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RRC Themes and Trends in Regulatory Reform Inquiry Submission from LBRO Executive Summary The perceived failures of regulation associated with the unprecedented crisis in global financial markets raise critical questions for the better regulation agenda. There are renewed calls from business to deregulate, while others call for greater, more prescriptive regulation.
The debate should not be about more or less regulation, but about better regulation - how to ensure that regulation is proportionate, accountable, consistent, targeted, transparent and based on a comprehensive assessment of risk. Better regulation drives prosperity and supports protection both for communities and compliant businesses - it can and must be a matter of 'win-win'. LBRO has been created to improve co-ordination, consistency and performance in local authority regulatory services (environmental health, fire safety, licensing and trading standards), in order to help improve economic prosperity and community well-being. "Prosperity and Protection" is therefore at the heart of LBRO's mission. Achieving prosperity and protection for both communities and business requires an approach that embraces a clear focus on regulatory outcomes, a better understanding and application of risk across activities by regulators, and building a new relationship between the regulators, the regulated, and the intended beneficiaries of regulation.
Specifically, this means: · better regulations, requiring a better understanding by policy makers of what levers can be used to ensure markets work effectively, what drives business and consumer behaviour, and in particular, the sensitivity of businesses to enforcement, sanctions, reputational damage, financial damage, as well as the understanding of, and attitudes to, regulatory compliance; · better regulators, which means ensuring officers are equipped with sufficient skills, knowledge, and crucially, business understanding, to enable them to operate with sound judgement and discretion, to target their efforts intelligently for maximum impact; · a more strategic approach to regulation, focused on outcomes based on the wider strategic aims of prosperity and enterprise, as well as those of protection and justice; and a more intelligent approach to selecting interventions and sanctions - employing the appropriate choice and design of regulatory approach, so that it is well targeted to the regulatory objective. Better regulation is very much about changing underlying cultures, and this takes time to work through the system and embed. Continued support of better regulation strategies is essential, including developing the evidence base and intelligence required to drive through the desired change, this is a long term investment in the future to secure the sustained outcomes we need. In the context of LA Regulatory Services, LBRO is strongly committed to the local delivery model, which provides considerable benefits from collaborative working at local level to provide tailored services, based on democratic accountability, to achieve shared community outcomes. LBRO is working in partnership with local and national government, local and national regulators, professional bodies, and consumer and business organisations to support and improve this model, and to further embed the better regulation principles throughout local regulatory services to better support business and communities, and to ensure the continued protections of consumers, employees and the environment. This submission expands on these themes, sets out how LBRO is working with others to respond to them, and draws out lessons for the wider regulatory reform agenda. About LBRO The Local Better Regulation Office is a non-departmental public body, accountable to the Department for Business, Enterprise and Regulatory Reform through the Better Regulation Executive. It was established by the Regulatory Enforcement and Sanctions Act 2008 to drive the wider regulatory reform agenda at local level and to support and incentivise improvement in local authority (LA) regulatory services - environmental health, fire safety, licensing and trading standards - to reduce unnecessary burdens on businesses and support economic prosperity. Our mission is to secure the effective performance of local authority regulatory services (LARS) in accordance with the principles of better regulation. Improved regulatory services can demonstrate their significant contribution to the delivery of economic prosperity and community wellbeing, while unnecessary burdens on well-run compliant businesses can be significantly reduced.
This submission to the Regulatory Reform Committee concentrates on themes and trends in local regulation in accordance with our remit and focus.
Questions regarding current developments:
1. 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?
Impact on perceptions of risk and regulation:
The perceived failures of regulation associated with the unprecedented crisis in global financial markets raise critical questions for the better regulation agenda. The crisis has heightened awareness of risk. The nature and role of regulation has been the subject of immense media scrutiny and public debate, with many calling for greater, more stringent regulation. It would be understandable if it also weakened the appetite of policy makers and practitioners to focus on reducing the regulatory burden, and instead resulted in a kind of domestic regulatory protectionism.
But at the same time, the grave pressures on business makes it all the more important that regulatory frameworks support economic efficiency, without undermining key protections for consumers, workers, and the environment. The debate should not be about more or less regulation, but about better regulation - how to ensure that regulation is proportionate, accountable, consistent, targeted, transparent and based on a comprehensive assessment of risk. Better regulation drives prosperity and supports protection both for communities and compliant businesses - it can and must be a matter of 'win-win'.
An enormous proportion of business regulation is experienced and enforced at local level (which is the level at which LBRO was created to deliver the better regulation agendaIn the current, tough environment for business and for communities, it is even more important in ensuring that local regulation provides proper protection and prepares for recovery and growth. This requires a clear focus on these outcomes.
Impact on public spending:
At national level, the impact of the fall-out for public spending is likely to be a constraint on government to support the better regulation agenda financially; government will increasingly be operating in an environment of spending cuts, and less within one of funding new initiatives to incentivise change. This will require finding ever smarter and more efficient ways to drive change which has real impact.
Local authorities are of course impacted directly by economic difficulties, and are operating increasingly under budgetary pressure, at a time when demand for services is rising - this will be a significant issue in the next spending cycle. This situation underlines the need for targeting resources and regulatory interventions intelligently to support both business and consumers, emphasising the importance of risk based regulation, now more than ever.
Impact of recession on business and communities: The impact of the economic environment on businesses and consumers in local communities, and the subsequent effect on the choices, approaches and priorities of regulatory services is very relevant here, as local regulatory services can play an especially important role in supporting prosperity during difficult economic conditions. Some specific examples are set out below:
How local regulation can support business and consumers: With businesses, especially SMEs, struggling as a result of the combination of restricted access to credit, and reduced consumer confidence and spending power, effective local regulation can play an important role in supporting business survival and recovery. 56%[i] of the face-to-face interactions between local businesses and local authorities are through regulatory services officers Regulatory services are often the visible face of local authorities in business communities. Building on the engagement these officers have with local businesses, they are well placed to offer: · a wide range of signposted assistance and improved information to businesses; · a voice for business, for example in articulating the challenges and concerns of business to a wider audience; · more effective engagement with the business community to build better understanding of and relationships with businesses, local trade bodies and business organisations to help tailor and improve the services provided. · Effective targeting of regulatory activity, using local economic assessments: The requirement for local authorities to consider the economic conditions of the local area will help to ensure that local authorities have a clear understanding of the conditions required for business to flourish in their area, and for people to take advantage of economic opportunities. These themes are explored further in LBRO's advice and guidance[ii], supporting local authorities in their duties to promote local economic prosperity by making greater use of local regulatory services and their interaction and relationship with local businesses. In addition to the guidance, LBRO is focused on incentivising and supporting local regulatory services through a wide range of programmes, including improving outcome focus, leadership, capacity and collaborative approaches and embedding risk based regulation. LBRO strongly supports the local delivery model for provision of environmental health, trading standards, licensing and fire safety. Devolving decision-making to local levels enables public goods and services to be tailored to reflect differences in preference and needs between places, and supports an integrated approach to tackling issues and challenges facing particular areas. Further improvement in public services and the quality of life can be best driven locally through strong local partnerships across the public sector, focusing on locally drawn targets and priorities, and working more closely with the private, business, voluntary and community sectors, based on the premise that local working is more effective as it is closer to the user and can help service providers gain a better understanding of the end user's individual needs. This is particularly relevant in times of economic difficulty, and LBRO is working to ensure the local model works effectively by identifying and addressing systematic problems, improving coordination and consistency, to maximize the contribution regulatory services can make in local contexts. This, and other work LBRO is engaged with, which has relevance in the wider regulatory reform agenda, is discussed further throughout this submission. 2. 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?
Prosperity and Protection:
The framing of this question suggests an inherent tension between the need for robust protection for consumers, workers and the environment on the one hand, and supporting businesses to prosper and grow on the other. However, we believe this is not necessarily a simple question of balance; a more supportive business environment does not equate to increased risk for individuals and communities.
Rather, prosperity and protection can be addressed as mutually supportive concepts. Thriving businesses create vibrant high streets and support the wider prosperity of local communities through employment and investment, while regulatory activity that targets high risk and deliberate non-compliance can protect compliant businesses by removing any competitive advantage achieved by non-compliant businesses.
Achieving prosperity and protection for both communities and business requires an approach that embraces a clear focus on regulatory outcomes, a better understanding and application of risk across activities by regulators, and building a new relationship between the regulators and the regulated.
Risk Based Regulation:
Risk based regulation needs to be embedded in the decision making framework of regulatory organisations to ensure a purposeful move from risk to outcomes. Within local authorities, this means aligning regulatory strategy and assessment of risk with a consideration of the authority's duty to ensure economic and community well being[iv].
It is the consideration of risk and use of evidence at every stage of decision making from the strategic to the operational - encompassing strategic prioritisation, selecting intervention strategies, targeting premises and proportionate sanctioning responses - that will realise Hampton's vision of a comprehensive risk assessment system.
LBRO is working to strengthen and improve risk based regulation at local level, supporting LA regulatory services across a range of activities, including development of risk frameworks which address the national-local dynamic in terms of enforcement priorities and targeting, and developing a toolkit for use by LA regulatory services in providing increased focus on service outcomes.
New Relationships:
Building a new relationship between the regulators and the regulated presents the challenge of seeing businesses, whether compliant or not, as customers of regulatory services. It is building an appropriate trust relationship that encapsulates the attitudes required for better regulation, supported by a conscious move from the inspection-driven compliance control methods encouraged by a centrally-driven agenda towards the more business-aware and citizen-engaging approach fostered by a focus on local need and assessment of risk.
Principles Based Regulation:
In the wake of the financial crisis, there has been increased speculation regarding principles based regulation in a complex and changing regulatory world, with some calls for a more prescriptive approach. LBRO is strongly in favour of placing greater reliance on principles and outcome-focused, high level rules as a means to drive regulatory outcomes, and moving away from detailed, prescriptive rules setting out how businesses should operate to achieve compliance. Regulation should be able to rapidly respond to changes in market conditions. A continued shift to principles based regulation must be applied in conjunction with greater and more effective use of comprehensive risk assessment, and a focus on regulatory outcomes.
Consistent and Authoritative Advice: With regard to LA regulatory Services, the Primary Authority scheme provides a means to support regulatory officers in providing authoritative advice and professional expertise within a principles based framework, without creating additional inconsistency for business. The Primary Authority Scheme is an excellent example of how the local regulatory delivery model can be supported and improved to sustain the benefits to the local community of tailored and targeted regulation, while minimising potential disbenefits, in this case from potential inconsistency and duplication of effort.
"170,000 businesses experience inconsistent advice from regulators"
There are estimated to be around 1.6 million contacts between businesses in England and Wales and local regulatory services per year[v]. LBRO's survey of business in 2008[vi] found that 33.6% of all businesses (around 170,000), have experienced inconsistency across three or more local councils or fire and rescue services.
Primary authorities will be a position to develop a comprehensive understanding of a business, including its compliance record, but also the market in which it operates, its customer base and its approach to business development. Understanding such drivers of a business will help the primary authority provide tailored support and authoritative advice that both the business and other authorities can rely on. 3. 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 wider regulatory reform agenda?
Supporting the regulatory framework to embed better regulation:
Whilst we do not have the expertise to comment on the particular conditions and circumstances of regulation in the financial sector, there are undoubtedly lessons to be learnt of relevance to the wider regulatory reform agenda. The financial crisis has raised critical questions regarding risk and regulation, yet these questions are not about more or less regulation in an absolute sense, but about better regulation, and about what that means and how to achieve it.
LBRO was established in 2007, following the 2005 Hampton Review: Reducing Administrative Burdens: Effective Inspection and Enforcement. In contrast to the proposed consumer and trading standards agency recommended by Hampton[vii], LBRO is not a regulator but a new kind of regulatory instrument. Recognising the need for a more sophisticated response to the complex local regulatory landscape, LBRO operates to make the regulatory system as a whole function more effectively by being a catalyst for change, utilising our statutory functions and ability to build relationships.
Other areas of regulation may benefit from a similar approach.
This is an approach that is important given the complexity of the wider local authority regulatory system, involving many organisations, levels of delivery and accountability. LBRO's role includes improving communication channels between national regulators and local authorities and across organisational silos that exist at local and national level to achieve greater co-ordination and consistency across the regulatory system.
Our work at a system level is carried out with a coalition of partners across the regulatory landscape, including the representative body LACORS[viii], national regulators, and the professional bodies, focusing on building consensus about the necessary systemic conditions for excellence to deliver better outcomes. These conditions are being considered through a series of modules, focusing on risk, priorities, data sharing, competency and the impact and outcomes of local regulation. Better regulation requires better regulations with policy development rooted in an understanding of risk- including public risk appetite, an understanding of the drivers of consumer, business and market behaviour and the impact of regulatory intervention, and a robust use of evidence. This approach allows an appropriate selection of policy tools, including interventions and sanctions, to achieve the desired outcomes. One of our key statutory functions is to provide advice to government on better local regulation, using a growing evidence base on change and improvement in the regulatory system[ix], including advice on proposals for new or revised regulations.
At the level of implementation, our approach to improvement is very much about working with local regulatory services and those directly impacted by regulation: businesses and consumers. By bringing together these groups, LBRO can seek to change the regulatory conversation, adopting an approach where regulatory compliance is 'co-produced'.
Examples of how LBRO is using its statutory powers, working with and through partners across the landscape to improve the application of regulation include:
This, and further activity of LBRO and its partners, is driving change to improve regulations; the regulatory system; regulators' understanding of business and capability to regulate more effectively; the embedding of the better regulation principles across local regulatory activity; the improvement of regulatory services; and the improvement of the stock of knowledge and understanding about how to achieve regulatory outcomes.
There is no quick fix:
To effect sufficient change of culture, behaviour, attitudes and relationships required to achieve the better regulation outcomes will take time and require sustained pressure. And this means continued government commitment to a long term strategy to achieve sustained change which will deliver the required outcomes for the economy, business, consumers, communities and the environment.
4. How could the Government improve its capability to regulate in a proportionate and effective manner?
In addition to the points made under the earlier questions, there is a need to ensure the regulatory delivery models are right, and are working to optimum efficiency and effectiveness.
Supporting local delivery of regulatory outcomes:
The regulatory services of trading standards, environmental health, licensing and fire safety are delivered at a local level, and the localism agenda is increasingly defining how they can tailor their services to meet local needs and effectively work in partnership with other council departments and other local services to ensure greater efficiency, proportionality and to improve access to services by creating, in part at least, a one-stop-shop for business.
The benefits of local delivery are significant, effectively contributing to both local and national prosperity and protection. However, the complexity of structures and delivery arrangements for local regulation can create systemic problems that impact on businesses, consumers and regulators. These include inconsistencies in resourcing and the resultant problems of capacity and variable service levels, enforcement inconsistencies and the consequent cost burdens for business and loss of protection for consumers.
Oiling the machine:
Local resourcing and capacity is a matter for local democratic decision, and in balancing resources with the risks faced by local communities, differences in resource levels will occur according to local conditions.
In order to address resulting unintended consequences, LBRO operates to 'oil the machine', to resolve the inherent need for coordination and consistency without losing the innovative work, based on an understanding of local issues, which is currently being conducted as a result of increased devolution of power and the development of the place shaping agenda.
With our partners in the world class coalition, we are focusing on the implications of local delivery to seek effective solutions - some examples:
5. Is there is a coherent package of regulatory measures for improving the conditions for business success; and how do regulatory reform initiatives fit into wider Government support?
Improving conditions for business success:
The approach should not be to necessarily develop new regulatory measures to improve conditions for business success, but to ensure that regulation and its application, is fit for purpose - and that means achieving outcomes which focus on the necessary protections for consumers, employees and the environment, and well as prosperity and well-being for business and communities.
At the level of wider regulatory reform, the BRE Health and Safety Review recommendation to develop a scheme to help SMEs achieve and demonstrate regulatory compliance as a simple and single process, alongside the Anderson review of government guidance to SMEs and recommendations to help SMEs more easily comply with their regulatory obligations and reduce unnecessary business costs, are examples of initiatives to improve conditions for business success.
At the level of local regulation, LBRO has an active role in working with its partners, stakeholders and customers to bring together, develop, test and help implement such approaches in a way which is collaborative, builds coherence, and is based on evidence of what works. As part of our programme of work (examples are described above), LBRO will work with LACORS and the Health and Safety Executive to progress the recommendation for a single compliance scheme for SMEs.
Questions about design of new regulations 1. Does Government understand businesses sufficiently to design effective regulations? Is sufficient emphasis given to small businesses and competition issues? Not well enough, but this is recognised and attempts are being made to address this. The Committee's report Getting Results: the Better Regulation Executive and the Impact of the Regulatory Reform agenda recommended that 'BRE strengthen its channels for obtaining grass roots information from the level of individual businesses [i].
The importance of 'on the ground' intelligence:
This recommendation acknowledged the importance of gathering 'on the ground' intelligence and understanding business perceptions to inform the design of regulatory initiatives. In taking this forward, LBRO has developed a comprehensive programme of business engagement to target horizontal sector representative bodies, national multi-site businesses, 'vertical' trade associations and small and medium sized enterprises. As suggested in recommendation 19, LBRO has customised all engagement and communications activity and targeted it to specific business sectors.
The aim of the LBRO business engagement strategy is, firstly, to raise awareness and understanding of better local regulation and to work with businesses to mutually understand how to achieve better local regulation in practice and, secondly, to ensure that businesses are aware of LBRO activity and its impact for them in reducing the regulatory burden. Insight and intelligence gathered, backed by supporting research and evaluation is fed back to Government through our formal advice function to support the design of more effective and responsive regulations, providing Government with valuable feedback from the business community both at the micro and macro level.
Activity includes: · Regular high level engagement and dialogue with sector bodies, including the FSB and CBI · Engaging with identified business groups and businesses through a network approach. This network acts as a consultation base and ensures wide engagement in a structured manner · Regional business briefings with local authorities to develop a closer dialogue between business and local authority regulatory services, and provide updates on the wider better regulation agenda
· Collecting business views, including perceptions of local regulation and experiences of the regulatory reform agenda. Examples included case studies collected from businesses involved in the Retail Enforcement Pilot
Influencing both policy and implementation:
Our understanding of business needs and the business environment has actively influenced recent policy reviews, including the Anderson review of guidance and recommendations regarding sector specific business advice.
At implementation level, our approach is to work with business to design programmes that will deliver better outcomes, as seen in the extensive involvement of businesses in the design and development of both the Primary Authority and Trading Places schemes. Based on the logic that you 'cannot regulate what you do not understand', Trading Places increases local regulators' understanding of the business environment and approaches to compliance, and in the next 12 months, LBRO aims to provide 750 placement opportunities for local authority regulators.
2. Is there sufficient consideration of how regulations will be implemented, including an appropriate focus on compliance and enforcement issues? Improving the implementation of regulation by LA services:
In relation to LA regulatory services, the policy delivery chain from design to implementation of regulations can be both lengthy and complicated, with regulatory responsibility being either delegated to local level or a shared responsibility between regulatory services and national regulators[i]. European directives provide an additional layer of complexity. Given this complexity, it is important that both the enforcement and enforceability of regulations are considered at the earliest stage.
LBRO has been purposely established as a new type of regulatory instrument, with the powers to work within a complicated system to actively improve the implementation of regulation by local authority services. Our strategic objectives to support service improvement in regulatory services and to improve the regulatory system[ii] focus on implementation, both at individual authorities' and at system wide level. At a system level, this involves advising Government on the enforceability of proposed regulations and working to improve the systemic conditions for local delivery, including seeking greater alignment of processes and policies that impact on delivery, including risk assessment, prioritisation, data sharing and professional competency.
Changing the focus from enforcing to securing compliance:
Working with local authorities involves embedding a risk based and outcome focused approach. Better regulation involves the purposeful use of regulatory tools to move from risk to outcomes. For many regulators, this requires a cultural shift from enforcement of the law towards a duty to secure compliance, with a greater emphasis on regulatory outcomes. Within a local authority context, regulators play a role in local place shaping and promoting prosperity and protection. Better outcomes can be achieved through adopting a 'co-production of compliance' approach, using the relationship between the state, business and consumers to change behaviours and select regulatory interventions appropriate to the market conditions.
[i] The survey on 'Business relations with local authority regulatory services' conducted in February 2009 and commissioned by LBRO, reported that 56 per cent of SMEs that have had face to face contact with their local authority in the last 12 months have had contact with a local authority regulatory services officer.
[ii] Supporting businesses in recession and beyond, draft LBRO advice and guidance for local authorities, March 2009, available at http://www.lbro.org.uk/Pages/Resources.aspx?id=217
[iii] Food Safety Management Evaluation Research COI/FSA, 2008 [iv] The Local Government Act 2000 gave local authorities a discretionary power to promote or improve the social, economic and environmental wellbeing of their area.
[v] Based on an extrapolation using national data from LBRO/ Ipsos MORI: Business Perceptions of Local Authority Regulatory Services, September 2008, available at www.lbro.org.uk and the interim business survey by Kirkman Associates [vii] Reducing administrative burdens: effective inspection and enforcement, Hampton/ HM Treasury, March 2005, Recommendation 28, page 119
[viii] Local Authority Co-ordinators of Regulatory Services [ix] LBRO is committed to being an evidenced based organisation. Research and evaluation activity is a key component of our programme of work and ability to influence the regulatory system. Research and evaluation studies conducted or commissioned by LBRO are available at www.lbro.org.uk.
[x] Officers now have the opportunity to step into their customers' commercial shoes via Trading Places. An intensive two-day study course at leading UK companies offers a great practical learning experience, plus valuable insight into how businesses are run and the challenges they can face in abiding by the rules. This scheme is open to all environmental health, fire safety, licensing and trading standards officers working in local authorities, as well as businesses from any sector. It is endorsed by the Confederation of British Industry, the British Chambers of Commerce, the British Retail Consortium, the Chartered Institute of Environmental Health and the Trading Standards Institute. Trading Places was launched in March 2009 after extensive testing and evaluation, involving placements at Asda, B&Q, Sainsbury's, Tesco, Thomas Cook and Total. Further details can be found at www.lbro.org.uk
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