Getting Regulation Right

Regulation is all too often misunderstood and mischaracterised. It’s a potential ‘cost-free’ lever to growth at a time when the nation is having to tighten its belt, but, the focus on de-regulation risks the UK failing to grasp the opportunity for meaningful reform. The real opportunity is in smart, intelligent use of regulation. There are, however, two inconvenient truths standing in the way of the UK grasping that opportunity.

The first is that most regulation is unavoidable - it is there for good reason. To prevent harm, to protect consumers, to guide the market. We can do it well or we can do it badly, but what we can't do is wish it away or discard it entirely. So, we need to shift the debate away from obsessing about why regulation is in place, and instead focus on the much bigger question – how it will be delivered?

The second truth is that the biggest regulatory burden isn't the laws created in Brussels – it’s British regulation created by a British parliament. Regulation that can be burdensome, costly, and all too often poorly implemented.

So, what’s the solution? The CBI has put a three-point plan to government about how to maximise regulation as a cost-free lever of growth.

Step One. Remove uncertainty

The Retained EU Law Bill (REUL) is currently moving through parliament. It will expire  or ‘sunset’ - all retained EU law at the end of 2023, unless the legislation is actively retained by Ministers.  It is estimated this equates to almost 4,000 pieces of legislation.

The Government is right to look at opportunities for reform. But sunsetting all relevant regulations at the end of 2023 risks compounding the wider economic uncertainty whilst a rushed review process increases the likelihood of regulations falling foul of a ‘delete by accident’ or ‘keep by default’ approach.

Delaying the automatic ‘sunset’ to the alternative date in the legislation of 2026 would remove the immediate cloud of uncertainty for business and give time for the government to put in place a clear process for how it intends to consult and work with business.

Read more about the REUL Bill and how to get involved.

Step Two. Identify key sectoral regulatory levers that can boost business competitiveness

The CBI has already worked through key areas of the economy to identify the sector-specific microeconomic reforms that enable competition.

For example, pushing back the deadline for VPAS ( the voluntary pricing scheme for branded medicines and access) in the pharmaceutical sector and negotiating internationally competitive rates for 2023 would give real momentum to our world leading life sciences sector.

Every sector has an ask such as these, which we are sharing with Government.

Step Three. Shift the focus of regulation towards delivering better outcomes

For established areas of the economy the focus should be on regulatory reforms that genuinely remove red tape that stifles innovation. This could be achieved by a shift towards an outcomes-based regulatory system.

The water sector is an example of an overly prescriptive, rules-based regulatory system often acting as a blocker on innovation, with one regulatory framework requiring more than 11,000 individual output requirements to report and deliver on, resulting in a £5bn administrative cost between 2020-2025.

Case in point: a CBI member reported to us that they can reduce the levels of nitrate pollution by working with local famers at a cost of £9,000 per tonne, but the regulatory framework dictates that they must invest in a specific carbon-intensive process at a cost of £31,000 per tonne. This exemplifies the way in which a shift towards outcomes-based thinking would help to deliver better environmental outcomes and better meet the expectations of the public.

The Government can start this process by delivering on the previous commitment to review regulators’ duties and consider a shift to long-term, outcomes-based objectives.

For emerging areas of the economy the UK has an opportunity to set the global regulatory agenda. The Government itself has identified that the UK risks falling behind in the race to become a global space and satellite hub due to overly cautious regulatory constraints. In areas like robotics, AI and flying taxis the government has an opportunity to design a truly dynamic regulatory system, enabling innovation and delivering the right outcomes.

How do we get there?
The potential prize on offer is game changing. A distinctly British model that would give UK Plc a competitive advantage against the EU’s centralised, legalistic approach.

A tool to unlock innovation and investment across business and markets.

A system whose north star is geared towards delivering better results, for consumers, for the environment, and ultimately the economy.

To hardwire this approach across the economy, the CBI proposed the creation of the Office for Future Regulation, as referenced by the Prime Minister at the 2022 CBI Annual Conference.   Based in the Cabinet Office, the OFR would return strategic responsibility for regulatory reform back to the centre of government, while rationalising and reducing the administrative burden within government.

Doing so will: increase co-ordination and cross-government oversight of regulation; give the UK first mover advantage on the big bets for the economy; and support regulators to focus on outcomes rather than process.

Getting involved: We want to hear from you about how regulation in established areas can be reformed and how regulation in emerging areas should be designed. Please contact Ellie Goodchild to get involved or find out more.