Draft Legislative and Regulatory Reform (Regulatory Functions) (Amendment) Order 2014
Draft Regulator's Code
The Committee consisted of the following Members:
† Birtwistle, Gordon (Burnley) (LD)
Blears, Hazel (Salford and Eccles) (Lab)
† Doughty, Stephen (Cardiff South and Penarth) (Lab/Co-op)
† Fallon, Michael (Minister of State, Department for Business, Innovation and Skills)
† Fox, Dr Liam (North Somerset) (Con)
† Gyimah, Mr Sam (Lord Commissioner of Her Majesty's Treasury)
† Halfon, Robert (Harlow) (Con)
† James, Margot (Stourbridge) (Con)
† Lloyd, Stephen (Eastbourne) (LD)
† Lumley, Karen (Redditch) (Con)
† Meacher, Mr Michael (Oldham West and Royton) (Lab)
† Mills, Nigel (Amber Valley) (Con)
† Perkins, Toby (Chesterfield) (Lab)
† Prisk, Mr Mark (Hertford and Stortford) (Con)
† Qureshi, Yasmin (Bolton South East) (Lab)
† Ruane, Chris (Vale of Clwyd) (Lab)
† Simpson, David (Upper Bann) (DUP)
† Skinner, Mr Dennis (Bolsover) (Lab)
Eliot Wilson, Committee Clerk
† attended the Committee
Fourth Delegated Legislation Committee
Wednesday 12 March 2014
[Sir Edward Leigh in the Chair]
Draft Legislative and Regulatory Reform (Regulatory Functions) (Amendment) Order 2014
2.30 pm
The Minister of State, Department for Business, Innovation and Skills (Michael Fallon): I beg to move,
That the Committee has considered the draft Legislative and Regulatory Reform (Regulatory Functions) (Amendment) Order 2014.
The Chair: With this it will be convenient to consider the draft regulators’ code.
Michael Fallon: On behalf of the Committee, may I welcome you to the Chair, Sir Edward? This is the first time I have had the pleasure of serving under your chairmanship. I look forward to an interesting afternoon debating these two instruments, which you and the Committee have kindly agreed to take together.
If I may, I shall speak first to the regulator’s code, the purpose of which is to amend and update the regulators’ compliance code. I shall speak secondly to the Legislative and Regulatory Reform (Regulatory Functions) (Amendment) Order 2014, which updates the regulatory functions within the scope of the regulators’ code and the statutory principles of good regulation. I hope you will allow me to address the two instruments in that order, Sir Edward, because one flows from the other.
The revised regulators’ code is a statutory code of practice that builds on the lessons learned from the existing regulators’ compliance code, which was published more than six years ago, in December 2007. It has been developed to reflect current regulatory delivery priorities and to provide a framework for their implementation. It aims to influence positively the relationship between regulators and those they regulate. The previous compliance code was useful in setting the standard of good regulatory enforcement, but it has not achieved the anticipated change in culture in that relationship.
The “Transforming regulatory enforcement” consultation, which we ran in 2011, revealed that businesses wanted regulators to make greater use of the existing code. The Federation of Small Businesses noted that there is
“a need to strengthen and give credibility to the Regulators’ Compliance Code as the FSB feels that it is currently often unrecognised and not used.”
Additionally, it was found during a post-implementation review of the code that local authorities had not universally adopted its principles, such as the publication of enforcement policies, and they therefore were not operating completely transparently.
The new code addresses such failings by simplifying the existing code’s provisions. It is much shorter than the existing code—some seven pages against 18—and
provides a flexible framework that individual regulators can apply proportionately to support effective delivery. The draft code was subject to an eight-week public consultation. We have carefully considered the detailed responses, which have revealed support for the code.Feedback revealed that businesses welcomed the revised code and were supportive of its provisions. For example, the Association of Convenience Stores said that
“the draft requirements of the Regulators’ Code... encompass the essential elements for responsive and efficient enforcement practice.”
The Association of Professional Financial Advisers said that the code
“is comprehensive, contains clear statements of principle and spells out how regulators should meet those principles. We particularly welcome the proposed requirement upon regulators to support or enable economic growth.”
The consultation also highlighted regulators’ concerns that some of the previous code’s provisions were overly prescriptive and burdensome. We have listened to those concerns. The provisions of the new code have been simplified while maintaining the flexibility required to apply to the broad range of regulators that fall within their scope. The code applies to a diverse range of non-economic regulatory functions, including more than 60 national regulators and a number of other regulatory functions exercised by Ministers and by all 433 local authorities. The diversity of that range—not just in size and resource, but in purpose—has been considered in developing the code.
The final draft was published in July last year, ahead of its introduction to Parliament, to give regulators time to review it and to adapt their existing policies and procedures. The code is flexible and does not add burdensome requirements, and regulators can apply it proportionately to suit local demands.
Let me be clear: regulators are obliged to have regard to the code, but that duty is subject to any other requirement affecting the exercise of their regulatory functions. That means that their duty to comply with the code is a secondary objective to their principal duties, although it does not undermine any of their primary protection duties with respect to consumers or the safety of the public.
The code is based on principles designed to promote early dialogue, prioritise resources through risk assessment, encourage trust and, ultimately, improve the relationship between regulators and those they are regulating. It has a clear provision for regulators to publish service standards that set out what can be expected from them and which should ensure that their approach to regulatory activity is transparent. That will increase accountability for those subject to regulation through greater transparency and knowledge.
My Better Regulation Delivery Office has organised a series of awareness-raising events and training sessions to assist with the implementation of the code, as well as developing an online tool kit—which includes compliance, enforcement and service standard templates—through engagement with regulators and bodies such as the Local Government Association.
Businesses and representatives can now hold regulators to account by challenging any non-compliance with the principles of the code. I hope they would do so first through dialogue with the regulators, but if that was insufficient they could seek permission to judicially
review any non-compliance. That would provide sufficient incentive to encourage regulators to adopt the principles in the code.Mr Mark Prisk (Hertford and Stortford) (Con): My right hon. Friend is rightly setting out an important improvement to the law. How will that work in parallel to the proposed changes under the Deregulation Bill, which is before the House and which considers the establishment of a growth duty, in some cases, I suspect, on many of the same regulators?
Michael Fallon: The two duties should be taken together. We are hoping to obtain primary legislation for the growth duty, which will give regulators not a principal objective, but a secondary, alongside their main duties to ensure that they are not hampering the economic growth of their sector. I see these two changes—a tighter and simpler compliance code as to how regulators should behave—going alongside the duty that I hope we shall impose on the non-economic regulators always to consider the impact of their decision making on growth.
The second instrument, the 2014 order, updates the regulatory functions that are within the scope of the code and which are subject to the statutory principles of good regulation in section 21 of the Legislative and Regulatory Reform Act 2006. The order brings within the scope of the code the regulatory functions exercised by Monitor, for the health service; the groceries code adjudicator; the regulator of community interest companies and the claims management unit of the Ministry of Justice.
We believe that the principles of good regulation, as defined in the Act and the regulators’ code, should be applied to the broadest possible range of non-economic regulatory functions. I stress that the introduction of the code will not add burdens, either to regulators or to businesses.
The code shortens and simplifies the existing code. It does not override any existing regulatory requirements—it is a secondary objective, which will enable regulators to direct their in some cases limited resources to the areas of greatest need, thereby reducing bureaucracy and burdens on the low-risk fully-compliant businesses. The Government are committed to ending the culture of tick-box regulation and strengthening risk-based enforcement. As a statutory code of practice, applying to a range of non-economic regulatory functions, the code is a key measure to achieving that commitment.
We are taking an important step in developing a modern, open and transparent approach to regulatory delivery. I commend the code and the accompanying order to the Committee.
2.40 pm
Toby Perkins (Chesterfield) (Lab): I share the Minister’s excitement and pleasure at the opportunity to serve under your chairmanship, Sir Edward. I am sure that this will be an interesting and important debate.
The regulators’ compliance code, introduced in 2008 by the previous Labour Government, was an important step. It sets out clear best practice for regulators so that they do not impose too heavy a burden on business and so that they work to promote growth and opportunity. It recognises that all regulators have a regulatory function,
which will often require businesses to demonstrate their compliance with the requirements of that regulator. At the same time, it is right that there is a duty on the regulators to use those powers responsibly and to be supportive of the needs of British industry. Therefore, we are supportive and proud of Labour’s record in introducing the compliance code.In many ways, the new code introduces some sensible amendments and we do not plan to vote against them, but I want to tease out from the Minister a broader sense of the Government’s view on regulation and to touch on some of the questions that people in that environment are concerned about.
The commitment of the Labour Government to reduce the burden on business, which was demonstrated by the introduction of the regulators’ compliance code, was underlined by a House of Commons Library estimate showing that reducing the regulatory burden produced savings of £3 billion per annum under the Labour Government, which draws a stark contrast with this Government’s efforts with the Deregulation Bill.
The hon. Member for Hertford and Stortford raised the question of the relationship of these instruments with the Deregulation Bill, and he was right to do so. They deal with some of the principles held in that Bill, particularly around the growth duty. We will be discussing that at length in the Deregulation Bill Committee, but it has also found its way into the code.
The policy review found that most regulators were sticking to the guidelines of the compliance code but the delivery was inconsistent across different sectors. The new regulators’ code is based around six principles. First:
“Regulators should carry out their activities in a way that supports those they regulate to comply and grow.”
That fits with the growth duty in the Deregulation Bill. Will the Minister clarify how he sees that operating in certain circumstances? We know regulators often have serious responsibilities for public safety—one regulator covered by the Deregulation Bill is responsible for drinking water and another for nuclear safety—but those organisations will now have a specific responsibility towards growth.
Of course, the Minister will say that those organisations still have their responsibility for public safety and that that is paramount. However, he mentioned judicial review—organisations taking their regulator to task if they feel that the regulator is getting in the way. Business is always going to say, “We don’t want the regulators to clamp down on what we are doing,” and it is sensible that the regulators take steps to be reasonable. Non-compliant businesses in particular are likely to say, “The regulators are getting in the way, and we want to have a judicial review.” What thoughts does the Minister have on how those regulators that have clear primary public safety responsibilities are going to change the way they operate in the context of the growth duty and how that will work? I am also interested in what he has to say about the impact that will have on the relationship between regulators and businesses.
The Opposition entirely support the idea of regulators carrying out their activities in a way that supports industry to comply and that ensures it is clear what is expected of it, as well as doing everything they can to support British business to be as successful as possible.
However, the relationship may alter. Rather than regulators telling businesses, “You are non-compliant, and there are issues you need to put right in the interests of the law and public safety,” the business may very much hold the whip hand. What will that do to compliance, and what safeguards will be in place to ensure the positive things the Minister is trying to achieve do not have unintended and damaging consequences?The second principle is that regulators should provide “simple and straightforward ways” to communicate with those they regulate, and that is entirely sensible. The Minister also referred to the third principle—regulators basing their “regulatory activities on risk.” The question is, risk of what? One would imagine we are talking about public safety, which is a key responsibility for regulators, but there are other risks that regulators might be responsible for, and I would be interested to see what guidance the Minister provides on that.
One risk that a regulator might want to keep an eye on is whether there is compliance with legislation—it often comes from Europe—to make the whole field even. I have had representations from organisations such as the industrial weighing machines association, saying that the Government’s deregulatory approach means that we in this country are much laxer about applying industry regulations to ensure industrial weighing scales are compliant, both at the time of purchase and in following years. The impact is that British manufacturers, who are very good at providing top-quality equipment, are undercut by cheap foreign imports from Asia—China, Korea and so on—that are not compliant. Our laissez-faire approach to regulation and compliance allows them to come in and undercut us in our own market, in a way that would never be allowed in Germany or France.
When we say that regulators should base their activities on risk, that of course means public safety, but what other risks does the Minister expect regulators to be conscious of? Does he recognise that an approach saying that all regulation is bad for business actually undermines British business? We are trying to drive up standards, we are very compliant and we have good quality equipment, but that approach to regulation opens our market to cheap foreign imports and sees jobs and British businesses lost to support cheap imports from overseas. I want the Minister to convince us that, in this duty, we will protect British business and British jobs from cheap foreign imports.
The Minister mentioned that one key piece of feedback in response to his consultation, from organisations such as the FSB, was that the compliance code is in place and is a positive step, but is applied on a fairly uneven basis, and that some regulators are not compliant with it. Those organisations wanted him to be a bit tougher with those regulators to ensure that everyone is compliant with the regulators’ code. If his approach now is to have a much less prescriptive, much more flexible framework for regulators, how does he square that with the feedback from the FSB and others, who are saying, “What we want is all our regulators to stick with the code they’ve got. We want you to support us in business to make sure our regulators are actually following the regulators’ compliance code”? He is saying, “No. We think it’s too prescriptive. We’re going to make it more flexible.” It seems that he has come up with a solution that, possibly,
does not resolve the problem. While we are keen on simplification, I am interested in his thoughts on that issue.There are some questions to be answered about the compliance code, which broadly portray some of the ways the Government’s positive intentions may undermine what many of us want to see—the rebalancing of the economy, with Britain trying to win a global race to the top, rather than a race to the bottom.
Let me turn now to the draft order. The Government have extended the code to new regulators, which seems entirely sensible. They have removed three bodies from the code: the Hearing Aid Council and the Postgraduate Medical Education and Training Board, which have been abolished, and the United Kingdom Sports Council, whose regulatory functions have been transferred. Those decisions seem entirely sensible, and we support them.
We are keen to support the Minister in any way we can to remove unnecessary burdens from business. I can say that with confidence, knowing that I represent a party that removed £3 billion a year of burdens from business, while the Deregulation Bill—I am on the Committee debating it—is intended to achieve less than 1% of that. I will give the Minister any support I can to come up with sensible pieces of deregulation, but I am anxious to hear how he can ensure that his thirst for deregulation does not get in the way of supporting good quality British industries and make them vulnerable to cheap, foreign imports.
2.51 pm
Michael Fallon: I am grateful to the hon. Gentleman for what I think was a reasonable welcome for the revisions and simplification of the code. Quite reasonably, he asked a number of questions.
On growth—I think this is the question that my hon. Friend the Member for Hertford and Stortford asked—the code takes a relatively light touch. The growth duty is in the Deregulation Bill, which I know the hon. Gentleman has been helping to scrutinise. The beginning of section 1 of the code itself says:
“Regulators should carry out their activities in a way that supports those they regulate to comply and grow.”
I hope he would accept that that is relatively light touch and not overly prescriptive.
The hon. Gentleman asked about overall risk. Of course we are not going to reduce the protection needed for high-risk activities. Nobody wants to see less protection for chemical plants or care homes; that is not our aim. Our aim is to simplify the code and make it easier for low-risk businesses to comply with.
The hon. Gentleman raised an interesting point about the potential effect of a reduction in standards on British manufacturing. He mentioned weighing machines, and I am sure he is right that imports of them have rocketed up since I published the draft code. I am happy to look at the issue and get back to him. However, let me emphasise that we have never tried to convey the idea, as I think he rather suggested in a sleight of hand, that all regulation is bad for business. Of course it is not. Business requires regulation if consumers are to be properly protected. The code helps to ensure that that regulation is consistent and proportionate and does not inhibit the business growth we all want to see.
Toby Perkins: I do not want the Minister to end up with the wrong impression or to misquote me. I was saying that the industrial weighing machines association is clear that the broadly deregulatory approach of cutting back on things such as Trading Standards and the sense that regulation is bad for business have left our market open to these cheap foreign imports and have been damaging for British industry.
Michael Fallon: The hon. Gentleman is worried about the encouragement of imports through the regulatory changes we have made, and I will certainly look at that point.
The hon. Gentleman asks about risk, which is spelt out in section 3 of the code. The approach to risk is reasonably light touch. The code says:
“Regulators should base their regulatory activities on risk”.
It is not overly prescriptive and strikes the right balance. I do not think he is right about this, but he suggested that the FSB is opposed to what we are doing. It is not. It supported the revision of the code—its simplification—and believes that this code is better than the predecessor code. He also suggested that we might be on the wrong track in promoting regulation that is proportionate, consistent and targeted. In fact, those are the better regulation principles first set out in the 2006 Act, so it is not right for him to resile from them now.
Finally, there was a rather curious suggestion that the previous Labour Government were a red-tape-cutting Government. If the hon. Gentleman believes that, he clearly was not here at the time. Let me remind the Committee that we are the first Government with a specific target to reduce the overall stock of regulation, through the red tape challenge; the first to have adopted standards to deal with the flow of regulations, through the one in, two out principle; and certainly the first to try to reduce the weight of European legislation, though the business taskforce. We are also the first Government in history to set ourselves the target of finishing our first term of office with an overall regulatory burden lower than the one we inherited.
Nigel Mills (Amber Valley) (Con): A few words ago my right hon. Friend the Minister mentioned consistency
of regulation. Could we use the code to encourage councils to be more consistent with each other in the way they implement regulations? A small business called Yummy Cheesecakes moved into my constituency from deepest, darkest Nottinghamshire. It found that the local council had a much stronger approach to testing all the new recipes, even though the business’s other procedures were entirely compliant. That put a huge burden, which turned out not to be needed, on the business. We need to look at consistency of regulation not only between businesses, but between neighbouring areas.Michael Fallon: I am grateful to my hon. Friend for raising that point, because he is absolutely right. I hope that the code in itself will help to promote consistency across the 400 or so local authorities that can now apply it.
My hon. Friend enables me to mention a final piece of improved regulation from the Government: the primary authority scheme. A firm with more than one branch, or a shop with more than one outlet, in different local authorities can have its businesses or premises regulated by one authority, which will take responsibility for the duty across the other authorities in which the company operates. He will want to know that this week we celebrated the 1,000th business joining the scheme. We have opened it up to trade associations, so they can now ensure that all their members are covered, once they are regulated properly by the original primary authority. That, too, is an example of how the Government are finally seizing the nettle of excessive regulation and bureaucracy, and finally doing something about it.
DRAFT REGULATORS’ CODE
That the Committee has considered the draft regulators’ code.—(Michael Fallon.)