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Government Regulation

What every Government, including our own, have to realise is that it is no longer as easy to dictate to a whole industry or a market how they run their business, because, faced with unreasonable or excessive regulation, many can simply vote with their feet and relocate elsewhere. If consumers do not like the rules that the Government choose to impose on them, they can often easily avoid them by visiting a website based offshore or simply getting on a budget flight to a country where they are allowed to engage in the practice they want to. Legislators now have less power over our daily lives than they used to have and Governments need to recognise that we live in a changed and globalised environment. That must affect how they design regulation, where they choose to regulate and where they acknowledge that they should not. Obviously, a degree of regulation is useful to ensure that markets work efficiently and consumers are protected, but it is clear from the debate that the Government have imposed an excessive amount of regulation. They are not solely responsible for the problems, because the EU is another cost driver. A range of international organisations, many of which are increasingly opaque and unaccountable, also shape regulation in this country, such as the Financial Action Task Force, the World Intellectual Property Organisation, the World Trade Organisation and the Bank for International Settlements. We need to look at how such organisations work to try to reduce the flow of regulation that we receive from them. As we have heard, it is the natural instinct of a legislator to regulate. In a sense, that is what many people feel that they are in this place to do, and we must produce a political counterweight to that instinct. With hindsight, when a risk emerges, no legislator wants to be part of the Government who failed to regulate it away, but we need to acknowledge that we cannot regulate away all risk and we should not try to do so. One problem is that the legislators who produce new laws do not have to foot the bill—it is not like advocating more public spending. The people who actually have to pay the bill for new regulation are businesses, their customers and their employees whose jobs are threatened. I want to consider briefly some of the ways in which we might produce a genuine political counterweight to the urge to legislate. All Governments talk about deregulating but few deliver it. As many speakers have said, we need to ensure that legislation is properly costed and that a proper cost-benefit impact assessment is made before the decision to legislate. We need to consider whether legislation is necessary or whether competition could provide an acceptable solution to the problem. Is there a real market failure and, if so, is legislation the best way to tackle it? To make a reasoned judgment on those questions, we need serious, effective and sound regulatory impact assessments that provide a range of options. As we have heard, RIAs are too often bland, superficial and self-serving. It is vital that they present decision makers with various options—including that of no action at all—from better enforcement of existing rules to small-scale changes in the regulatory structure of significant new legislation. Options to exempt small businesses should always be considered but they are not a panacea for over-regulation, because jobs can be threatened by the over-regulation of large businesses, too. When the National Audit Office looked at the RIAs produced by the Government, there was concern that only two in the sample contained a series of options for Ministers. We can contrast that with the situation in other countries. For example, in Australia, the assessment for the Fuel Quality Standards Bill included seven options and 40 pages of in-depth analysis. We need more research into standardising and strengthening the analysis of the decision on whether to regulate or legislate. We need more standardised and rigorous data collection. The Treasury green book, ““Appraisal and Evaluation in Central Government””, identified another problem:"““a systematic tendency for project appraisers to be overly optimistic””." That is classic Treasury understatement. There is perennially a bias in favour of an optimistic approach to the usefulness and effectiveness of regulation. As well as improving the analysis of cost impact assessment, we need to increase the political weight behind it. Cost assessment should ideally be conducted by an agency that is independent of Government. Again, there are precedents overseas. In the Netherlands, such a model has been successfully pioneered. Another option is to grant affected parties the right to challenge a piece of legislation in the courts if no proper cost-benefit analysis was conducted. That has worked well in the United States, where the courts have begun to strike down secondary legislation if it is not properly costed. Above all, it is important that, when the House signs off on a piece of legislation, we do not consider that our job is done. We should continue to assess and review whether the legislation should remain on the statute book, especially in the case of EU directives. There should be a built-in method of assessing whether they should remain. Ideally, almost all regulation should be subject to sunset clauses. There should be regular review of absent sunset clauses and of cost impacts to see whether the original problem has been solved or whether it could be dealt with by competition. We need to consider whether our existing law is still effective in solving the problem. The House should make such review a priority, as it is vital to securing both the competitiveness of our nation and our continuing prosperity.