Regulators should have greater “political cover” under plans to overhaul regulatory system, peers say

In a report on plans to overhaul the UK’s regulatory system, the Industry and Regulators Committee also said that Whitehall must provide individual regulators with a clearer picture of what its growth ambition means in practice for their sector and their responsibilities.

Announcing its action plan in March last year, HM Treasury said the UK's regulatory approach had "become too risk averse" and set out plans for a regulatory system that supports innovation and economic growth “while ensuring accountability for the quality of regulations introduced, as well as the way in which independent regulators implement and enforce them".

On risk, the report said regulators "are often risk averse, as they have primary statutory duties to safety or consumer protection, and are more likely to be blamed for failures than celebrated for supporting investment or innovation".

It added: "Yet it is not clear whether the Government wants regulators to allow greater risks to be borne by consumers and businesses, or merely to be more open-minded about new innovations.

“Decisions on what risks should be borne and by whom are fundamentally political and should be decided by the Government."

The Committee recommended that the Government provide strategic guidance to regulators that addresses how conflicts between objectives should be prioritised and "must provide political cover where the Government wants a regulator to be more open to risk".

The report, meanwhile, said it is "unclear" what supporting growth means for individual regulators, which hold a variety of responsibilities across different areas or sectors of the economy.

Elsewhere, the Committee raised concerns that the Action Plan's approach to reducing the administrative cost of regulation by 25% by the end of this Parliament focuses on the smaller cost of paperwork rather than the higher cost of actually complying with regulation.

It said the Government must estimate the extent to which its plans will reduce the actual cost of compliance with regulation, as well as administrative costs.

It also urged the Government to set a small number of clear metrics for each regulator as part of sponsor departments’ regulatory simplification plans, allowing Parliament to hold them to account for their performance.

According to the Committee, the main contribution regulators can make to supporting investment and growth is to carry out their duties more efficiently, especially by improving the pace of their processes and decisions.

The Action Plan’s main proposal to speed up these processes was the suggestion of paid-for fast lanes for regulatory approvals.

However, the Committee warned that allowing companies to pay for quicker decisions could reduce public trust and unfairly disadvantage smaller companies.

It said that regulators should first take steps to reduce the time it takes to make decisions for all companies and provide clearer timescales for when they expect to make decisions.

Chair of the Committee, Baroness Hayter, said the inquiry found that “Government itself must take difficult decisions on how regulators should balance economic growth with the protections that citizens and the environment rely on, and the levels of risk to which the public should be exposed”.

She added: “Regulators must play their part by performing their functions more effectively, providing the speed and certainty businesses need to make investments, and the flexibility to respond to innovation.

“If growth is the government’s priority, it must provide clarity to regulators about its expectation and the political coverage for them to be less risk averse. The time to act is now.”

Adam Carey