James Vitali is a Research Fellow at Policy Exchange.
Why does regulatory reform elicit such vehement debate in this country? On the face of it, it’s a thoroughly technocratic subject.
Yet for months, impassioned articles have been written arguing that the Government’s plans to sunset thousands of retained EU laws and directives are an “undemocratic” bonfire of protections that is likely to precipitate the next Grenfell Tower tragedy or banking crisis.
At the same time, the announcement that the Government are watering down these plans – just 600 pieces of legislation will now be removed from the statute book by the close of 2023, not 4000 – were met with “dismay” by Tory MPs. Kemi Badenoch, the Business Secretary and deeply popular the Tory right, has been described as a “lame minister”. Technocratic or not, the topic stimulates strong emotions.
Brexit is undoubtedly part of the explanation. Many see the Retained EU Law Bill – the legal instrument by which legacy rules and regulations will be repealed –as a critical step in delivering an authentic departure from the EU and repatriating sovereignty. By contrast, the proposed automatic sunsetting of laws at the end of 2023 appeared to Brexit-sceptics as further evidence of how doctrinaire and ideological the project really is.
But I think there is a deeper reason. And it is that contemporary debates over regulation are a proxy for a much more profound disagreement about our attitude to risk in society.
For some, government is responsible for eliminating risk from our lives, and the regulatory framework is the tool through which they discharge that responsibility. Every contingency that arises is a subject which the government is not only capable of addressing but obligated to address. A net reduction in regulations in this view is regressive because it represents the government abrogating its duty to eliminate risk.
Throughout history though, and particularly in the twentieth century, thinkers have pointed not only to the impossibility of eliminating risk entirely from our lives, but the undesirability of doing so. Innovation, creativity, and liberty itself require the possibility of contingency and chance.
It was a point made forcefully by those who worried that the yearning for certainty in life would leave people increasingly prone to giving up their freedom in return for the protection of the state. The consequence would not only be severe economic stagnation, but a society in which government intervened in our lives to an ever-increasing degree.
This is not to say that the Government has no obligation to manage risk. Government itself exists partly because we require it to provide a minimum level of security and order in our lives.
But the argument that Policy Exchange’s Re-Engineering Regulation project has been making for the past year is that, when it comes to regulation, there are a number of other imperatives that we must consider alongside risk mitigation – like fostering innovation or ensuring competition.
Other countries seem to recognise this point better than us. A good illustration is the mandates for the various national financial regulators.
The Prudential Regulation Authority in the UK is governed by the Financial Services and Market Act 2000, which states that the primary responsibility of the regulator is to promote the safety and soundness of the firms and reduce the risk of failure, with a secondary objective to promote competition. The Office of the Superintendent of Financial Institutions (OSFI) in Canada, by contract, is specifically mandated to take “a balanced approach” which allows firms to “compete effectively and take reasonable risks”.
The Australian Prudential Regulation Authority (APRA) is even more explicit. It states that it is not tasked to pursue a ‘safety at all costs’ agenda. To seek to establish a zero failure regime would require severe limits on the risk-taking of financial institutions. That would prevent them from fulfilling vital and productive roles in the economy.
APRA’s statutory objectives therefore require it have regard to, and avoid unduly hindering, other desired objectives for the financial system: efficiency, competition, contestability and competitive neutrality.
We have suffered from a ratchet of risk aversion in the UK at the expense of other economic imperatives, and that is principally because we see every contingency that arises as a consequence of regulatory failure.
That there are rules in place that secure the stability of the banking sector or minimise fire risk in residential developments or protect the environment is uncontentious. But it doesn’t follow from this that it is the responsibility of our regulators to prevent all risks.
We need to start conceptualising our regulatory framework as analogous to a rulebook for a game or sport. Of course, rules are absolutely necessary to organise the activities of the participants and to ensure that individuals cannot be seriously harmed through their interactions with others.
But too many rules would mean the game or sport ceased to be worthwhile playing. Regulations constitute the rules of the game of economic and social life. We need them, but they are not ends in themselves.
Badenoch told MPs that delays to the repeal of EU laws were due to the fact that civil servants have not conducted the requisite analysis. That is a lamentable measure both of limited state capacity and the insufficient attention that is being paid to this vital subject.
Nevertheless, whilst reducing the regulatory burden on individuals and businesses is certainly necessary, a focus on the quantity of regulations should not come at the expense of a more strategic consideration of what regulation is for. We need to set out a positive case for what we want regulation to do in this country.
Policy Exchange has started setting out that positive case. We argue not for wholesale deregulation, but a smarter regulatory framework that is driven by outcomes and which seeks a better balance between the contending imperatives of risk-mitigation, competition, and incentivising innovation and growth.
We argue for more political direction, more scrutiny by and accountability to Parliament, and more avenues within individual industries for feedback and self-correction. Above all else, we need a cultural shift in how we think about risk and the responsibility of government to manage it.
The Government urgently needs to articulate such a positive case to the public about regulatory reform. How it will promote dynamism and growth. How smarter regulation can improve outcomes for consumers and end-users. How regulations come with both direct and hidden costs, and how each pound spent on compliance is a pound not spent on salaries or productive activity.
Until it does so, the risk aversion ratchet will continue to tighten, and both the economy and society more generally will be worse off for it.
James Vitali is a Research Fellow at Policy Exchange.
Why does regulatory reform elicit such vehement debate in this country? On the face of it, it’s a thoroughly technocratic subject.
Yet for months, impassioned articles have been written arguing that the Government’s plans to sunset thousands of retained EU laws and directives are an “undemocratic” bonfire of protections that is likely to precipitate the next Grenfell Tower tragedy or banking crisis.
At the same time, the announcement that the Government are watering down these plans – just 600 pieces of legislation will now be removed from the statute book by the close of 2023, not 4000 – were met with “dismay” by Tory MPs. Kemi Badenoch, the Business Secretary and deeply popular the Tory right, has been described as a “lame minister”. Technocratic or not, the topic stimulates strong emotions.
Brexit is undoubtedly part of the explanation. Many see the Retained EU Law Bill – the legal instrument by which legacy rules and regulations will be repealed –as a critical step in delivering an authentic departure from the EU and repatriating sovereignty. By contrast, the proposed automatic sunsetting of laws at the end of 2023 appeared to Brexit-sceptics as further evidence of how doctrinaire and ideological the project really is.
But I think there is a deeper reason. And it is that contemporary debates over regulation are a proxy for a much more profound disagreement about our attitude to risk in society.
For some, government is responsible for eliminating risk from our lives, and the regulatory framework is the tool through which they discharge that responsibility. Every contingency that arises is a subject which the government is not only capable of addressing but obligated to address. A net reduction in regulations in this view is regressive because it represents the government abrogating its duty to eliminate risk.
Throughout history though, and particularly in the twentieth century, thinkers have pointed not only to the impossibility of eliminating risk entirely from our lives, but the undesirability of doing so. Innovation, creativity, and liberty itself require the possibility of contingency and chance.
It was a point made forcefully by those who worried that the yearning for certainty in life would leave people increasingly prone to giving up their freedom in return for the protection of the state. The consequence would not only be severe economic stagnation, but a society in which government intervened in our lives to an ever-increasing degree.
This is not to say that the Government has no obligation to manage risk. Government itself exists partly because we require it to provide a minimum level of security and order in our lives.
But the argument that Policy Exchange’s Re-Engineering Regulation project has been making for the past year is that, when it comes to regulation, there are a number of other imperatives that we must consider alongside risk mitigation – like fostering innovation or ensuring competition.
Other countries seem to recognise this point better than us. A good illustration is the mandates for the various national financial regulators.
The Prudential Regulation Authority in the UK is governed by the Financial Services and Market Act 2000, which states that the primary responsibility of the regulator is to promote the safety and soundness of the firms and reduce the risk of failure, with a secondary objective to promote competition. The Office of the Superintendent of Financial Institutions (OSFI) in Canada, by contract, is specifically mandated to take “a balanced approach” which allows firms to “compete effectively and take reasonable risks”.
The Australian Prudential Regulation Authority (APRA) is even more explicit. It states that it is not tasked to pursue a ‘safety at all costs’ agenda. To seek to establish a zero failure regime would require severe limits on the risk-taking of financial institutions. That would prevent them from fulfilling vital and productive roles in the economy.
APRA’s statutory objectives therefore require it have regard to, and avoid unduly hindering, other desired objectives for the financial system: efficiency, competition, contestability and competitive neutrality.
We have suffered from a ratchet of risk aversion in the UK at the expense of other economic imperatives, and that is principally because we see every contingency that arises as a consequence of regulatory failure.
That there are rules in place that secure the stability of the banking sector or minimise fire risk in residential developments or protect the environment is uncontentious. But it doesn’t follow from this that it is the responsibility of our regulators to prevent all risks.
We need to start conceptualising our regulatory framework as analogous to a rulebook for a game or sport. Of course, rules are absolutely necessary to organise the activities of the participants and to ensure that individuals cannot be seriously harmed through their interactions with others.
But too many rules would mean the game or sport ceased to be worthwhile playing. Regulations constitute the rules of the game of economic and social life. We need them, but they are not ends in themselves.
Badenoch told MPs that delays to the repeal of EU laws were due to the fact that civil servants have not conducted the requisite analysis. That is a lamentable measure both of limited state capacity and the insufficient attention that is being paid to this vital subject.
Nevertheless, whilst reducing the regulatory burden on individuals and businesses is certainly necessary, a focus on the quantity of regulations should not come at the expense of a more strategic consideration of what regulation is for. We need to set out a positive case for what we want regulation to do in this country.
Policy Exchange has started setting out that positive case. We argue not for wholesale deregulation, but a smarter regulatory framework that is driven by outcomes and which seeks a better balance between the contending imperatives of risk-mitigation, competition, and incentivising innovation and growth.
We argue for more political direction, more scrutiny by and accountability to Parliament, and more avenues within individual industries for feedback and self-correction. Above all else, we need a cultural shift in how we think about risk and the responsibility of government to manage it.
The Government urgently needs to articulate such a positive case to the public about regulatory reform. How it will promote dynamism and growth. How smarter regulation can improve outcomes for consumers and end-users. How regulations come with both direct and hidden costs, and how each pound spent on compliance is a pound not spent on salaries or productive activity.
Until it does so, the risk aversion ratchet will continue to tighten, and both the economy and society more generally will be worse off for it.