Speech by: Ian Lucas MP
Event: Business Perceptions Workshop
Venue: London

Introduction

Welcome and thank you for coming here today. I appreciate you making the time to be with us this afternoon.

In a few minutes we will give you the chance to put your questions to a panel including: me, Michael Gibbons – Chairman of the new Regulatory Policy Committee – and John Dodds, BRE’s Director of Regulatory Reform. John then will introduce a workshop session.

But before that I think it would be useful to set out where Government is coming from on these issues.
Regulation is an important lever for Government. It is thanks to regulation that we have improved air quality, fewer workplace accidents, more trade across the European Union and a better quality of life in general. But regulation is never cost-free and there are often other ways we can achieve our policy aspirations that are both less burdensome for business and cheaper for Government to deliver.

Today I will argue that the huge challenges of returning the economy to sustained growth, and tackling the deficit, mean we need to become even more disciplined about the way we regulate.

I believe we should always start from the premise that alternatives to regulation are equal, if not better, ways of achieving the important outcomes we want. Regulation, in effect, should be seen as a last resort.
In an ideal world, regulation should keep a low profile. I used to run a small business myself and my attitude to regulation was that it was fine – as long as I could get on with things without too much difficulty. But the global recession and the collapse within the banking sector has turned the spotlight on regulation as never before. It has given us a sharp reminder of just how important it is to have the right regulatory framework.

And that is going to be even more important as we prepare for economic growth.

The right regulation

Some tend to see this debate in black and white. It is all about whether we have too much or too little regulation. The trillion dollar question might well have been could we have stopped the global recession with more regulation? But for me, the debate should be about both quality and quantity.

Getting regulation right is a high-wire act. No intervention is ever risk free and there may be unintended consequences. Your actions might benefit the collective good, or they could stifle growth and limit individual freedom.

To illustrate the point let us look at Government’s efforts to reduce heart disease. The leading cause of premature death in the UK. It has a devastating effect on sufferers and their families and places a significant burden on the resources of the NHS. It is influenced by factors which include poor diet, high blood pressure, obesity and high cholesterol.

Now you might say here there was an immediate need for Government intervention. But we knew that immediate regulation could damage business – by imposing substantial costs on the food industry – and still fail to achieve our objectives.

So we found a middle way. We did that by establishing a programme of voluntary targets which encouraged retailers, manufacturers and caterers to reduce the level of salt, saturated fat and added sugar in their products and therefore reduce national consumption levels.

At the same time, we used extensive consumer awareness campaigns to give individuals the information they needed to reduce their own risk. So really this approach was about encouraging more personal responsibility – empowering the industry and the customer to regulate themselves.

Government action to ensure right regulation

Now, in the current difficult economic conditions, with firms struggling to make ends meet, the need for us to get the balance right and minimise the burden to business is even more pressing.

That is why we have given business more certainty in planning for the future and published, for the first time, a detailed timetable of all the Government’s new planned regulations.

That is why over the past five years we have reduced the paperwork burden to business by one quarter – that’s over £3 billion a year and around £8million a day, every day!

And that is why we have delayed the introduction of nearly 30 new laws, postponing nearly £3.5 billion in costs to business until after April 2011.

Looking ahead, our new target to simplify regulation – cutting costs for business by a further £6.5 billion a year by 2015 – includes the full costs of compliance not just the forms and paperwork. No other country in the world has instigated such an ambitious programme.

And, to keep ahead of the game, we have set up the new external Regulatory Policy Committee (RPC), chaired by Michael. With cross-Government support, I expect the RPC to make a real difference – providing a constructive independent challenge to Government – in helping minimise the cost of regulation, maximising benefits for business and the economy.

So we have done a huge amount to minimise the burden of regulation. And our efforts should be seen in the wider European context too.

The EU has also been keen to get rid of unnecessary red tape which is why it introduced a target to reduce administration by 25 per cent by 2012. And it has also brought in the Small Business Act for Europe, with three key better regulation components. The UK has played a leading role here in helping the EU’s better regulation agenda. To drive this agenda at EU level, I am working closely with my German counterpart. And in the next month I will be publishing joint proposals for EU better regulation priorities with my Dutch and Danish colleagues.

Better regulation

So there is a great deal being done to make sure that we have the right regulation. But, as I indicated earlier on, if we are to make sure this country succeeds in the future, we have to go much further. We need to be clearer about when and why we intervene. And, when we do, we need better regulation.

How can we be clearer collectively, as Government, and with you, business, on the principles that underpin our approach to regulation?

1. Clarity of purpose

Firstly, we need a greater clarity of purpose. We have to know exactly when Government will intervene, and why. In short, we should only resort to regulation to correct a social inequality, or address a market failure. Let me illustrate the point with a couple of examples.

More than a decade ago it was still possible for UK companies to run up huge profits based on exploiting a poorly paid, poorly treated workforce. We changed that through intervention. The National Minimum Wage – which celebrated its 10th anniversary last year – showed how regulation could create a fairer workplace. And it benefited business too by ensuring that competition is based on the quality of goods and services rather than low rates of pay.

So that is how regulation can address social inequality. But it is also sometimes necessary to address a market failure. Why? Because for the economy to function effectively, and allow businesses to thrive in a genuinely competitive environment, markets need some rules.

For example, Government has a vitally important job in setting the regulatory framework to protect consumers from over-pricing by monopolies. The Enterprise Act 2002 took the politics out of competition decisions, with expert, independent competition bodies such as the OFT and other sectoral regulators taking decisions on mergers and markets.

And we know that we have to reduce our carbon footprint by 2050. Now, one of the ways we are going to achieve that challenging target is by changing the way we build our homes to make them more energy efficient. But the problem is that, with the potentially large up-front costs of doing this, the market may not, on its own, provide the solution. So we are using building regulations to drive change.

2. Understanding our impact

The second part of this principled approach to regulation is about having a greater understanding of the impact of intervention.

The recently published Growth Strategy showed how a more active industrial policy will get the UK economy back to a normal and sustained rate of growth.

When Government regulates business, it will always have an impact on growth. Entrepreneurs and businesses react to the signals that Government sends when choosing how to invest and innovate. If we decide to intervene, we must do so in a way that minimises barriers to growth and maximises the opportunities.

We are already taking action. We will shortly be publishing research looking at the effect of regulation on small businesses who wish to become more resource and energy efficient.

And we know that there can be delays to investment and costs created by consents for planning development. So the Penfold Review has issued a call for evidence and I hope many of you will feed in views. The deadline is next Wednesday. It will report in the Spring, looking for ways to stimulate growth.

3. Greater customer focus

The third principle that I think is intrinsic to better regulation is about having even greater customer focus.

UK businesses spend around £10bn per year – that’s about one per cent of GDP – completing administrative tasks related to regulation. Businesses have to keep up with the flow of new laws, updating their processes and guidance, and sometimes taking professional advice on the implications. The “policy costs” of the requirements of the regulations alone are estimated to be several times higher.

Much of this regulation is vital to a modern economy. But the only way we can guarantee whether we are intervening in the right way, and the only way we can know when it is right not to intervene, is by putting ourselves in the shoes of businesses, employees, consumers and families. And that means continually asking ourselves whether what is proposed – either here in the UK or in the EU – is proportionate, accountable, consistent, transparent and targeted.

One of the ways we are doing this is through a committee that is based at the heart of Government. Chaired by the Chancellor, the Better Regulation sub-committee of the National Economic Council scrutinises planned and proposed regulation that impacts on business. The views of business are vital – and that is why we are committed to effective consultation so that business views are at the heart of decision making.

We are also encouraging businesses to have their say, in other ways. We have issued a call for evidence and will feed the results directly into our new simplification programme. Today’s workshop session is another opportunity to gather your views.

Conclusion – alternatives to regulation

So if we regulate only when absolutely necessary and adhere to these three principles – clarity of purpose, greater understanding of our impact on the market, and greater customer focus – we will go a long way towards ensuring we have better regulation. But, in a sense, better regulation goes beyond these principles. It is about seeking out alternatives rather than opting for a new law as a first resort.

Why do I think alternatives to regulation are so important?

They frequently impose less cost and often work better. We need to avoid the trap of assuming that regulation is a fool-proof way of achieving what we want. Alternatives also reduce the need for Government machinery to enforce regulations, as well as avoid the inevitable public spending that entails.

Alternatives are key to the next phase of the evolution of the better regulation agenda. I want to see a new determination, a new energy, in Government, business and society to think more creatively about alternatives to regulation that can help improve people’s lives and support prosperity and growth.

Those alternatives might be about more intelligent, smarter provision of information to consumers, enabling them to take more responsibility for their choices and actions and avoiding the need for regulation. They could be about market-based solutions such as emissions trading to deal with the impact of climate change. Or they could relate to codes of practice, such as the Press Complaints Commission, so that industries are empowered to regulate themselves. From the EU there are good examples too. Last year the Commission announced that 10 mobile phone producers have signed a voluntary agreement to use standardized chargers for mobile phones – reducing thousands of tons of waste each year, while avoiding costly new legislation.

To drive the search for innovative alternatives to regulation forward I have set the Better Regulation Executive the challenge of coming up with options for fresh approaches that will help develop this hugely important part of the agenda. I look forward to seeing the results.

But, of course, this search for better regulation keeps coming back to you. As we look for ever smarter ways of tackling and simplifying existing legislation, we will need to work ever more closely together to get it right.

Your views are vital if we are to build an environment that is better for business, better for the customer, and best of all for our economy.
I look forward to hearing them this afternoon.