Better Regulation

Baroness Neville-Rolfe Excerpts

Thursday 7th December 2017 Lords Chamber

Moved by

[Baroness Neville-Rolfe]

To move that this House takes note of Her Majesty’s Government’s plans to ensure that regulation is balanced, cost-effective, easy to understand, and properly enforced.

[Baroness Neville-Rolfe (Con)]

My Lords, I am sponsoring this debate because regulation plays an important part in all our lives, both for good and, unfortunately, sometimes for ill. In recent decades, successive Governments have recognised the cost of regulation and sought to minimise it while still gaining the associated benefit. Recent initiatives are very well explained in the report that the House of Lords Library has helpfully produced for this debate. I thank the Library for it most warmly; it will prove invaluable, and not only for this debate.

To be clear, I fully agree that important steps have been taken in recent years to ensure regulation is justified and proportionate. Despite this, as is often the case in human affairs, we need to run to stand still. Even so, and despite the apparent political consensus I have described in favour of reducing the burden of regulation, I sometimes detect a common view that regulation is virtuous in principle and that those of us concerned to reduce it are somehow working for an ignoble cause. I believe that to be profoundly mistaken. Regulation in general is, I agree, a necessity. But specific examples are frequently unnecessary; regulation often inhibits freedom and economic activity, making us all poorer. Therein lies the rub. There is nothing for it but to try to find the correct balance, and the way forward is rarely completely obvious.

Today, I do not want to run through the history of regulatory policy, but to raise concerns and to make some general observations that have occurred to me ever since, as a civil servant, I headed the deregulation task force under my noble friend Lord Heseltine. Identifying ongoing problems can be a first step to finding a remedy. In particular, I want to bring to the House’s attention the possible link which I believe exists between disappointing productivity and bad, or poorly enforced, regulation. Then I will turn to the issue of what steps we can take to improve matters. This will be especially important very soon, when we are faced with the tide of regulatory implementation arising from Brexit. We need to find a way of scrutinising it well in this House.

I start with the problem—indeed, puzzle—of low productivity, which has been extensively addressed in this House and in the other place during the Budget debates. The flatlining in productivity that we have seen since 2008 is something of a mystery, like TS Eliot’s cat. I have been reading closely the official papers on the matter from the ONS—not a task yielding a laugh a minute. A brief summary might be that the problem exists, but the exact cause or causes have not been proved. Likely culprits identified by informed observers include poor education and skills, inadequate infrastructure, insufficient housing and R&D, and the impact of digital on revenue and national income statistics.

I believe, however, that the wrong kind of regulation, an excess of it and a tendency to dream up new regulations in response to crises are also contributors. Rather than enforce existing regulations properly and learn from our mistakes in the kind of continuous improvement that I know from my time in retail, too often we see a failure to monitor existing rules and then very costly and intrusive regulation. My objection to the wrong sort of regulation is that it is inefficient, diverting of effort, irritating, time wasting and often expensive for those regulated.

My first example is Grenfell Tower. This was an appalling tragedy of a kind that should not occur. The facts are being carefully examined and there will be a forensic report, but I highlight three apparent regulatory failures from which we might learn. The most serious to my mind was to bring in for tower blocks building regulations that exempted the refitting of old blocks from the requirement to install sprinklers, as required in new blocks. The second was to require new cladding with a focus on energy saving to meet public sector climate change targets, and not to think enough about fire safety. The third was to have a Cinderella system of enforcement of the fire safety rules rather than well-trained professionals.

Cinderella enforcement has been an issue in many of the regulatory scandals of my lifetime, examples of which are Nestlé baby milk contamination, which closed the relevant Cumbrian factory for ever; local authority enforcement of BSE rules; and foot and mouth. For success you need a good enforcement system, and the Health and Safety Commission and, later, the Food Standards Agency have done a reasonable job, with trained staff and a system of simple, easy to understand guidance and a policy of issuing improvement notices before businesses face prosecution. Sadly, local environmental health and trading standards are not given the priority they should be.

Another good way to achieve compliance is to have industry schemes that act as an incentive to virtuous behaviour. An example—a good one, I hope; and I declare this and my other interests in the register—is the red tractor assurance scheme appearing on some £13 billion-worth of British agricultural produce. Had my noble friend Lord Lindsay been able to be here, he would, I know, have talked more broadly about other UKAS-accredited conformity schemes, because they have been used successfully for many years to support government regulatory policy and a risk-based approach in a wide range of important areas such as environmental management, food safety and quality, and healthcare services.

My second example is financial services. The UK’s establishment of the Financial Services Authority was, to my mind, a mistake. My experience at Tesco was despair at the micromanagement it imposed on the detailed wording of consumer products while apparently neglecting investment banking and sub-prime. Regulators should have economic spectacles: they should care about growth and innovation in the economy, but they should also be wary of wealth creation that seems too good to be true. After the crisis, all that changed and, arguably, there has been regulatory overreaction—all very well meant, no doubt—and a double banking of UK and EU regulation. This growth of regulation has been introduced in part to tackle money laundering, but it is sometimes done without regard to common sense. My husband has looked after the affairs of an elderly aunt confined to a nursing home for many years, yet he is often asked to provide proof of her existence and her bona fides.

Having said all that, the new financial services regime is much better than it was in the FSA era. The FCA and the PRA are now in effect part of the Bank of England and can attract better staff as a consequence. They are more strategic and did well in the weeks after the Brexit vote. The FCA has rightly been praised for its work on fintech, with the regulatory sandbox providing a light regulatory regime for start-ups, which has impressed internationally. They now face a new difficulty: the need to secure some form of bespoke deal in the Brexit context. Because of the importance of a Brexit deal for financial services, there is no appetite for lighter regulation. Indeed, I worry that the rules could end up being more onerous. The risk then must be that global operators will decide to move business to New York or Singapore. We need to be a force for good in regulation in the EU while we remain in it, and in supranational discussions and bodies thereafter. Our influence is important.

My third example is product safety. I have previously highlighted the case of Whirlpool tumble driers that burst into flames. Whirlpool, a US company, was in my opinion slow to take its safety responsibility seriously when it emerged that there were 5 million dangerous machines in British homes. I understand that about half have been fixed. We know from debates on the then Consumer Rights Bill in 2014 that the product recall system in this country is not up to scratch. There is a simple solution—central resource and central responsibility, not for all consumer safety, which rightly sits with local authorities, but where we have major national product recalls as faced by Peterborough with Whirlpool. We need a major, centralised enforcement effort in such cases. I was rather hoping that the Minister might agree.

My fourth example, very briefly, is Volkswagen, which was again an appalling example of poor enforcement, not the wrong basic standards or laws. We do not have time to go into this case in detail, but I wonder whether the problem was in allowing manufacturers to set the performance tests rather than requiring independent certification.

Finally, I am following the Data Protection Bill through our House at present and I predict that the scale of the new burden it imposes will eventually cause a backlash of complaint. New rules will apply to pretty well every business or private sector organisation in the country, regardless of size, which collects or holds data about identifiable individuals—that is most small businesses and charities; not a happy situation. We must do what we can to help them.

What do we do about all this? I speak as someone who has spent half my life fighting red tape, sometimes with success. When I ran the Deregulation Unit aeons ago, we had a mantra which I think we could revive: “Fewer, better, simpler”. As Winston Churchill said,

“If you have ten thousand regulations you destroy all respect for the law”.


The Federation of Small Businesses says that regulation is a top priority for its members. In a recent survey, two-thirds of them thought that the costs outweighed the benefits in terms of reduced profitability, productivity, innovation and so on. They are especially concerned about the flow of new regulation and a de minimis rule that might be coming in for impact assessment. I hope the Minister will be able to provide them with some reassurance.

What else can we do together to make things better? First, we should recognise that regulation, while often necessary, is a cost that hits the bottom line of businesses and diverts management effort. We should be up-front about this. We need impact assessments available to Ministers and senior officials on new rules and regulations before key decisions are taken. The assessments should be realistic and simple and should reflect dialogue and consultation with the real economy, and quote the names of companies or bodies affected and what they think. The independent Regulatory Policy Committee has done good work on economic assessments and business impact, as the NAO has acknowledged. However, it lacks political edge and is somewhat undermined by the fact that its processes do not apply to burdens coming from the EU, to tax or to the national living wage. The NAO suggests that when these are added in, the regulatory burden has actually been increasing, despite the various targets such as one in, two or three out. Perhaps proposals with increased regulatory costs might be required to be approved by a Minister, as is the case with expenditure proposals. He or she could be defined as a champion of lower regulatory costs. A good system is all the more necessary given the great tidal wave of replacement regulation coming our way with Brexit. The process needs to be refreshed, and the moment for that has come.

Secondly, and linked to that, we need to be champions of good, simple, inexpensive regulation across Europe and in international fora.

Thirdly—and this would appeal to most politicians in free countries—we should think small first. It is sometimes possible to have exemptions, such as the VAT ceiling, but we should ensure that administration for smaller firms is clear, simple and online and that charges are lower. Indeed, they often might not be worth imposing at all when you allow for the administration costs. At Tesco every invoice cost £25, so in many cases it paid to be generous. There are millions of SMEs, small charities, trusts and small public bodies such as parish councils and primary schools, who will love us if we can make the regulatory burden easier.

Fourthly, regulation must be easy to understand. The growth in complexity is good for the lawyers and consultants, but in the modern world there is no excuse for a lack of simple clear rules and information.

That brings me to my final recommendation: enforcement matters. As my tale of Grenfell Tower showed, enforcing and resourcing our regulatory systems needs to be an essential part of our deregulatory approach. Again, the Brexit changes give us an opportunity to review this aspect.

I note in closing that unfortunately, none of these ideas appears in the recently published industrial strategy. Indeed, regulation barely gets a mention, despite its importance to productivity. Robert Bork, a famous US lawyer and judge, said that:

“As government regulations grow slowly, we become used to the harness. Habit is a powerful force, and we no longer feel as intensely”,


yet what is proposed would have been “utterly intolerable” in former ages. That could be a prescient warning.

--- Later in debate ---

[Baroness Neville-Rolfe]

My Lords, I am delighted to have led such a constructive and interesting debate with a lot of fine examples. In response to the noble Baroness, Lady Henig, I have no regrets at all about tackling this subject.

Indeed, there has been some important common ground on this often disputed subject: for example, on simplification; on the battle against complexity; on a risk-based approach, which we probably should say should be proportionate and balanced; on enforcement of the law—to my mind, investing in enforcement is a good investment—and on thinking small first. It is not a sexy area, in the words of the noble Lord, Lord Stunell, but it is an important one, especially in the Brexit context. I was very glad to hear from my noble friend the Minister of the progress made, not least on culture, and I look forward to hearing from him in due course on the vexed issue of tumble-driers.

Many noble Lords referred to the plans to reduce the powers and reach of the Regulatory Policy Committee. This, it seems, is still a rumour, but it is a profound disappointment to me because it is not a step in the right direction. Many others have said this, including my noble friend Lady Altmann and the noble Lords, Lord Curry, Lord Haskel and Lord Mendelsohn. However, I think that we should be generous to the Government. It may be that, in the light of this debate, they will think about what can be done at this moment of Brexit to keep the flow of unnecessary regulation in check and ensure not only that necessary safety standards but also economic impacts are taken into account in the decisions we make in the interests of prosperity and productivity.

It was a pleasure to hear from the noble Lord, Lord Stoneham, and the noble Lord, Lord Whitty. I think that he is quite wrong. My fear is—and this is one of the reasons I voted to remain—that without a detailed debate in Brussels, we will actually regulate more heavily.

I have run out of time, but I would like to thank all noble Lords who have taken part in the debate. Let us hope that our efforts today will move the dial.

Motion agreed.