The burden of regulation

3 March 2015

Picture the scene. It is 4.51pm on New Year’s Eve 2014. Families up and down the country are preparing to welcome in 2015 with good cheer. All of a sudden, they receive a tweet from the Minister of State for Business and Enterprise with the announcement: “Today we can confirm we’re the first Government in modern times to reduce the burden of domestic regulation.”

This is surely a fantastic achievement. The burden of regulation on private enterprise has been a running sore for decades. As far back as 1948 the President of the Board of Trade Harold Wilson announced a “bonfire of controls” following recommendations from “outside investigators” brought in, according to a report in the Manchester Guardian, because “the Board of Trade was too busy to work out how controls could be scrapped, even when it thought they were no longer necessary.”

And yet a cynical observer might query both the timing of the Minister’s tweet and his use of the qualifier “domestic”. After all, it was the Prime Minister David Cameron himself, who three years earlier pledged to lead “the first government in modern history to leave office having reduced the overall burden of regulation”. The overall burden of regulation, not the burden of domestic regulation.

Is our cynic right to quibble about such detail? According to a new report out today by the Regulatory Policy Committee (RPC), the answer is an unequivocal yes. Originally set up by Gordon Brown, the RPC was given new and tougher powers by the Coalition Government to scrutinise government regulation. Its report, which summarises all of the regulatory changes made in this Parliament, concludes that far from reducing the burden of regulation the Coalition has in fact increased the cost of regulation by at least £460 million.

To understand why the Government believes it has cut regulation while its own watchdog does not, you need to dig deep into the byzantine world of government regulation. First of all, there is the set of rules the Government imposes on itself to measure the cost of a particular subset of regulations. Originally called “One-in, One-out”, now called “One-in, Two-out”, these rules cover those areas of business regulation where the Government would like to see the cost of new regulation offset by savings from deregulation. The rules themselves are somewhat opaque and the RPC report rightly criticises the Government for making various unpublished changes to the rules.

However, the rules only capture a proportion of the total regulation on UK business. To meet the Prime Minister’s pledge, the Government must also reduce the absolute cost of business regulation in areas outside the One-in, Two-out regime. Yet, by the RPC’s reckoning, the £2.2 billion savings made under One-in, Two-out over the course of this Parliament have been more than offset by almost £2.7 billion of regulations made elsewhere.

The One-in, Two-out regime covers most (but by no means all) domestic regulation and this is where the Minister rests his claim to have reduced regulation. Yet the apparent £2.2 billion saving may not be all that it appears. In Reform’s report last December, The burden of regulation, we identified a number of problems with the way that the Government has chosen to apply the One-in, Two-out rules.

Yet, if the Minister was perhaps a touch over-optimistic in his New Year’s Eve message to the nation, it is definitely not because the Government has failed to put its best endeavours into tackling regulation. Indeed it is probably fair to say that the Coalition has been more thoroughgoing than any of its predecessors in seeking to reduce the burden of regulation. The challenge for its successor must be to continue the battle against excessive regulation, to give its full support to its independent Regulatory Policy Committee – and to avoid making grandiose pledges that it cannot deliver.



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