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Session 2008 - 09
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Public Bill Committee Debates

The Committee consisted of the following Members:

Chairman: David Taylor
Ainsworth, Mr. Peter (East Surrey) (Con)
Beckett, Margaret (Derby, South) (Lab)
Clarke, Mr. Charles (Norwich, South) (Lab)
Engel, Natascha (North-East Derbyshire) (Lab)
Gerrard, Mr. Neil (Walthamstow) (Lab)
Hemming, John (Birmingham, Yardley) (LD)
Heppell, Mr. John (Nottingham, East) (Lab)
Hutton, Mr. John (Barrow and Furness) (Lab)
Lucas, Ian (Parliamentary Under-Secretary of State for Business, Innovation and Skills)
Penrose, John (Weston-super-Mare) (Con)
Plaskitt, Mr. James (Warwick and Leamington) (Lab)
Scott, Mr. Lee (Ilford, North) (Con)
Thurso, John (Caithness, Sutherland and Easter Ross) (LD)
Turner, Mr. Andrew (Isle of Wight) (Con)
Turner, Mr. Neil (Wigan) (Lab)
Wright, Jeremy (Rugby and Kenilworth) (Con)
Mick Hillyard, Committee Clerk
† attended the Committee

Second Delegated Legislation Committee

Monday 2 November 2009

[David Taylor in the Chair]

Draft Legislative and Regulatory Reform (Regulatory Functions) (Amendment) Order 2009
4.30 pm
The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Ian Lucas): I beg to move,
That the Committee has considered the draft Legislative and Regulatory Reform (Regulatory Functions) (Amendment) Order 2009.
It is a pleasure to be before you for the first time in Committee, Mr. Taylor. The order was laid before Parliament on 20 July. It amends the Legislative and Regulatory Reform (Regulatory Functions) Order 2007, which Parliament approved in November 2007 and which came into force on 6 April 2008.
The order forms an important part of the Government’s programme of regulatory reform. Since 2005, the Government have worked to improve the way in which we regulate and enforce regulations in this country. Their aim is to increase the many benefits that regulations can bring, without imposing needless costs and complexity on businesses. In particular, the Government have embarked on a radical overhaul of administrative burdens faced by businesses. For example, we are on track to deliver savings to businesses of £3.4 billion under the current programme to cut administrative burdens by 25 per cent. by May 2010.
The Government have recently set a new target to cut the ongoing costs of regulation by a further £6.5 million by 2015, bringing the total savings to United Kingdom business to about £10 billion by 2015. They are determined to drive better regulation at the European Union level and to deliver a risk-based and proportionate approach to regulatory supervision and enforcement throughout the entire regulatory landscape. It is that last aspect of the reform—proportionate and risk-based enforcement of regulations—that the instrument before us primarily addresses.
The order would ensure that regulators apply a risk-based approach to regulation. That will enable them to direct resources, which are inevitably limited, to areas of greatest need while minimising the burdens on businesses that pose lower risks and have good records of compliance. That policy agenda flows from the recommendations in the Phillip Hampton report, “Reducing administrative burdens: effective inspection and enforcement”, and the report of the then Better Regulation Task Force, “Less is More: Reducing Burdens, Improvement Outcomes”, both of which were published in 2005.
Both the draft code of practice, now known as the regulators’ compliance code, and the original listing order were laid before Parliament in 2007. The debates at the time were positive and supportive. Hon. Members welcomed the development of the code and the order, and particularly commended the code as a move in the right direction. Both instruments came into force on 6 April 2008. Since then, 46 national regulators, as well as all the local authorities in England, have been under a statutory duty to have regard to the code and the five principles of good regulation when they carry out specified functions.
Since the code came into force in April 2008, some progress has been made by regulators to embed the code’s standards into their regulatory culture and processes. Many have reviewed, or are reviewing, their existing policies to meet the code’s requirements. For example, the Health and Safety Executive has published the changes it has made, and those it plans to make, in order to comply with the code obligations. The Environment Agency has taken similar steps, and many English local authorities appear to have aligned their enforcement policies with the code.
The introduction of the code and the principles is bringing about a culture change among some regulators. Business is also beginning to see the positive impact of the better regulation agenda, and it continues to support the code. Discussions with international partners have shown the extent to which our work in this area is setting an international lead. Because of the significant benefits that the code and principles can deliver for regulators, and for those they regulate, the Government have decided to extend the coverage to more national and local regulators through this draft order.
The draft order would extend the code and the principles to three new areas: first, to local authorities in Scotland, Northern Ireland and Wales, where they would perform reserved regulatory functions. Unlike English local authorities, those bodies are currently excluded from the application of the code and the principles. Secondly, the code and principles would be extended to public sector regulators such as Ofsted and the Care Quality Commission, where they regulate business and third sector organisations. Thirdly, they would be extended to other relevant areas of national regulation such as money laundering, where the burdens imposed on business and the third sector can be significant.
Extending the code and principles to those new areas will ensure that the overwhelming majority of businesses and third sector organisations in the UK are regulated within the consistent and transparent statutory framework provided by them. That will ensure regulatory consistency and create a level playing field for most businesses across the UK.
I stress that this draft order is a vital part of the Government’s effort to reduce unnecessary burdens on UK businesses and to create a more efficient and competitive economy. As someone who once ran a small business, I know the frustrations that can be caused by the imposition of what is perceived as unnecessary regulation. Therefore, it is important—even more so in the current economic situation—that we reduce any regulatory obstacles to business competitiveness.
Better regulation is not about removing necessary protections, but rather about making the regulations as simple as possible for consumers, workers and businesses, as well as the economy and society as a whole. The aim is to get the best outcomes in the most efficient way, not to water down those outcomes. The draft order will support regulators in a manner that ensures optimal outcomes.
Finally, I emphasise the extent and depth of consultation with interested parties on the draft instrument. For more than 13 weeks, officials have actively consulted different stakeholders to seek their views on the draft order. Where necessary, officials met key stakeholders to discuss further any concerns. I am confident that the statutory instrument enjoys the support of key stakeholders.
4.38 pm
John Penrose (Weston-super-Mare) (Con): It is a pleasure to have you in the Chair this afternoon, Mr. Taylor. There is a substantial degree of cross-party support for the principles behind the draft order. The ideas about better regulation laid out in the Hampton report are widely backed, and the Conservative party is a strong supporter of them.
I should also say that Sir David Arculus, the former head of the Better Regulation Executive, might quietly quibble about whether or not Sir Philip Hampton and his organisation was the original author of those principles. However, suffice it to say that whoever originally invented them and put them across, the principles are widely agreed on and worthy of our support this afternoon.
I do not propose to raise any substantial objections to the draft order—I hope I will not need to raise any—but I have a couple of questions for the Minister. On the assumption that he does not make too much of a hash of answering them, which I am sure he will not, we can agree and move on swiftly to approve the draft order.
The Minister mentioned that the draft order extends coverage of the principles of better regulation to public sector regulators in England where the exercise of such functions is aimed at businesses or third sector organisations. His colleague, Lord Young of Norwood Green, when the item was debated at the other end of the building, said that
“there are public sector regulators, such as Ofsted and the Care Quality Commission, where they regulate business and third sector organisations.”—[Official Report, House of Lords, 29 October 2009; Vol. 713, c. GC38.]
The explanatory memorandum, in paragraph 8.4, says that the consultation
“highlighted that there was overwhelming support for extending the coverage of the Code and Principles to local authorities in the devolved administrations”—
I think the Minister has already mentioned those—
“although some respondents felt that the extension should go further, covering both reserved and devolved functions rather than just reserved ones”.
Clearly, that is not part of the question before us this afternoon. Can the Minister enlighten us as to the thinking behind the Government’s decision not to follow the suggestions put before them by some of the consultation respondents? Why are we going down the path the Government are proposing?
Finally, most of the very few objections received in the consultation came from accountants involved in putting into practice the money laundering regulations. I want to tease out the Government’s thinking a little more. We seem to be engaged in a conundrum, in that we are legislating to install better regulatory principles and to cut the regulatory burden—we are creating a regulatory burden in order to cut a regulatory burden. I understand why that is necessary, but part of the point made by the accountancy organisations responding to the consultation was that the regulations were a heavy-handed way of doing it. They felt that there were other, non-regulatory alternatives that could have achieved the same outcome.
That is not sufficient, however, to persuade my party not to support the Government on the draft order. I am interested in the Minister’s perspective on what other, non-regulatory alternatives were considered as a way of instilling the principles of better regulation in the application of the money laundering regulations, and why the Government decided not to go down those non-bureaucratic, non-state regulatory routes but to apply the regulations instead. I look forward to his response and I am sure that, when he has provided decent answers, we can support his proposal.
4.44 pm
John Hemming (Birmingham, Yardley) (LD): I am pleased to serve on a Committee before you again, Mr. Taylor.
All parties support the principle of regulating the regulators. Interestingly, if Wednesbury were in Scotland, we could reverse the Wednesbury decision by passing the draft order and making the regulatory process subject to regulation, to which it was not subject in 1947 when the case was subject to judicial review.
The impact assessment assumes that there are no start-up costs for business. The continual change in regulation is not costed in the impact assessment. It is difficult for business to follow the change in regulation. To be fair, simplifying regulation involves a change and, because we need to change it to simplify it, the change is a sensible one to make. However, it needs to be recognised that continual change—continual revolution, with a process of change and then another set of changes perhaps some time later—is not a good idea.
I regret the fact that the impact assessment does not include the costs to business of reviewing changes in regulation. It will be interesting to note the effect of the order over time, and we will have to look at individual cases to see whether the measure achieved its objectives. It is, however, clearly sensible, and in that respect we support it. On the point raised by the Opposition, we would not support the application of a UK regulation of regulators to a devolved decision.
4.46 pm
Ian Lucas: I am grateful for the support that I anticipate receiving from Opposition Members, subject, of course, to my not making a hash of my response—I do try in my humble role.
I will deal first with the points made by the hon. Member for Weston-super-Mare. The rationale for the order applying to private rather than public sector organisations in the first instance is that the original codes were drafted with the private sector in mind. The extensions that have been introduced largely apply to public and voluntary sector bodies that operate with private sector functions. The fact that this emanates from a private sector source has led to the focus on the private sector, although we are seeing the extension of the principles to more public sector organisations, because of the success of the common agenda to which the hon. Gentleman referred on developing the principles of better regulation. Those principles, although not specifically linked to this order, have had a real effect in the public sector. For example, the 2003 Government policy on inspection of public services incorporated the fundamental principles of better regulation that have been developed in the public sector. It was therefore incorporated from a different source at the outset, although it is clear that the better regulation agenda is developing in the public as well as in the private sector.
John Penrose: May I push the Minister a little further? For example, Ofsted is applying the principles in its dealings with independent schools, but so far at least has not been required to apply the same principles in its dealings with public sector schools. I wonder whether the Government think that that is an easily defensible dividing line and whether they plan to extend it in due course so that it covers the whole of Ofsted’s remit?
Ian Lucas: I think that Ofsted would always have discretion in adopting the principles of better regulation right across the board, but there would be no legislative or regulatory requirement for it to do so. Some individuals would draw a contrast between schools providing education services in the private and those doing so in the public sector. I think that we might stray beyond the current debate if we pursued that line any further.
I take on board the valid point made by the hon. Member for Birmingham, Yardley about devolution. If we had devolved authorities and a system that devolves responsibility in particular areas to the Scottish Parliament, the Welsh Assembly and the Northern Ireland Assembly, it clearly would not be appropriate for the UK Parliament to impose its view on those devolved authorities. Having said that, that is clearly not the relationship between the UK Parliament and the devolved authorities in this area. In fact, I am pleased to say that there is a developing sense of a common agenda between those authorities and Parliament. We are not following the line of imposing better regulation principles, but in continuing discussions with the devolved authorities, we find that there is a developing sense of a common agenda. I think the devolved authorities may work even more closely with Parliament in due course—certainly, that is the nature of the relationship at the present time.
The Government take seriously the views of the accountancy profession on issues as important as money laundering. From my experience of money laundering regulations as a solicitor in private practice, I know that it is a complex and difficult area. With that in mind, officials from my Department met the representatives of the bodies when they expressed concerns. They strongly believed that as they were private sector bodies, they should not be subject to regulations in this area, but the Government do not share that view. This area has profound importance in terms of criminal justice. I think my hon. Friend the Member for Nottingham, East was my Whip in the proceedings for the Proceeds of Crime Act 2002, a long time ago. Is that correct?
Mr. John Heppell (Nottingham, East) (Lab): I cannot remember.
Ian Lucas: Too long ago to remember. We debated these matters at some length. [Interruption.]
The Chairman: Order. The Minister must be heard.
Ian Lucas: There was a difference of opinion between the accountancy profession and the Government. Although we engaged with the profession, we felt that our line was appropriate given the serious nature of these matters.
John Penrose: I completely accept the Minister’s point that money laundering is a critical issue and needs to be handled with great seriousness. In his Department’s consultations with the accountancy profession, did he investigate whether there is a—I hesitate to use this phrase—third way: a non-legislative alternative that can achieve the same less bureaucratically, perhaps something proposed by the profession? Did the Government give any thought to that?
Ian Lucas: The Government always give thought to non-regulatory alternatives if they do not believe that regulation is necessary. However, having considered the position, we believe that in this case, regulation is necessary. I understand that, for example, the Law Society supports the Government’s position in this case. Clearly, there is a difference of opinion between the lawyers and the accountants, which I am sure will upset everyone.
I thank hon. Members for considering the draft instrument today. I emphasise that the order will promote the common view that better regulation is the correct way forward and that we want to develop that where there is consensual support available from other parties. With that in mind, I ask the Committee to approve the draft order.
Question put and agreed to.
4.54 pm
Committee rose.

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