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Legislative and Regulatory Reform Bill

My Lords, before I reply to the substance of the amendments, I should like to thank my noble friend Lady Young for writing to me between the stages of the Bill and setting out very clearly the rationale behind her amendments. I am very grateful to my noble friend for taking the time to meet the Better Regulation Executive officials and exchange views, which we found very helpful. I hope that it was a productive meeting. I should also like to welcome my noble friend back into the fold of the House of Lords. We have missed her over these many months. I hope that we shall see more of her because of her very constructive approach to this and many other issues. I will set out in some detail why the Government do not think that these amendments should form part of the Bill, although we recognise that they touch on very important issues and reflect back to issues raised at an earlier stage with such subtlety that I clearly missed the true import of the amendments of the noble Lord, Lord Norton of Louth. Part 2 supports the Government’s aim of bringing about risk-based, consistent, proportionate and targeted regulation and is designed to instil a change in the behaviour of regulators. The Hampton review covered the work of 63 national regulators and 468 local authorities and found that while the UK’s regulatory reform regime is well respected internationally, fewer than half the regulators in scope use risk assessment to reduce enforcement activity on high-performing business, and even where risk assessment is used, regulators’ activity is often not closely linked to it. Given the variety of functions regulators have and the variety of contexts in which they operate, inconsistency of approach is a real risk. That inconsistency causes difficulties for those who are regulated, in particular, the small business sector. That is what Philip Hampton’s report Reducing administrative burdens found and that is what we are trying to put right through changing Part 2 of the Bill. Part 2 uses a two-pronged approach to achieve this: first, a code of practice for regulators; and, secondly, the principles of good regulation. I should like to respond to the amendments in this order, dealing first with the amendments to Clauses 22 and 23, which are Amendments Nos. 6 to 10 on the Marshalled List. The noble Baroness’s amendments to these clauses seek to secure that the code is non-statutory. However, I should like to point out to the House the consequences of adopting that approach. Amendment No. 10 would remove the Minister’s obligation to lay a copy of the draft code of practice before Parliament and also remove Parliament’s ability to scrutinise and approve the code of practice, taking away at one stroke the important protections provided in the Bill. Perhaps an unintended consequence of the amendment is that regulators would not have to have regard to a code of practice which Parliament itself had not had a chance properly to scrutinise, approve or think about. Amendments Nos. 6 to 8 replace the references to ““a code of practice”” with ““guidance””. In a sense that is cosmetic and would not have a profound legal effect. It is the effect of the guidance as set out in the Bill, rather than the title, which is important. The amendments as drafted do not remove the statutory duty on regulators to have regard to the code of practice. The provision in the Bill to issue a statutory code of practice derives from the current power in the 2001 Act. The House will be aware that in its report on the Bill the Delegated Powers and Regulatory Reform Committee stated that the power and the degree of scrutiny in issuing the code of practice were ““appropriate””. The power to issue a statutory code under the 2001 Act has to date not been exercised. It was thought that a voluntary code—the enforcement concordat—might bring about the necessary changes in the behaviour of regulators. However, the evidence analysed by the Hampton review suggests that there are still serious problems with variation and consistency with the application of this code, and that businesses are uncertain of regulatory requirements. The Government took that to heart when we consulted on the Bill. We asked whether the existing code of practice for regulators—the concordat—should apply on a statutory footing. Two responses were especially telling. The CBI that said it, "““strongly believes that the Concordat should be placed on a statutory basis since current arrangements for voluntary compliance with the Concordat have not been effective””." Similarly, the Federation of Small Businesses said: "““If consistency of enforcement is to be achieved we see little alternative to a statutory requirement””." For that reason, the Chancellor in the 2006 Budget announced that the Government intended to put on a statutory footing a code of practice for regulators and that that code would apply where a regulator determines its policies about the exercise of regulatory functions. Part 2 includes a provision to consult those affected by a code of practice, a duty for a Minister to lay a draft of the code before Parliament and for subsequent approval by both Houses before the code can be issued by the Minister. As I have already explained, Amendment No. 10 would remove the Minister’s obligation to lay a copy of the draft code of practice before Parliament, and Parliament’s ability to scrutinise and approve the code. I point out that the degree of scrutiny in the Bill for issuing a code of practice is more stringent than that contained in the 2001 Act. Issuing a code is subject to negative resolution under that Act; under the Bill, there will be an affirmative resolution. We have already published a draft of the code, a copy of which is available in the Library of the House, and the Government are working closely with regulators—including the Environment Agency, as I am sure the noble Baroness will be aware—and those regulated. The Government want to get this right. We want to work closely with the regulators and those regulated to achieve the right balance. The second draft of the code will be published later in the autumn and we will of course ensure that a copy is placed in the Library of the House. For those reasons, I urge that the amendments to Clauses 22 and 23 be not moved. Amendment No. 5 is intended to secure that the duty to have regard to the principles of good regulation in Clause 21(2) applies at the general level only, which is at the level where regulators determine their general policies or principles about how their regulatory functions, such as inspection or enforcement, should be exercised. The noble Baroness’s rationale for that change is that because the Bill currently enables the duty to have regard to the principles to apply when regulators exercise individual level functions, such as inspecting a particular business, as well as to the exercise of general level regulatory functions, that might give rise to unintended consequences. I am well aware that legislation can sometimes have that effect but, in this instance, we disagree. The noble Baroness’s concern, as set out in correspondence, is that the statutory duty to have regard to the principles will give grounds for regulated individuals to bring legal challenges against regulators—for example, by complaining that when inspecting the individual the regulator did not exercise its functions in a consistent or proportionate way and was therefore in breach of the duty. The fact that the duty to have regard to the principles can be applied to individual level functions does not mean that it will apply at the individual level in all cases, nor does it mean that that duty would, as a matter of course, give rise to vexatious litigation. For the benefit of the House, it is worth noting that the principles of good regulation in Clause 21 are not unprecedented in statute and can also be found in the Communications Act 2003, where the duty to have regard to them applies to both the general and individual level functions of Ofcom. Ofcom has informed Better Regulation Executive officials that the duty on it to have regard to these five principles does not cause problems in terms of vexatious litigation being brought against it in individual cases. Clause 24 enables a Minister to specify by order the regulatory functions to which the duties to have regard to the principles in Clause 21 and the code in Clause 22 apply. The order provides the flexibility for a Minister to list, or to choose not to list, specific functions of a regulator, whether these are individual or general level functions, depending on what is considered appropriate for that particular regulator, following consultation. As I am sure the noble Baroness will be aware, and Members of the House will generally acknowledge, regulators operate differently and carry out different types of functions in different contexts. Amending the Bill so that the duty to have regard to the principles can be applied only to general level functions would be to disregard the range and types of activities that regulators have. As the noble Baroness stated in her letter to me, regulators are, as a consequence, "““many and varied, differing in size, legal status, geographic coverage, remit function and progress in delivering better regulation””." The application of the principles at the individual level might be appropriate for one regulator—I refer again to Ofcom—but not for another. Although the principles will become statutory once the Bill becomes an Act and comes into force, the principles will have no real effect until an order is made listing the functions of a regulator to which the duty to have regard to the principles will apply. The order is subject to statutory consultation, and it will be accompanied by a regulatory impact assessment and debated in this House and in another place. Before making an order under Clause 24, the Government will seek the views of all those—the regulators and the regulated—who are affected bythe provisions of the proposed listing order. We will do this through formal written consultation, when appropriate, after the Bill receives Royal Assent. Having come so far, we must not prevent those who are regulated benefiting from Part 2. I have said that an impact assessment will accompany the order to be made under Clause 24, and that we will work alongside regulators and those regulated to ascertain the costs and benefits of applying to the regulators the duty to have regard to the principles. The Food Standards Agency has welcomed the opportunity to be involved once the Better Regulation Executive has started to develop the impact assessment on the order, and I hope that the noble Baroness will equally welcome this opportunity when the time comes. I reassure her and her colleagues in the other regulators that we will consider whether it is appropriate to list the individual-level functions of the Environment Agency, the Food Standards Agency, the Financial Services Authority and other comparable regulators from the scope to which the principles will apply. We understand exactly the point about vexatious litigants. We can pick it up as we work through the implementation of the legislation. I am extremely grateful to her for her supportive comments about the excellent intentions behind the legislation, and I think that we can deal with some of the issues as they arise through the implantation of guidance and codes. For all those reasons, I hope that the noble Baroness will feel able to withdraw her amendment.