Better Regulation

Lord Mendelsohn Excerpts

Thursday 7th December 2017 Lords Chamber

[Lord Mendelsohn (Lab)]

My Lords, I will make a declaration of interest. I am indeed meant to be a beneficiary of successful deregulation over the last few years, when we have had successive figures about how much has been deregulated to the benefit of businesses. I calculate that on that basis, I should be some £200,000 better off. I am not, but I am meant to be a beneficiary of successful deregulation. I have experience of regulation because I am now a PEP and treated as one with every bank account I have to deal with. However, I benefit from regulation, because I am regulated in one of my businesses by the FCA. While people may whinge about it, it provides an important architecture for businesses and our business benefits from it.

I congratulate the noble Baroness, Lady Neville-Rolfe, who has been a great champion of these issues and has a tremendous track record. I agree with much of what she said, and her prescriptions are similar to the things I will say; in fact, I may have been influenced by her in the first place. However, I disagree with her on one point. She argued that productivity is being held back by a surfeit of poorly enforced regulation and other forms of regulation. I do not believe this to be the case. The noble Lord, Lord Stoneham, made the point in his excellent speech that the OECD classifies us as one of the low-regulation countries and that low regulation is frequently cited as one of the reasons why we have high levels of foreign direct investment—whatever the arguments about that are. There is no evidence that there is an impairment of productivity caused by regulation. In fact, the opposite is more readily identifiable from the evidence. More regulated countries, including the US and other parts of Europe, are able to exercise greater levels of productivity by sometimes better use of management, skill and innovation and use of capital features. So that is not an argument. Some of this is not about the economic issues, although they are important.

It is worth acknowledging that we have had some excellent contributions. We miss certain voices, which have been prominent in this debate, such as that of the noble Earl, Lord Lindsay, but some interesting points have also been made about different industries. The noble Baroness, Lady Deech, talked about legal services. I suspect that the rise in trust in the law may well be as a result of the regulator she complains about. However, it is certainly encouraging that the level of trust in such an important sector as legal services is increasing.

My noble friend Lady Donaghy made an interesting speech about the construction industry, and my noble friend Lady Henig made an important contribution about one of the most successful models of regulation in this country: the security industry. I have direct experience of a company which, when the regulations came in, did not believe that they would be taken seriously, and went to the wall as a result. That was a jolly good thing. The SIA has done a wonderful job. I regret that the Government have not been more forthcoming on points which are clear about how that industry has developed a regulatory structure of great strength as a result. I know of many cases that support that. There are stories about companies, even brand names such as Kroll, and some of its alleged conduct. Especially in this modern digital world, it should come under a proper form of regulation.

The economic case for ensuring that we get regulation right is not as strong as the other case based on safety risk and other sorts of market failures. That is not to say that it is not important, but when the Federation of Small Businesses tells us that 20% of small businesses said that regulation was one of their top issues, that means that 80% said that it was not. We understand the relative importance of this. When businesses say that tax administration rates and other sorts of issues are more important, it indicates the level of priority.

The fact that we can do something is a case for doing it, but we need to put the importance of regulation in its context. Where it is most required is to deal with issues such as defining standards, competitive dynamics, failures, risk, imbalances, and those sorts of things—many of which my noble friend Lord Whitty talked about. We have to consider that regulation has to have a clear purpose and be easy to understand; there should be much more obligation on regulators to make sure that their regulations are understood.

We have touched on some key issues. The architecture of how we make sure we get good regulation is really important. I share the deep concern of others who wonder how the Government’s interpretation of how they should respond to the Public Accounts Committee’s exhortation to improve and streamline regulation, or even their understanding of their own manifesto to get better regulation, can in any way be helped by undermining the useful architecture that is evolving in our country. The idea that the Regulatory Policy Committee should change in the way that the Government suggest, whether over the de minimis issue, giving government departments the authority to be able to define, however they wish, to establish the level of impacts or the assessments, or the controversial requirements such as the first-stage consultations, are problems, and I urge the Government to think again about how they look at the Regulatory Policy Committee. There is consensus on that. I agree with the noble Lord, Lord Curry, that it is time to strengthen, not weaken, the structures we have, and the noble Baroness, Lady Altmann, also made an excellent case. We need not just to ensure that we do not give departments absolute and unfettered ability to define this process but we should look at putting it on a more independent and possibly statutory footing. The definitive case was made unbelievably well by my noble friend Lady Andrews, and I urge the Minister to prioritise her questions when he answers. My noble friend Lord Haskel properly identified the statutory instruments, which are becoming an ever increasing problem in this House; they are being used in particular for departmental convenience and not for the public interest.

What is to be done? Of course, we have to beef up the independent structures, as endorsed by the National Audit Office, and we need to include EU tax administration, the national living wage and the national minimum wage. We have to be truthful about the impacts. It is essential that we get a handle on what is happening, particularly as we go through Brexit. It is crucial to think small first and be easily understood, along the lines of what the noble Baroness, Lady Neville-Rolfe, said. It is also utterly crucial that we enforce the regulations that we have. I declare my interest as a landlord. The number of landlords who are prosecuted as against the number of complaints that are made shows that we probably do not enforce the regulations properly. The Residential Landlords Association found in 2016-17 that only 496 landlords were prosecuted but there were 105,359 complaints. I would be interested in knowing how we can process these complaints effectively.

I turn to the subject of the national minimum wage and the categories of workers. Each year 70,000 internships are unpaid, all breaching the national minimum wage rules, yet alongside the entirety of the issues surrounding the national minimum wage, there have been only 13 prosecutions. I worry about this because Grenfell raises a number of particularly tragic issues. As a result of Grenfell, we decided to look at fire safety in relation to the short-term renting of private homes, such as those offered through Airbnb. It seems that the Government believed that the fire safety order of 2005 covered this. The problem was that none of the agencies—the Government, the local authorities, the fire brigade or the fire safety authorities—thought that they had responsibility for it, so no one was doing anything. Counsel to the Health and Safety Executive then provided us with an opinion saying that the safety order—the law that the Government think applies—does not apply. There is a regulatory break, so there is no regulation whatever. This is a major issue and I would like the Government to clarify the position. There is also the major question of who enforces the enforcers. We have a big problem with the gap there and I would like to see the Government try to address it.

Questions were raised about the European Union. We have to get some understanding of how the changes will affect us. There is a variety of EU regulations and I would be interested in knowing which UK bodies will assume the investigatory role of the European Commission. What work have the Government done on that? How many bodies do they estimate will need to transition?

Finally—I make this point now, as I do in all my contributions—I would be very grateful if the Minister could give one clear answer or proper guidance on how we should measure the Government’s achievements on better regulation. It is very important that this is not just about exhortation; anything that we can use to test what better regulation means would be very welcome.

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[Lord Henley]

The noble Lord is correct that the new regime is in place, but that does not mean that all proposals are finalised; these matters can always be considered in the light of representations made, even by the noble Lord. He and I were in the coalition Government together; we worked together in the past. I am sure we can take account of comments made here, and I would be more than happy to listen to him.

I want to make it clear—not commenting on leaked documents—that our proposals actually increase scrutiny by bringing significant deregulation measures into scope. They focus the system on measures with large impacts. This brings me to the Public Accounts Committee, whose recommendations it is worth commenting on. The 2016 report said:

“The Better Regulation Executive’s rules for assessing and validating the expected impact of a regulation are the same, regardless of the scale of the regulation’s impact. The Better Regulation Executive … has established a complex bureaucracy across Whitehall that diverts departments’ resources away from potentially more productive efforts … Of the 95 regulations that the Regulatory Policy Committee has scrutinised during this Parliament, 64 of them have an individual expected net impact of less than £5 million”.


The committee then recommended that we should change the rules to allow a more proportionate approach whereby significantly more effort can be applied to the assessment and validation of the small number of regulations with the greatest impact. That is what we are doing with the de minimis rule.

That is why we took this action and why I wrote to the Public Accounts Committee only last month to inform it that we intended to follow its recommendations and adopt a more proportionate and efficient better regulation system by introducing that threshold. Obviously, we can always reconsider those matters, but that is why I wrote. It will allow the RPC to focus on the measures that matter most. If it had been in force in the last Parliament, 90% of the costs would still be subject to independent scrutiny.

It is only right that regulation should be kept under constant review as products and technology change. Where regulatory requirements are not clear or easily understood, it can lead to confusion and potentially an increased risk to the public. Over the last 20 years, Governments have been working on getting the delicate balance or proportionality right and the costs and benefits of regulation right. That has included the establishment of the Regulatory Policy Committee, as I mentioned earlier, which gives independent scrutiny of the evidence for regulatory changes when they are debated in Parliament.

There were previous government initiatives to review the stock of legislation. Going back to the beginning of the coalition Government, which the noble Lords, Lord Stoneham and Lord Stunnell, will remember, there were the Red Tape Challenge and the cutting red tape reviews. The noble Lord, Lord Stunnell, took credit for introducing the one-in, one-out measure, which I think he accepted served a useful purpose in encouraging the process, even if another noble Lord—I think it was the noble Lord, Lord Whitty—did not like the idea and said that it led to getting rid of something purely for the sake of it. But it encouraged the others and served a useful purpose.

Those reviews sought views from the public to help identify outdated, unnecessary or overly complex legislation and led in due course, as both noble Lords and others will remember, to the Small Business, Enterprise and Employment Act 2015. My noble friend will remember that because she took the legislation through the House. It introduced a requirement for the Government to set a business impact target, focused on the economic impact of regulatory change on business activities, and the need to report annually on its achievements against that target.

These initiatives have delivered some real improvements in how people, businesses and public bodies are regulated, and have also encouraged a cultural shift in government departments towards more appropriate and smarter regulation. The one-in, one-out or one-in, two-out proposals played a part in that. For example, my own department’s business perceptions survey last year showed a decline in the proportion of businesses that believed that the overall level of regulation in the UK was an obstacle to their success. It went down to 49% in 2016, from 62% in 2009.

As I said earlier, the Public Accounts Committee produced a number of recommendations about how we can further improve our regulation system, following the report from the National Audit Office last year. We have been reflecting on those conclusions, including ideas about how to make our approach more proportionate.

[Lord Mendelsohn]

Will the Minister clarify the changes to the RPC that are in effect? Is he suggesting that the change to the regime is more permissive, less permissive or exactly the same as what stood before? To be clear on the purpose, is he saying that the changes were directly as a result of those suggestions from other committees? Were some of the changes requested by departments to have freedom and flexibility, or were they in any way related to the pressures in the system as a result of the EU exit?

[Lord Henley]

My Lords, I do not accept that the EU exit has led to those changes. I said that the Public Accounts Committee had made some recommendations. We considered those and brought in the de minimis rule. We are not bound to keep that. We could change it if necessary, but it gives the RPC a freer hand in what it does and allows it to focus its efforts more appropriately on the job that it does very well.

I can also give an assurance, since there was some criticism of our attitude to the RPC, that we are still committed to it and its work. We are making sure that it has the appropriate number of members. It currently has eight members and it will continue to have eight members. Announcements will be made in due course as to whether some members have been reappointed, or where necessary new members will be brought in, so that it can continue to do its work.

I am beginning to run out of time and I do not want to deprive my noble friend of the chance to say a few words at the end of the debate. However, I should like to deal with one or two of the other questions that have been raised.

I think I have more or less touched on it, but the noble Lord, Lord Haskel, referred to the letter from my noble friend Lord Trefgarne, the chair of his committee, about the threshold. We acknowledge the good work of the committee and I am aware of the letter from my noble friend. I think that it was received in the department on 28 November and I intend to respond to it shortly. I can reassure the noble Lord that the department will continue to provide appropriate analysis of its policies to the committee.

Perhaps I may also give an assurance to my noble friend Lord Altmann on pensions auto-enrolment. As a former member of the Department for Work and Pensions, where I have also served, she will know that auto-enrolment has been a great success. Some 8 million people have now enrolled and the Government are conducting a review to build on this success and make sure that the programme works in the long term. The review will be led by the Department for Work and Pensions supported by an external advisory body. I am told that it will report by the end of 2017, so my noble friend does not have to wait for long because that really does mean pretty soon.

Concern was expressed by my noble friend Lady Neville-Rolfe and the noble Baroness, Lady Andrews, about the RPC’s processing not applying to tax or the national minimum wage. I can give them an assurance that HMRC has a separate body, known as the Administrative Burdens Advisory Body, to consider reducing the burden of tax administration, so there is a role for it which provides scrutiny.

Lastly, the noble Lord, Lord Stoneham, was concerned about what plans we have for EU exit. This is a concern that comes up in every Question and debate in the House. We have made it quite clear that the withdrawal Bill will be designed to ensure that EU exit will take place with certainty and that we maintain continuity and control. The Bill will help to maximise certainty for business on what regulation will apply on exit and to maintain important protections for consumers.

As always, I apologise for the fact that I have not been able to address every point that has been put before me, but again as always I promise to write to noble Lords on any issues that I have not addressed. I end by thanking my noble friend once more for introducing this debate.