rose to move, That the Grand Committee do report to the House that it has considered the Legislative and Regulatory Reform (Regulatory Functions) Order 2007.
The noble Lord said: The Government laid two complementary instruments—the draft Regulators’ Compliance Code and the draft Legislative and Regulatory Reform (Regulatory Functions) Order 2007—before Parliament on 15 October. I will speak to the two orders together. The purpose of these instruments is to deliver the Government’s commitment to promote effective, risk-based enforcement, which will make a real difference on the ground to those who are regulated without compromising the UK’s excellent regulatory outcomes. There has been full consultation.
The draft code is made under Section 22 of the Legislative and Regulatory Reform Act 2006, while the draft order is made under Section 24. Section 22 enables a Minister to issue a code of practice relating to the exercise of regulatory functions, and requires any person exercising a specified function to have regard to the code in exercising the function. Section 24 allows a Minister to specify by order the functions to which the code and the five principles in Section 21 apply. These principles are that regulatory activities should be carried out in a way that is transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed.
The draft code gives effect to the recommendations in the Philip Hampton report, Reducing Administrative Burdens: Effective Inspection and Enforcement, while the five principles of good regulation derive from the Better Regulation Commission’s report, Less is More. The Government accepted these recommendations and introduced the Legislative and Regulatory Reform Act to implement them. Part 2 of the Act incorporates the five regulatory principles and allows the Hampton’s enforcement principles to be implemented through a statutory code.
When the House debated the 2006 Act, Peers warmly welcomed both the Hampton principles and the principles of good regulation, and supported Part 2 of the Act. As the draft order and code derive from Part 2 of the 2006 Act, we hope that Peers, having scrutinised and debated these draft instruments, will bear in mind particularly the benefits that the regulatory and enforcement principles may bring.
We believe that a lot has been achieved in the past years by many regulators since the Government launched a radical and far-reaching agenda for better regulation. Since the Hampton report, for instance, the Environment Agency’s risk-based assessments have enabled it to identify more of those who need inspection and have led to a 20 per cent reduction in the total number of inspections. That can only be good for honest and hard-working businesses in terms of lower compliance costs, as well as allowing regulators to be more efficient and effective in their work.
However, we need to do more. We need to promote a real and lasting change in a regulatory culture that embeds a light-touch, risk-based approach to enforcement among all regulators. This will deliver further significant benefits to business in terms of better focused inspection activity, the increased use of advice for business, reductions in form-filling requirements and more consistent penalties. These benefits will not be at the expense of regulatory outcomes. This is because a risk-based, targeted and proportionate approach to enforcement will enable regulators to direct limited regulatory resources to areas of greatest need, while reducing burdens on low-risk, honest and compliant businesses. We therefore hope that this is a win-win for regulators, for most of those whom they regulate and, indeed, for society.
I emphasise the extent and depth of consultation with all interested parties since March 2007—for over six months. As a consequence of those consultations, parts of the code we are now debating have been altered. I beg to move.
Moved, That the Grand Committee do report to the House that it has considered the Legislative and Regulatory Reform (Regulatory Functions) Order 2007. 28th Report from the Statutory Instruments Committee, Session 2006-07.—(Lord Bach.)
I am extremely grateful to the Minister for that thorough explanation of the order and the code. He will probably not be aware that, when I was doing some background reading on this, I saw that, on 2 November 2006, the House debated the then Legislative and Regulatory Reform Bill and followed it up with the then Companies Bill, to which we shall turn shortly. Those pieces of legislation were taken on the Floor of the House at the same time but were very different in that only 11 amendments were tabled on Third Reading of the first Bill, whereas 1,029 Commons amendments were tabled to the Companies Bill. I note that the Minister’s predecessor, the noble Lord, Lord Sainsbury, claimed three scalps or personal records: the most Commons amendments to a Lords Bill ever; the most Commons amendments taken in a single day; and the most amendments—more than 300—taken in a single grouping.
We on these Benches welcome this important if in part slightly technical instrument. The principle must be entirely praiseworthy. We are concerned at the increasing regulatory burden; one has only to open a newspaper on any day to see descriptions and discussion of how the regulatory burden has increased and is increasing. The impact on British life is felt in the economic sphere and is considerable and far reaching. It greatly saddens me when I read about school trips being cancelled because of problems with regulations or village halls being closed because they cannot comply with construction regulations. The weakening of the richness of educational experience and of the social fabric is a great shame. I have described it in debates as the barnacle principle: that although a single barnacle on a ship makes very little difference indeed, as the number of barnacles increases the ship’s speed through the sea is slowed. I am sure that, as the Minister hinted, at some point we will need a much more widespread and far-reaching debate on the nature and level of risk that society is prepared to tolerate. In the mean time, we support a measure that encourages proportionate and flexible regulation.
I turn to the specifics of the regulation in the code. First, however, I make a point which, although the Minister may consider it a drafting point, may indicate an underlying approach. The code begins with a paragraph on the purpose. Paragraph 1.1 states that,
“the Government believes that, in achieving these … regulation and its enforcement should be proportionate and flexible enough to allow or even encourage economic progress”.
I know that the Minister will tell me that that repeats the principle outlined in paragraph 3 of the code, on page 3, on the economic progress principle. However, it is a rather sad reflection that we say “or even encourage”. Economic activity is the lifeblood of what we are seeking to achieve in this country, and it should not really be added here as an afterthought. The provision could say “allow or encourage” or, if the Minister wanted to try for a major prize, say “allow and encourage”. That approach seems rather more appropriate.
That is enough of the trivia. The order is a fascinating read. If anyone needed to be convinced of the regulatory burden, 24 closely packed pages of authorities, bodies, statutes, UK and European regulations are a convincing answer. I believe that the News of the World once advertised itself by saying, “All human life is here”. Well, all human life is certainly in this order. I was tempted to ask the Minister to explain its application to the Pedlars Act 1871 or, even more surprisingly, to the Hypnotism Act 1952, but I shall not surrender to that temptation. However, there are two important issues of principle. Article 4 of the regulatory functions states:
“Article 2 shall not apply to any regulatory function … (a) so far as exercisable in Scotland, if or to the extent that the function relates to matters which are not reserved matters”.
That is a slightly dense use of prose, and there are two negatives, but as I understand it, it means that matters that are devolved to Scotland are not covered by the order.
Similarly, Northern Irish matters that are handled in Northern Ireland are not covered by it, and the same applies to Wales. If I am right about that—I should be delighted to be told that I am not—serious situations could develop that will undermine a good deal of what the Government are seeking to achieve by this order and this code. I illustrate that briefly by way of an example. Part 1 of the schedule on page 3 states:
“All the regulatory functions exercisable by the … Charity Commission for England and Wales”.
Charity law is a devolved matter. A Scottish charity law has recently been passed. The Scottish charity law regulator goes by the name of OSCR—the Office of the Scottish Charity Regulator. The Scottish Parliament is passing detailed regulations that are burdensome and expensive to comply with. They are being enforced, appropriately, by OSCR. They are being passed by the Scottish Parliament without reference to the Charity Commission in London.
Let us consider the position of a UK-wide charity, for example the Red Cross or Cancer UK. I should make it clear to the Committee that I have not been asked by the Red Cross or Cancer UK to raise this, but I pick them as two well known charities. They have to comply with two sets of regulations where previously they complied with one. They are taking extensive and expensive legal advice on this. When people are approached by the RNLI lifeboat lady holding a tin in the street, I wonder whether they realise that at least part of the money they are giving will be devoted to obtaining advice to deal with this double layer of regulation. So, far from being deregulatory, the instrument permits an increase—two layers—in regulation.
However, that is not the whole story, because the Welsh Assembly—following the Scottish example—has already begun to consider whether it should have powers over charities that operate in Wales. The Government are on record as saying that they propose to introduce a charities law for Northern Ireland, which will presumably have its own regulator. There could therefore be four sets of regulations for national charities to comply with. I was a poor student, especially in mathematics, but I remember two concepts: one was called LCD, the lowest common denominator; and the other was called HCF, the highest common factor. My hope was that what the Government propose here would lead to the LCD, the lowest common denominator, but I fear that they will end up with the HCF, the highest common factor, in charities law, where charities have to comply with the most burdensome regulations to avoid undue administrative burden. That is not in the interests of donors, who give their money to help the charity itself. It is clearly not in the interests of charities, whose management has to spend time finding ways to deal with the matter. It is clearly not in the interests of recipients, because they want to receive charitable endeavour, not have it wasted on professional fees.
I hope that the Minister can explain how the Government propose to tackle that. I am not clear why we could not have reached agreement with the Scottish Parliament, the Welsh Assembly and the Northern Ireland Government to buy into those provisions. Surely minimising regulatory burdens cannot be just an English concern. This is a serious matter, and I look forward to hearing from the Minister about it.
The second point of principle can be summed up in that fine old country phrase, “Fine words butter no parsnips”. There are lots of fine words here, but what will the follow-up be? Most of us on this side of the House believe that regulatory impact assessments are usually fairly desultory or inadequate at the outset and are rarely, if ever, properly reviewed. The code and the order will require considerable review and follow-up. I remind the Minister of what was said by the Merits of Statutory Instruments Committee. It said:
“We welcome the code as a clear written expression of the ‘better regulation agenda’”—
as do we—
“in the context of regulatory activity, but it will be important that the Government monitor what it in practice it achieves, not least in the face of competing legislative requirements”.
I am sure that the Minister’s officials have read the House’s report on UK economic regulators, which was published on 20 October. There is a lot of stuff in this report, but there are two or three quotations that the Minister ought to be prepared to address. Paragraph 1.5 states:
“We recommend that regulators should jointly develop methodologies to quantify the impact they have in line with current best practice”.
Paragraph 1.8 states:
“Regulators should strengthen their cost/benefit analyses, using quantitative estimates where they can be made robustly, and should improve the presentation of their IAs with clearer sign-posting and a commitment to conciseness and clarity”.
Paragraph 1.10 states:
“Post-implementation evaluation should be conducted with greater frequency ... on occasion an independent body ... should monitor the quality of assessments and the objectivity shown by regulators in completing them.
“Post-implementation evaluation should always be made publicly available”.
Finally, paragraph 1.29 states:
“The question of who regulates the regulators has not been answered and will not go away. There is a need for a committee to pursue cross-sector best practice and to ensure that the recommendations”,
I began by saying that we support the principle behind the regulation, and we do—we want flexible, proportionate regulation—but some serious issues have been overlooked here. Devolution—the devolved Assemblies and devolved powers—is one. How can we ensure that that does not drive a coach and horses through what the Government are seeking to achieve? There is also the need for serious evaluation in one year, two years or three years from now.
I join the noble Lord, Lord Hodgson, in saying that we on these Benches support the code and the order. I shall start by picking up on the point that the noble Lord, Lord Hodgson, made. As the Minister will be aware, Members on these Benches have long argued that, as with all regulations, the devil is in the detail and that what is essential from the Government’s point of view is that we should have a full impact assessment before any regulation is brought in. We have also argued for sunset clauses. In this provision, the Government are almost moving towards what we have asked for, in the sense that we have a full impact assessment, which is the document that I have in my hand. Also, taking into account what was said by the noble Lord, Lord Hodgson, we almost have a sunset clause, in the sense that the full impact assessment answers the question, “When will the policy be reviewed to establish the actual costs and benefits and the achievement of the desired effects?”. The answer is April 2011. So we are getting close in the approach to these provisions to what we on these Benches have been arguing in favour of for some time, which we have put into our last two general election manifestos.
Turning to the regulations, it is clear that the Hampton principles are similar to apple pie and motherhood—who could be against them? Of course, the devil will undoubtedly be in the detail. From practical experience, I shall take just two examples. The first is Hampton principle 6, which is going to be endorsed in these regulations, which states that:
“No inspection should take place without a reason”.
I look forward very much to the Health and Safety Executive implementing principle 6 of the Hampton principles, because anyone involved in business would say that many visits made by the Health and Safety Executive are time-wasting and are made for no apparent reason. So again, it will be for the devil to be found in the detail to see whether the HSE adopts principle 6.
A very contemporary example is principle 9, that:
“Regulators should be accountable for the efficiency and effectiveness of their activities”.
I look forward to that principle being adopted in the activities of the Financial Services Authority in relation to Northern Rock. It will be a matter for judgment and subsequent action to see whether the FSA observed principle 9 or whether it will be called to account as the Northern Rock saga unwraps itself—if that is the correct phrase in this particular circumstance.
In general, however, I welcome the Government’s adoption of the full impact assessment and almost getting a sunset clause. Obviously, I welcome the principles, but by 2011 we will know whether this has had any practical effect.
I thank both noble Lords for their useful and helpful contributions to the debate, and particularly for their support for the order and the code. I am especially delighted to have pleased the noble Lord, Lord Razzall, so much on sunset clauses. He and I had a brief exchange in the House yesterday on this subject, and I seem to have satisfied him within 24 hours. Both noble Lords quite rightly spoke in general terms about regulation, and it is true that over-regulation has affected not only this Government, but all Governments which have gone before them. Indeed, it was noticeable in the House yesterday how those who had had senior roles in previous Governments of a different political persuasion nodded vigorously when the point was made that this is a difficult issue for the Government. It always will be so in a civilised society, because there is a need for regulation to protect consumers and employees.
It is vital that that regulation is not overburdening, is not too costly and is worth its weight. As is clear, the Government are determined to reduce the level of regulation where they can. They need to bring better regulation to the fore. We are determined to do that. This code is just one part of delivering the Hampton agenda and the wider regulatory reform agenda. For example, we will shortly be publishing the simplification plans for the second year, which capture all the elements of the Government’s agenda to effect real change. As the noble Lord, Lord Hodgson, said, words are easy here, but he is looking for action; and it is action that we are looking for too.
That action includes simplification plans to reduce the administrative burdens of regulation for businesses, where the Government have set a target of 25 per cent, and the public sector where the Government have set a target for the reduction of bureaucracy at 30 per cent. We mean to carry that out. The points that both noble Lords have made about regulation are well taken.
The noble Lord, Lord Hodgson, made a detailed point about devolution. The Act defines much of this. We do not have the power in the order to apply the code to devolved matters, so I am afraid that the answer to his questions is “Yes”. The article quoted is a repeat of Section 24(3) of the 2006 Act. I hope that he will be pleased to hear that we are seeking agreement through other means with the devolved Administrations to do exactly what he says. For example, we have just agreed with the Northern Ireland Administration that they will adopt the code voluntarily, because they see the benefits for their economy and businesses. Wales is similarly minded to adopt the code voluntarily, and we are in discussion with the Scottish authorities. I cannot put it higher than that. I hope that that goes some way to satisfy the noble Lord that we take his point about the need to have common codes, if we can, across the devolved Administrations and England.
I am delighted that the noble Lord, Lord Hodgson, did not ask me details about either the Peddlers Act or the Hypnotism Act. Of course I would have been in a position to answer all his questions if he had wanted to ask about those Acts.
I do not claim that merely because the name of the new department includes the words “regulatory reform” that that in itself is anywhere near a solution to the problems that have been raised today, but I think that it is just a sign or symbol of the importance that the Government place on the issue. I know that we can be sure that both parties opposite will keep us to the mark on the issue.
The Merits Committee, referred to by the noble Lord, Lord Hodgson, was fairly favourable towards this code and it liked the way that it was written. I emphasise that the overarching aim of these instruments is to ensure that regulators work to minimise burdens and enforce regulations in a risk-based, targeted and proportionate way. We can effectively protect our environment, reduce accidents, protect workers or promote a competitive, efficient economy only if we have appropriate, good-quality regulation that is proportionately and flexibly enforced. We believe that this approach will bring real benefits to many groups: first to regulators because they can target their resources more effectively, to honest and compliant businesses because the costs to them of regulatory enforcement will fall, to society in general because the rogue operators—and they do exist—will be more effectively targeted and tackled, and to the economy in general, because removing burdens from businesses will enable the UK to retain its competitive edge in a globalised economy. Hopefully, the approval of this code will be one of the weapons that we use to reduce the burden of regulation in this country.
On Question, Motion agreed to.