Economic Growth (Regulatory Functions) Order 2017

Lord Foster of Bath Excerpts

Tuesday 28th February 2017 Grand Committee

[Lord Mendelsohn]

My Lords, as I was saying before I was so rudely interrupted—I thank the noble Lord, Lord Foster, for that wonderful line—I will conclude with these points. I noted the sceptical faces from the other side on the point about whether businesses will do this. It was not addressed. In Committee in the other place, the Minister said:

“Businesses told us that they were unlikely to mount judicial reviews except in extreme circumstances. As we all know, judicial reviews are very costly”.—[Official Report, Commons, Deregulation Bill Committee, 20/3/14; col. 526.]


They are not that costly compared with regulatory impacts. The cost of lawyers may be quite significant, but compared with the benefits that can be gained from regulatory changes it is certainly a calculation worth making. If you give someone an instrument to do something, you have a duty to shareholders to do it if you have an operable option. Anyone involved in business will know that.

The impact assessment says:

“This duty will provide a framework for regulators explicitly to factor growth into their decision-making where they have not previously felt able to do so, enabling businesses to hold regulators accountable for their actions”.


The guidance provides far too many opportunities for the sorts of challenges and arguments that undermine the regulators’ principal role and functions. The way the guidance is written has no regard for any particular growth theory, target, goal or effective paradigm. It provides a lot of opportunity for options and arguments to be laid against it and against decisions on the basis of growth.

Again, the Government should not be surprised about this. Even its own report on the consultation said that,

“the business community sought clarity on how regulators can be held to account if they failed to comply with the Growth Duty, or to follow the guidance”.

I do not think the answer will be, “Look in the annual report and take a view”. This is a very important issue. Fundamentally, the core aspects, which this does not address or help, provide legal capacity on the one side and on the other do not give a real sense about the principal duties that regulators have in existing law without the growth duty and whether they will be able to fulfil them.

In conclusion, while we share the Government’s view on a variety of the objectives and goals and even on the journey they wish to take, we were sceptical when the main legislation passed. All these statutory instruments do is lay bare the lack of evidence, thinking and design of these policies, and how, through the unfortunate circumstance of unintended consequences, they are likely to cause more harm than good. I would be very grateful if the Minister responded to all, some, or even a few of my questions.

[Lord Foster of Bath (LD)]

My Lords, I am delighted to follow the noble Lord, Lord Mendelsohn. Like him and no doubt everyone else in the Room, I too am in favour of motherhood and apple pie. I am in favour of the removal of unnecessary red tape, bureaucracy and the gold-plating we have seen on too many EU directives. Like the Minister, I accept entirely that some regulations serve a vital purpose. The much-maligned health and safety regulations provide a very good case in point. If we are to take steps such as the ones proposed here, it is vital that we are aware of precisely what the targets are, what they are expected to achieve and what evidence we will gather to see whether they have been achieved, and that we ensure there is proper policing of any new directives, regulations or whatever is put in place.

I spent a relatively brief time in government. For a short period I was a junior Minister in the Department for Communities and Local Government. As a Minister in a Government who had introduced in 2010 the various proposals to encourage, as it says in our documentation,

“a cultural shift in Government Departments towards more proportionate and smarter regulation”,

I nevertheless came up against the difficulties that could be created by the one-in, one-out and later one-in, two-out policies. As a result of that experience, and subsequently as the Government Deputy Chief Whip serving on Oliver Letwin’s committee that dealt with these issues, I learned a number of lessons.

There are six lessons, and I will briefly share them and use this as an opportunity to probe the Minister about the proposal before us today. The first lesson related to energy performance certificates. Regulations were brought in requiring commercial buildings in certain circumstances—depending on their size, whether there was public access, and so on—to display an energy performance certificate visibly in the premises. The idea was that putting the energy performance certificate up would lead the owner of the building to try to improve energy performance, thereby saving overall cost to both the occupiers of the building and the nation as a whole. I was very much in favour of the certificates.

However, the lesson I learned was that often, those certificates never appeared in commercial buildings. Indeed, I would go so far as to say that they did not appear in a number of government buildings. The question I therefore ask is: what policing mechanisms will apply to the measures and what procedures will be put in place to ensure that we can assess whether they are successful—a point raised earlier by the noble Lord, Lord Mendelsohn—so we can learn from them in future? We have learned nothing from energy performance certificates because they were not properly introduced, policed or evaluated.

The second lesson I learned was from the introduction of zero-carbon homes, something I felt strongly about as a Minister. That fell under all sorts of difficulties, particularly from Conservative colleagues within the coalition, because they said that we had to ensure that we abide by the “one regulation in, one regulation out” rule, commensurate financial implications, and so on. It got into real difficulty because of the way the target was assessed. It was argued that the regulation’s requiring improved energy efficiency of domestic premises would impose an increased cost on the builders of those premises, so it had to be counted as a “one in” for which we had to find a “one out”. In truth, the most sensible way to look at it would have been to say that the improvement of the building’s energy performance when built would lead to a long-term saving for the resident occupants of the property and the nation as a whole but, whereas with energy performance certificates for commercial building, it was okay for the occupants to benefit, when it came to domestic property, it was not.

If we have targets, we must be careful that we do not hit the target but miss the point. I worry that in some of the regulations before us, particularly given the list of regulatory bodies, we may be missing the point.

The third lesson, which I am prepared to acknowledge is not relevant to the documents before us but I want to get on the record, is that these things are not always straightforward common sense. They are often political. I share with noble Lords my experience on Oliver Letwin’s committee when I proposed a measure that would have reduced the cost of business—not requiring certain things to be advertised in local newspapers. This was prevented on the purely political grounds that we did not want to upset local newspapers in the run-up to the 2015 general election.

I also learned that we have to apply common sense. On the basis of common sense, I will not go through the long list of regulatory bodies to which the noble Lord, Lord Mendelsohn, referred. I will just pick one at random and ask the Minister, to whom I have given a little advance notice, about the Northern Lighthouse Board. I wonder what the Minister sees as its ability to perform an economic growth responsibility. The Northern Lighthouse Board is there to serve Scotland and the Isle of Man, and to deliver a reliable, efficient and cost-effective aids-to-navigation service for the benefit and safety of all mariners. I genuinely have difficulty seeing how it will be able to fulfil its requirement.

That leads to my fifth and penultimate point: these things should be based on sound consultation. We have before us a very long list of regulatory bodies that will be brought in under these regulations. Yet, as the noble Lord, Lord Mendelsohn, has pointed out, and as it says in paragraph 8.2, there were 49 respondents, and 38 responses were received on the question of scope from a broad cross-section of stakeholders, including regulators, businesses and representative bodies. It is clear that only a small number of regulators responded to the consultation, as paragraph 8.3 hints at. It says that there were five objections to the inclusion of particular regulators within scope; the noble Lord, Lord Mendelsohn, dealt with the rest of the list.

--- Later in debate ---

[Lord Prior of Brampton]

May I finish off on a regulator that is not covered by BEIS, but is important none the less—the Care Quality Commission? We found there that the leading indicators of performance, whether you measure it in terms of patient safety, hitting waiting time targets or patient satisfaction, were around staff engagement, such as whether doctors and nurses enjoyed working in the hospital. A junior doctors survey done by the GMC was probably the single most predictive of all the indicators. Culture is hugely important.

The noble Lord referred to a duty to communicate, which plays into the point about culture. Putting that obligation to communicate on to regulators is important. In a sense, what we are trying to do by having a duty to promote growth is to change the culture and outlook of regulators. As the noble Lord, Lord Foster, said, they are not there to hit the target but miss the point —how often does that lead to unintended consequences? For example, we hit the waiting time target in an A&E department but the patient died. That is the kind of absurdity we can get into when targets become—

[Lord Foster of Bath]

I think that we are all singing from the same hymn sheet in our speeches, but the documents before us say something rather different. They talk of the sums of money that it is anticipated will be achieved by this. I entirely accept that the Northern Lighthouse Board is there to provide safety. Clearly, if it switched off the lights in all its lighthouses, ships would crash, the economy would be in difficulty and so on. Presumably, it could spend a lot of money and put up more lights and sirens and have more people sailing around rocky outcrops warning people to stay away, and there may be some more savings in that. That is all common sense. But the way in which it has been enumerated is about having a target but missing the cultural point that the Minister is rightly talking about. The papers do not talk about the culture.

[Lord Prior of Brampton]

One way to change the culture is to change the message. We are not setting specific targets for regulators. The purpose is to increase transparency, which I will talk about a little. I qualify it as “intelligent transparency”. If we can put people in the position of making intelligent decisions and provide them with useful information, in my book that is the best form of regulation.

We are all agreed on the objectives and outcomes that we want from this. I see the exercise as trying to get a cultural shift in the behaviour of regulators. Both noble Lords have given examples of the road to hell being paved with good intentions. The last thing that we want is to encourage bad behaviour by pursuing regulation to the letter and achieving the opposite of what we want to. On one level, we are in violent agreement and, on another, we are clearly not. However, some important points have been raised and I would like to reflect on them and write to noble Lords on those issues.

To conclude, I would like to read out a few notes, just to get them on the record and perhaps explain a little better what I have just said. The importance of extending the scope of the business impact target is clear. Businesses consistently tell the Government that the actions of regulators are as important as the content of legislation in determining their experience of regulation. That has to be true. It is the way we interpret laws and decide whether they are helpful or not. For example, in giving up broadband at home I want to get through to BT to cancel my existing contract. Can I get through to BT? Can I hell. No one will answer the phone. It is about customer service. Funnily enough, having spoken briefly to the Intellectual Property Office yesterday, I think that it has a client-friendly attitude, which is the kind of attitude that we want from regulators.

The rationale for applying the growth duty is also clear. While there is already a great deal of good, proportionate and effective regulation, evidence suggests that some regulators fail to take sufficient account of the economic consequence of their actions and place unnecessary burdens on businesses. I think that the noble Lord wanted some examples of regulators that fall into that trap. We will certainly write to him on that.

Some regulators consider the impact of their actions on economic growth. It cannot be wrong to do that. If we said that regulators should not take into account economic growth, we would be shot at, quite rightly, from all sides. Many regulators think that they are unable to take account of growth because they do not have a statutory requirement to do so. That tells you something about the psychology of some regulators, frankly. They have to be told that economic growth matters. You would not think that you would need to be told that. We need to write to the noble Lord on that point. The new duty will help to bring all regulators up to the same high standard.

The growth duty will help regulators to carry out their functions in a way that is conducive to economic growth and will ensure that regulatory action is taken only when needed and that any action that is taken is proportionate. Again, the key words are “accountable”, “transparent” and “proportionate”. It will encourage regulators to develop more mature and productive relationships with the sectors and businesses that they regulate, driving up the accountability of regulators to the business community.

I conclude by saying that it is very easy to knock the regulators. Few people will stand up for regulators. But in some of the Brexit debates that we have had, when you look at the performance of the British regulators—for example, the EMA, the MHRA, the CAA or in the nuclear world—they are universally respected throughout Europe. Our regulators are highly respected and in the main they do an outstanding job. All we are trying to do in this legislation is to tilt the culture a little further towards practicality, transparency, productivity and growth.