Memorandum submitted by Tim Ambler and
Francis Chittenden[1]
We are pleased to respond to your invitation
to submit evidence on the progress of regulatory reform. That
has two components: improving the impact assessment process, notably
to screen out unnecessary regulations, and secondly to repeal
or simplify existing regulation. We have, as invited, provided
brief answers to your specific questions as the second section
of this paper but first we provide an overview because we considered
the questions (a) do not really challenge overall performance
and (b) ignore the massively important EU dimension.
OVERVIEW
Our evidence is based on seven years of examining
UK, and latterly EU, Impact Assessments. Our next report is due
out in April and the previous ones are noted below.[2]
While both contribute to the network of laws with which UK businesses
have to comply, we have found that the processes for creating
and/or reforming regulations are very different from each other
and also from the utopian claims made, by both EU and UK executive,
for their regulatory systems. What is claimed to be open and transparent
is concealed behind a blizzard of paper and delay so that both
EU and UK officials and ministers are, in practice, free to regulate
with little regard for accountability.
In the last decade, regulation has become a
major UK industry. Tens of thousands are employed not in business
to grow GDP but, in effect, to reduce it. Regulation is frequently
ineffective, notably in financial services where it may even have
made the UK crisis worse.[3]
The original purpose of Impact Assessments, namely challenging
the need for regulation and the serious consideration of alternatives,
has not been met. The National Audit Office has reached similar
conclusions.[4]
The effectiveness of both the UK and the EU
Impact Assessment systems are undermined by their lack of synchronisation.
It is not enough to publish the first UK impact assessments for
consultation or to send EU legislation to the EU Legislative Scrutiny
Committee of the House of Commons, after the EU has finalised
the regulations.
New regulation, as measured by IAs, declined
in 2007-08 to 264 after three years which topped 300 per
annum. About 130 regulations per annum were generated in
the first four years of this government. In terms of the number
of regulations, the EU accounted for only 18% and the reduction
for the previous EU level of about one third is the primary reason
for the overall decline in numbers in 2007-8. In terms of the
financial burden on business, however, the EU is responsible for
much the greater part. The financial cost shown by the IAs is
only part of the burden; keeping track of changing legislation
through the forest of legislative paper is a major burden in itself.
At the same time, some improvements are being
led by the BRE, such as two-page summaries of IAs and the IA Library.
These are welcome and we acknowledge that regulation is not solely
a financial or economic matter: social and environmental factors
deserve consideration. We should also acknowledge that the World
Bank considers that the UK is relatively lightly regulated compared
to the EU as a whole. Our own figures broadly agree: the low cost
of setting up a business in the UK is a key factor. At the same
time, that is not an argument for abandoning any competitive advantage
the UK may have.
The comparison of EU and UK impact assessments
leads to a simple conclusion: the EU very rarely employs IAs,
and even more rarely quantifies them but, when it does so, the
system works very well. Conversely, the UK goes through the motions
with all directives and regulations but so superficially that
the system does not work.
It is curious, with hindsight, how much attention
has been given to perfecting the UK domestic system, in theory,
with so little regard to the EU which has been the source of the
heaviest burdens on business. The UK strongly supports the EU
in achieving the single market and a single market requires a
single set of regulations. Every time Whitehall puts forward business
regulation not required by EU law, we are not only burdening British
business relative to the rest of the EU (and the world) but we
are giving the lie to our own demands for a single market.
We will recommend that
1. no new business regulations, which are within
EU competence, should be introduced by the UK government;
2. all existing UK business regulations not required
by EU law are repealed en bloc; and
3. EU business legislation which has not been
through due process, ie had a proper IA procedure, be rejected
by the UK Parliament. This recommendation would need to be examined
by lawyers but we have been given to understand that Parliament
does have that right. In any case, it would be embarrassing for
Brussels to have to explain why they were not following their
own procedures.
BRIEF ANSWERS
TO THE
SPECIFIC QUESTIONS
(YOUR QUESTIONS
IN ITALICS)
1. CURRENT DEVELOPMENTS
What are the implications of recent economic developments
(for example, the economic downturn; credit crunch and problems
within the financial sector) for the design and delivery of the
regulatory reform agenda, including risk-based regulation?
Regulations should be designed for the long
term, good economic conditions as well as bad ones. We are not
aware of any specific changes in regulatory thinking in relation
to economic conditions, nor do we think there should be.
How does the Government balance the need for an
effective regulatory framework—providing the necessary benefits
and protections—with the commitment to improve the conditions
for business success?
The government appears not to join up their
regulatory thinking with the need for improving the conditions
for business. There is just a general unsupported claim that the
former will lead to the latter whilst simultaneously recognising
that regulation, beyond the minimum necessary for orderly markets,
burdens business, competitiveness and is bad for GDP. The current
business climate ought to reinforce the latter consideration.
In the case of financial services, regulation has provided little
or no protection and may have worsened the crisis. The problem
is an excess of theoretical regulation leading to a lack of practical
intervention, ie regulators are not doing their jobs because they
are confused by the quantum of regulation. Regulation gives only
the illusion of control if intervention is not effective. More
regulation is unlikely to bring more than marginal benefit and
may well confuse the situation further. For example, the Bank
of England effectively regulated banks, albeit informally, before
the introduction of the FSA, and the excessive number, in the
view of some, of new regulations over the last 10 years.
See Adam Smith Institute briefing paper: "The Financial Crisis:
Is regulation cure or cause?"
How might a proportionate and targeted response
to improving the regulatory framework in the wake of the financial
crisis be made? What lessons are there for the wide regulatory
reform agenda?
The main planks of the deregulation (reform)
agenda, namely are ineffective: admin burdens reduction, regulatory
budgets and repeal/simplification. Some genuine wins have been
achieved on admin burdens but it is largely cosmetic with the
changes not recognised by business. Regulatory budgets appear
to be on hold. Progress on repeal/simplification is glacial. The
main lessons for the reform agenda are (1) that the importance
of Brussels as the main regulator should be recognised and UK
systems designed to deal with that instead of pretending the UK
is totally independent; (2) that the IA process should be substantive
and not merely box ticking (there is some evidence of early improvement
in the UK, but none from Brussels); and (3) that a more radical
approach should be taken to simplifying and/or repealing inherited
regulation—see our main paper.
How could the Government improve its capability
to regulate in a proportionate and effective manner?
Leave business regulation to the EU, with UK
negotiated exemptions.
Whether there is a coherent package of regulatory
measures for improving the conditions for business success; and
how regulatory reform initiatives fit into wider Government support.
Government interventions in business, however
well intentioned, generally do more harm than good. Emergencies
such as rescuing failing banks are indeed necessary but the strategy
should be to avoid such things being required, ie by the regulators,
who are supposed to be maintaining orderly markets, doing what
they are paid to do. The general strategy should be to assist
the EU moving to a genuine single market, with only the necessary
EU regulations for that purpose, and otherwise (1) refraining
from UK only business regulation[5]
and (2) repealing all UK business regulation[6]
not required by EU law.
2. DESIGN OF
NEW REGULATIONS
Does Government understand businesses sufficiently
to design effective regulations? Is sufficient emphasis given
to small businesses and competition issues?
In brief, no, no and no. The BRE guidelines
require departmental IAs to give specific attention to SMEs but
they rarely do so. Most Departments appear to have a poor understanding
of the economics of small firms and as a consequence they do not
appreciate why most business regulations create substantially
higher costs for SMEs.
Is there sufficient consideration of how regulations
will be implemented, including an appropriate focus on compliance
and enforcement issues?
We thought the Hampton Report[7]
was very good and set out the compliance and enforcement issues
well. We agree with covering those issues in a general way, as
Hampton did, rather than separate consideration regulation by
regulation.
February 2009
1 Senior Fellow and Professor at London and Manchester
Business Schools respectively. Back
2
Tim Ambler, Francis Chittenden, and Stefano Iancich, The British
Regulatory System, British Chambers of Commerce, March 2008.
Tim Ambler, Francis Chittenden, and Deming Xiao, The Burden of
Regulation: Who is watching out for us? British Chambers of Commerce,
April 2007.
Tim Ambler, Francis Chittenden and Kapil Ahuja, Regulators: Box
Tickers or Burdens Busters? British Chambers of Commerce, April
2006
Tim Ambler, Francis Chittenden, and Chanyeon Hwang, Regulation:
another form of taxation, British Chambers of Commerce, March
2005.
Tim Ambler, Francis Chittenden and Mikhail Obodovski, Are regulators
raising their game? UK regulatory impact assessments in 2002-03,
British Chambers of Commerce, March 2004.
Tim Ambler, Francis Chittenden and Monika Shamutkova, Do the regulators
play by the rules? An audit of UK regulatory impact assessments,
British Chambers of Commerce, January 2003. Back
3
Tim Ambler, The Financial Crisis: Is regulation cause or cure?
Adam Smith Institute, November 2008. Back
4
National Audit Office, Evaluation of Regulatory Impact Assessments
2006-07, Report by the Comptroller and Auditor General, HC 606 Session
2006-07, 11 July 2007. Back
5
ie in an area with EU competence Back
6
ie in an area with EU competence Back
7
16 March 2005, HM Treasury. Back
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