Josh Coupland is Digital and Communications Manager at the Centre for Policy Studies.
The Conservative Party has often prided itself on being on the side of business and creating an environment for entrepreneurs to thrive. However, an in-depth new study by the Centre for Policy Studies has found that over the 2010s, both the Coalition and subsequent Conservative governments have added more than £6 billion of red tape to business costs every year. That’s almost the equivalent of a 2p rise in Corporation Tax.
If the UK wants to be an economic powerhouse, we have to understand that creating mountains of paperwork and building a barrier for future growth is just as damaging as raising taxes.
The report has poured through the impact assessments produced to accompany more than 3,500 pieces of legislation. It found billions of pounds in costs imposed that could have been used to create new jobs across Britain, that manufacturers could have invested in new machinery and industry could have used to drive up productivity.
One startling finding is that when the Government claimed in 2016 to have made savings of £900 million in red tape since the 2015 election, it had made no progress whatsoever. It was simply that someone in Whitehall had produced a statistical magic trick: to classify the plastic carrier bag charge as a deregulatory measure, because shoppers would buy less of them.
The savings to business were estimated at £200 million a year, which put total savings at £1 billion over the Parliament. Job done, target magically met. In reality, of course, no one should consider increasing demands on retailers a deregulatory measure.
This episode, however, is sadly typical of how we treat regulation. The CPS report shows that impact assessments are generally produced by relatively junior civil servants, to make sure the numbers fit the narrative – rather than making sure the regulation being introduced is properly scrutinised and fit for purpose.
If we are to tackle this problem head-on, we have to stop behaving as though introducing new rules and regulation is cost-free and start treating the costs of red tape as seriously as taxpayer-funded spending.
In particular, we need to get a grip on the rules already in place. Currently, the Department for Environment, Food, and Rural Affairs is the only one to have conducted a full audit of the regulation it imposes. The result is departments and ministers which have no real grasp of what rules they’re imposing, nor the cost. The result is complex, unfriendly, and constantly shifting landscape for businesses to navigate.
If future governments truly want to deliver on commitments to make Britain an attractive place to do business, the first step should be a clear understanding of what burdens they choose to place on business and at what cost.
One of the key recommendations from the Centre for Policy Studies is therefore that the Government should conduct a compressive audit of all legislation and place it in a single digital platform that anyone can access. The report describes how CPS researchers, investigating the cost of retained EU law, were given the choice of downloading the data either as a JPG or a PowerPoint file. Even when they persuaded the Government to publish a proper list of measures, it came without any cost estimates attached.
A proper regulatory audit would not only give businesses a clear sense of all the legislation that impacts them, but would also give Whitehall a proper understanding of just how cumbersome its impact is.
The CPS also recommends the creation of a new Regulatory Audit Office to provide independent scrutiny of new policy proposals. The current system of allowing departments to mark their own homework leaves it open to abuse and poor standards of assessment.
This may seem like an extra layer of bureaucracy. But it makes complete sense. Departments can’t get away with spending taxpayers’ money without approval from the Treasury, so why should they be allowed to get away with effectively spending other people’s money without anyone checking their work? Every piece of legislation has a price, whether it be to the government or business, and through them, the consumer.
The report also proposes that a senior government minister should oversee all regulation, in the same way the Chancellor looks after all spending across government. It also addresses the topic of regulatory budgets and one in/one out rules.
As it says, the Government’s new Better Regulation Framework will improve the rule-making process. It will ask whether a new regulation is necessary, and how much it will cost, much earlier in the process, rather than treating it as an afterthought.
But this is hugely undermined by the decision to move away from any form of overall target for the scope of regulation – because, according to the relevant White Paper, the Government planned to do too much regulating!
As others like John Penrose have argued, just as we have legislated for Net Zero carbon emissions, we should legislate for a Net Zero regulatory burden – that if we are going to impose new rules on businesses or consumers, we have to take some away.
Yet as the report says, whatever regulatory target we set, we need it to apply across the whole of the state. The fact that the Government increased regulation by £6 billion a year – on its own maths – while claiming to have reduced it reflects the fact that large swathes of Government activity were excluded from the target, not least anything introduced by the Treasury, with its notorious resistance to external scrutiny.
Businesses large and small face frustration and uncertainty when dealing with regulations imposed upon them. Even the most well-meaning new rules incur compliance costs which can be passed on to consumers in the form of higher prices or reduced output. A more transparent system, with an honest appraisal of the benefits and the costs, would be the first step to a regulatory system that actually works for Britain.
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Author: Josh Coupland
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