By Kevin Davis, Managing Partner, Local Government

Regulation. You either love it or hate it depending on whether you can live with or without being told what to do. I am not talking about “laws” as even the most liberal Christian would argue we cannot live without the Ten Commandments. We are talking about the ‘rules’ imposed by Government and local authorities for which the State often chooses to fine us when we traverse what are often very fine lines. We are also talking about the rules that tie business in knots and spend billions a year conforming with the latest missive from the Department of Business, HMRC, the Health and Safety Executive or any number of the plethora of watchdogs and quangos.

“Margaret Thatcher presided as Prime Minister over arguably the greatest national transformation to occur in a half-century without a change in the form of government. She replaced an increasingly socialist economy with free enterprise, re-igniting engines of productivity that had grown rusty from decades of state ownership and control. More significantly, she replenished the spirit of a once-great nation that had fallen into the throes of complacency and despair.” (source) 

In that national transformation, Thatcher presided over probably the greatest period of deregulation in history. Her agenda of rolling back the state saw a revolution in the UK. But her legacy did not last for long. Even as she walked away from Downing Street the Conservative Party under John Major saw legislation and regulation as the means to be seen on the side of the electorate.

Putting aside the Citizen’s Charter of the 1990s, which spawned the infamous Road Cones Hotline, you only need to consider the Dangerous Dogs Act of 1991 or the post-Dunblane gun legislation to see a Government dependent on regulation by reaction rather than sound policy – maybe this is the foundation of some of the regulation that pervades our lives? With the introduction of the Maastricht Treaty in the early 1990s we saw a huge increase in EU Directives affecting every part of our life. The spectre of mad cow disease and the effect it had on UK farming industry demonstrates more than any other event how beholden the UK has become to the EU. 

The pendulum swings

Somewhat surprisingly, this increase in regulation during the Major years was replaced by a willingness by New Labour to deregulate. To be honest, it was more about the preservation of the status quo than a genuine attempt to reduce red tape and bureaucracy. The introduction of one in, one out on regulation and the eventual passing of the 2006 Act which introduced Regulatory Reform Orders, which presaged a system that by-passed Parliament to allow Ministers to abolish – or introduce – regulations without Parliamentary approval, hardly seemed entirely designed to be bureaucracy busting.

Then there was the European Union. Devoid of legislative powers over state Parliaments it took the regulatory route. For every regulation New Labour scrapped, more were introduced by the EU. Banking, energy, farming and almost every other area of life became subject to regulation. In fact, it became so bad that they invented a new word to cover how these regulatory committees would consult members states; Comitology.

With regulation came regulators. Governments talked of closing down quangos but in return, they opened up regulators. Today, there are 90 UK regulators each with their own CEO, staff, boards and offices; OFSTED, OFQUAL, ORCIC, MMD, GSCC, ORR. They regulate gas, food, phone paid services, Gambling etc. all they don’t yet have a regulator of regulators. 

Does Nanny know best?

Regulation is not much fun, so why is it done? For some, it is about protection, whether protecting the consumer from shoddy goods or protecting their health from something that will directly affect them. However, all this regulation is more about behaviour. Put simply, the State finds it impossible to trust the behaviour of its people to make decisions and judgements that are in their best interests. Sticking ‘use by’ dates on food is one example where the state no longer trusts the judgement of its citizens to work out when a food has gone off or not. We are overweight, we like salt, we drink tea with sugar, we drink too much alcohol, we don’t cycle to work, we cross the road in the wrong place. The so-called neoliberal State just seems set against free will and, like Jacob Rees-Mogg has decided (albeit with quite different meaning) “nanny is a very fine thing”. 

As an example take the nonsense that now follows every radio advert where the announcer spouts, at incredibly high speed, something about “what I have just told you is a crock of sh*t, so be careful before you buy anything from me” or the absolute ball-ache you go through when you want to open a bank account or even talk to a solicitor – money laundering laws for which everyone involved just sighs and complies. Road humps don’t stop those intent on speeding, nor does money-laundering regulation stop villains money-laundering.

Counting the cost

How much does all this cost? In the US a 2015 survey estimated that Human Resource Departments (you can imagine the level of regulation conformity needed there) spent over $400bn on HR departments. This was a 17% increase since 2010. Hedge funds are estimated to be spending $3bn (5% of their annual operating costs) in compliance since the 2008 crash. Farming within the EU has had anything between 1.5% and 5.5% increase in costs due to compliance with EU regulations, dependent on the country and the type of farming. All this adds up and all this is transferred to the consumer as hidden taxation.

So what happens when you really deregulate. In June 2017 the White House published a review of deregulation efforts in the USA since 2015. Their estimate was that the work they had done increased household incomes by $3,100 each – a significant sum (The Economic Effects of Federal Deregulation since January 2017).

The 2010 UK coalition Government placed an emphasis on reducing the total number of regulations. This included the introduction of the Deregulation Act 2015, which sought to remove or reduce regulatory burdens on businesses and society.  One simple example of their work was that they found there were more than 380 local authorities responsible for health and safety. To be fair the Government acted on this and moved all regulation and enforcement to one body. Some argued that this was hardly cutting red tape more like streamlining red tape. Between 2015 and 2017, the Conservative Government introduced the ‘Cutting Red Tape Programme’. The Programme consisted of sectoral reviews, initially focusing on adult social care, agriculture, energy, mineral extraction and waste.

This was expanded in 2016 to financial services, homebuilding and local government. But then, the disaster of Grenfell Tower struck and the deregulation of housing and building control was halted whilst others considered the effect of regulations on that disaster. What that tragedy demonstrated is that regulation can deceive us all into believing that its mere existence will make us safe when in fact nothing can ever do that; otherwise known as a chimera. Fire safety and building material regulations offered no more protection to the Grenfell Tower residents than the Dangerous Dogs Act stopped people being attacked by canines or the 1997 Firearms Act (Dunblane) prevented the massacre of innocent people in Cumbria in 2010. 

What now for regulation?

The first step is we need to fire Nanny (sorry, Jacob). We need to stop believing that banning or taxing people’s behaviour is the answer to the issue of safety and protection. Sugar taxes and alcohol taxes will not change behaviour any more than the bag tax was responsible for the decline in plastic bag usage. What stopped plastic bag usage was the fact that not putting freely available bags out on counters meant the reserved Brits were embarrassed to ask for them. This was a nudge to behaviour – bags hidden from sight to prevent usage.

We need Sunset Clauses on all regulation (frankly we need it on almost all legislation) so that we don’t see a relentless build-up of asinine regulations. 

There needs to be common sense. I am fascinated by the furore that seems to be erupting about the supposed ‘illegal’ use of electric scooters. That’s fine, then stop them being illegal but before you do so consider some other areas we accept as legal such as electric cycles.

Restore proportion by adopting a one in and three out approach – this will be tough but more effective than any other measure.

Brexit is a great opportunity to review what regulation we need to maintain for the UK – accepting that for trade reasons some of us in business will need to continue with the EU approach.

Finally – nudge, don’t kick

As I wrote at the beginning, the key to this is about the state wanting to manage and change the behaviour of individuals by passing regulations and fining you for stepping out of line. But as with a Skinner Box, the State needs to understand that for us inter-connected individuals the world has changed and the approach that adapts behaviour through persuasion, not punishment, may well be a longer-term fix than that achieved by penalising what it considers unregulated behaviour.

If Boris needs a platform for the future of his Government the mantra ‘nudge, nudge’ (but not ‘wink’, in his case) would be a good place to start in making the UK a more competitive, low regulation and ultimately fairer place to live.

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