code, was open to self-serving interpretation and should be defined and tightened up?

The Government stated in their response to the consultation that they are now considering adding new clauses to the Regulatory Enforcement and Sanctions Bill in response to the recurring view from business that the code should be further strengthened by other enforcement mechanisms. Will the Minister tell me what the position is on that and whether any views have been expressed by business about whether such provision will satisfactorily allay its concerns?

We are on record as saying that the 2006 Act and the order will not in themselves end our culture of British red tape and the gold plating that comes out of Brussels. In essence, we remain thoroughly unconvinced that the order will provide an effective means to reduce the heavy burden of regulation on business in this country. Will the Minister advise us how the code is to be monitored and enforced to provide real benefits for business rather than acting as a facade for Government inactivity on what is a vital issue for British business?

Lorely Burt (Solihull) (LD): It is a pleasure, Mr. Amess, to serve under your chairmanship this afternoon.

Having read the various pieces of legislation, and given that the purpose of the orders and the code is to carry out the enforcement functions that have already been specified in the 2006 Act, the principles of good regulation and the compliance code, I am a little mystified as to how a further piece of regulation will resolve compliance with something that is already enshrined in legislation. If the regulators are doing what the existing legislation requires them to do, why do we need an additional piece of regulation? How can the Government be confident that the measures will achieve what they are supposed to achieve?

It is estimated that the code will deliver 10 per cent. of full Hampton compliance. That task of compliance has already been set out, so what is the significance of the 10 per cent. figure? I am sure that all members of the Committee support and welcome the risk-based approach, but will the Minister comment on what constitutes risk and whether the size of a business will be taken into account, as the implementation of regulations has a fivefold distortion for small businesses—it is five times more time- consuming for them. On costs and savings, the administrative burdens measurement exercise estimates that the total administrative burden of regulations for UK businesses, charities and the voluntary sector is £13.7 billion. The total administrative burden within the scope of the code is estimated to be £3.6 billion. The estimated savings to business as set out in the impact assessment is £22.5 million or 0.6 per cent. How ambitious does the Minister think that the 0.6 per cent. figure is with regard to the aspirations of the two pieces of legislation?

Finally, I would like to say a word about inspections. The likelihood of a company’s activities being exposed to scrutiny is major determining factor in securing compliance. To discover whether or not it has complied with the national minimum wage, a company is likely to be inspected once in 278 years. While I like to weigh in on the side of business, I think that we need to look closely at the likelihood of a successful inspection and, indeed, prosecution if the requirements are not met. Of course, we applaud the move towards a more advisory role for inspectors. Will the Minister comment on the proposal that, just as people in small businesses need to be conversant with lots of different aspects of regulation and compliance, the advisory remit of regulators and inspectors should be widened, so that advisors would not only come along and examine more aspects of compliance in one go but move on from the tick box mentality? Instead of trying to catch organisations out they would operate in a much more of an advisory capacity, so that a spectrum of advice could be offered by one individual instead of a stream of inspectors visiting—or indeed not visiting—small businesses.

Mr. Nick Raynsford (Greenwich and Woolwich) (Lab): I will not detain the Committee for long, but I would welcome clarification from my hon. Friend the Minister on one technical point, relating to the scope of the regulations and the code, as well as a possible need for subsequent amendments.

The regulations apply in the case of housing to the Housing Corporation, which is defined as one of the relevant bodies in article 1. Tomorrow, the House will debate the Housing and Regeneration Bill, which abolishes the Housing Corporation, on Second Reading, so the question obviously arises as to whether there is a need for further amending regulations to extend the powers conferred by the regulations that we are debating today to the new body that is likely to be created pursuant to that Bill. I am told that that body will be called Oftenant, which is not a very lovely acronym but it is slightly more attractive than the previous suggestion, which was Oftosh—the Office for Tenants and Social Housing.

I will say no more about acronyms, but my point is fairly obvious. As a result of what the House may do tomorrow, one part of the regulations that we will agree tonight may be made redundant, and I would welcome clarification from my hon. Friend the Minister as to how that problem will be addressed. Will it require further amending legislation, or the introduction of secondary legislation, or is there a mechanism to carry over from the abolished Housing Corporation to the new body—Oftenant—the powers that were designed to be conferred by the regulations?

Mr. McFadden: I shall do my best to give good answers to all the very good questions that have been raised in this debate.

The overarching aim of these instruments is, as I have said, to ensure that regulators work to minimise burdens and enforce regulation in a risk-based, targeted and proportionate way. That is so that they use their resources in a way that gets the most value out of the effort that they make, rather than going through a routine or, as was said before, a sort of box-ticking approach. Turning to the specific issues that were raised, I was asked why it has taken so long to introduce the measures. The suggestion was that it had been a slow process. The truth is that we have consulted extensively on the code and we wanted to get it right. The hon. Member for Huntingdon referred to the 13-week consultation but, even after that consultation was completed, officials met various stakeholders and regulators to discuss matters further, to try to accommodate concerns and to ensure that we got the best possible code.

The hon. Member for Huntingdon also asked about compliance and so on. I refer him to paragraphs 9.6 and 9.7 of the code, which state that regulators should provide

The code also says that those procedures

It goes on to say that

There is therefore capacity in the code both for complaints to be made and for a procedure to handle them. In addition, the code requires regulators to publish clear standards and targets for service and performance; to measure their performance against those standards; and to publish the results regularly.

The hon. Member for Huntingdon referred to further legislation in this area. For those whose appetite is not fully whetted today, there will be further opportunities later this Session to debate these issues. For example, the Local Better Regulation Office will play a valuable role in advising the Government on local authority compliance with the principles of better regulation and the compliance codes. A number of mechanisms are therefore available to ensure compliance.

Mr. Djanogly: Will the Minister address the concern expressed by business that regulators think that the provisions are too tough and may try to get round them? That is being said quite openly, so will the Minister put on record what the Government will do about the problem?

Mr. McFadden: People always express different views before such a measure is introduced. Some people argue that perhaps it is too tough. Others argue that it is not tough enough. For example, there has been some debate about whether the duty to “have regard to” the provisions in paragraph 9 is strong enough. Regulators expressed the view that it would not always be possible to carry out that duty. That has been taken into account in the code, because the duty is subject to other legal requirements. We recognise the different voices in this debate and we have attempted to reach the best possible solution in the code, with measures built in for complaints and for looking at the issue in future.

The hon. Member for Huntingdon asked about clauses in the Regulatory Enforcement and Sanctions Bill that will allow Ministers in certain circumstances to impose a duty on regulators to review and reduce unnecessary burdens. We recognise that the picture is not static and we must always have the capacity to review it in future. I will come on to the legislative point raised by my right hon. Friend the Member for Greenwich and Woolwich.

The hon. Member for Solihull asked a number of questions, one of which was about what constitutes risk. I fear that we only have 90 minutes for this debate, and we could be here a long time if we debated that very good question, which is at the heart of regulation. As I said in my opening remarks, I do not believe that a risk-free society is either achievable or desirable, but we have a duty to ensure that when people are at work they can do their job safely. We have a duty to ensure that if people buy goods there is a reasonable guarantee and some redress if those goods are faulty. We have therefore provided protection for the consumer, while at the same time trying to foster and encourage risk in entrepreneurship, so that people can set up a business, pursue their dreams and try to achieve their ideas. Regulation is always about the balance between risk and protection, and the hon. Lady was absolutely right to say so.

Lorely Burt: The size of a business is important. I agree that many regulations, especially in relation to health and safety and the welfare of employees, must be enforced regardless of the size of the business, but will the Minister comment on the need for regulations for the very smallest businesses? There might be no physical risk to employees, and it would benefit some businesses if they did not have to worry about the more complex legislation that does not necessarily apply to them.

Mr. McFadden: The Government must always bear in mind small business when legislating, and I hope that we do so. The issue has been raised with my officials and me, and when we talk about the risk-based inspection agenda, we should not mean that that it is only the big names—the ones we have all heard—that do not have to be inspected, while the smaller names always end up being inspected. We want to take a more sophisticated approach. Organisations that represent businesses, particularly smaller businesses, have made that point loud and clear.

The hon. Lady asked about administrative burdens and targets. The measures do not make up the whole picture. I do not wish to detain the Committee longer than is necessary, but we will shortly publish simplification plans to go with those we published this time last year. Those plans will be geared towards reaching the Government target of reducing administrative burdens on business by 25 per cent. by 2010, or at least towards making progress on reaching that target. The hon. Lady talked about ambition, and the target is ambitious. The Netherlands has done something similar, but not many other countries have done so. Last year’s simplification plans contained about 500 measures, which included a total of £2 billion of reductions. The second round of simplification plans will carry that forward and the savings in the measures before us should be considered in that wider context. The Government have an ambitious agenda, not only on the simplification plans, but with regard to future legislation and other measures.

My right hon. Friend the Member for Greenwich and Woolwich kindly raised the issue of the Housing Corporation and referred to legislation that would affect it in future. Legislation itself could deal with the problem and may provide a relevant opportunity but, failing that, there is always the possibility of further orders to keep the measures up to date. I do not believe it is possible for regulators to ignore the code. The measures state clearly that regulators must have regard to the code, and that departures from it must be properly reasoned: they must be subject to another legal requirement or be based on material evidence. I believe that we have struck the balance in the code. It is part of an ambitious agenda, and I commend it to the Committee.

Question put and agreed to.

Resolved,

Resolved,

Committee rose at four minutes past Five o’clock.