How can regulations best be shaped to support a UK economy that is not just prosperous and resilient, but alert to ethical concerns in the face of bewildering macro challenges? That was the main question at the heart of ‘Smarter Regulation and Sustainable Growth’, a roundtable event held at Chartered Accountants’ Hall on Monday 16 September.

With participants from the Civil Service, regulators, think tanks and the accounting community, among others, the event formed part of ICAEW’s Better Regulation work, which aims to help the government improve the UK’s regulatory regime. In his introduction to the event, ICAEW President Malcolm Bacchus noted that no accountant in business would ever consider introducing a new way of working without properly costing it, mapping out its likely impacts and asking a year or two after the go-live date whether or not the method is working. But all too often, regulations are escaping those levels of scrutiny. 

And while the UK is widely seen as a leader in regulatory processes, many participants felt that it could still do much better.

Five pillars

One of the most daunting issues for stakeholders is the sheer, exponential growth of rulemaking. London School of Economics (LSE) Professor David Kershaw noted that in 2010, the Law Commission assessed that the government had created around 3,000 new criminal offences over the previous 13 years. In 2013, the Office of the Parliamentary Counsel, which assists government departments with the preparation of bills, said that new laws and amendments typically yield 15,000 primary legislative effects and 30,000 secondary regulatory effects per year. That scale of growth is by no means confined to the UK. In the 1930s, the US Federal Registry was just 16 pages long. Now, it adds an average 77,000 new pages every year.

That was one area of concern that the previous government considered in its recent Smarter Regulation White Paper, explained Chris Carr, a senior civil servant at the Department for Business and Trade.

Published in May, the paper focused on five pillars: 

• The stock of regulation – items already on the Statute Book. Given the countless thousands in operation at any one time, there was a broad consensus at the event that post-implementation review processes, to check that rules are still needed and effective, leave much to be desired.

• The flow of regulation. Under the principles of good regulation, rules should be proportionate, targeted, well evaluated and properly evidenced. It was noted that recent reforms to the Better Regulation Framework aim to ensure that these issues are considered much earlier to allow matters of policy to be reconsidered or refined where necessary. However, it remains to be seen how effective those changes will be in practice.

• Regulator performance and accountability addresses concerns that Brexit has resulted in a sweeping repatriation of power to UK regulators, with no attendant increase in accountability or assured performance. The House of Lords considered issues around accountability in its recent report, Who Watches the Watchdogs?, and that topic was considered in greater detail later in the event. While the report pressed for the creation of a ‘regulator of regulators’, the government has so far committed only to launching a Regulatory Innovation Office, which will not be tasked with holding watchdogs to account.

• Economic regulation focuses on the effectiveness of regulators of major monopolies, such as water, energy, rail and telecoms. Many experts believe that the current regime has not produced the desired outcomes for various stakeholders. 

• Legislative simplification highlights the opportunity for the new government to carry out a fundamental redesign of existing legal tools to rationalise and streamline them, and enhance their effects.

We have yet to learn whether the current government will take forward the White Paper’s proposals for reform. But it was widely felt among delegates that something needs to change if regulation is to meet its policy objectives as effectively as possible in the future.

Providing a watchdog’s perspective, David Walmsley, Director of Supervision, Market Oversight, at the Pensions Regulator, noted that his organisation had changed its approach in light of market changes. The most notable shifts are the increasing number of defined benefit schemes currently in surplus, plus the relative growth of defined contribution schemes and importance of master trusts.

Lines of authority

Focusing on environmental themes, Gillian Dorner, Deputy Director of the Public Governance Directorate at the Organisation for Economic Co-operation and Development, explored how new regulations should be targeted during the green transition. 

Marginalised groups and minorities, she pointed out, are disproportionately affected by climate threats, while smaller businesses do not operate in the same way as their larger counterparts. Dorner stressed that policymakers will need to take those variations into account. In addition, she said, international cooperation between watchdogs is “absolutely vital” to ensure that different countries are supporting each other throughout the transition.

Professor Kershaw further probed the organisational paralysis that can stem from excessive regulation. Quoting the recent Chorley Lecture from Professor Nicola Lacey, he outlined Lacey’s thoughts on the interim Grenfell report. In her assessment, official parties involved in the blaze were subject to a “welter” of primary legislation, codes of practice, bylaws and rules that combined into a “quite baffling array of standards and an equally opaque conception of priorities or lines of authority”. 

It was also noted that politicians will naturally feel an urge to “do something” in the face of undesirable events, and that making new regulation is something they can easily do. One delegate observed: “One day, somebody is going to be killed by an autonomous vehicle and it will be somewhat heroic for the politicians in power not to respond with some sort of regulatory intervention.”

But more regulation may not result in the best outcomes for society. For example, what if allowing autonomous vehicles would result in fewer deaths than those stemming from the use of manual vehicles? Alternatives to regulation were discussed; there were calls for governments to assess and consider risks more holistically before deciding how – or whether – to regulate.

The event concluded by considering issues around accountability and performance. According to key findings in the recent Institute for Government (IfG) report Parliament and Regulators: How select committees can better hold regulators to account, less than a third of UK watchdogs – 35 out of 116 – have attended a routine select committee hearing to scrutinise their work as a whole. A further 35 have never been called before Parliament at all. The IfG proposes that select committees should be provided with dedicated support and resources to ensure they are asking pertinent questions and maintaining comprehensive regulatory coverage. Select committees should not only call upon regulators during crises.

Conclusion

Some commentators believe that trying to constrain any excesses of the regulatory state is a hopeless cause. Given the economic standing and history of the UK, the conclusion from this event was that it would be naive to expect the regime to be perfect. Indeed, complexity and tensions are inevitable. But far from being dispirited, we should encourage governments to press forward with reforms that could help to improve known shortcomings.