A major report from the Centre for Policy Studies, ‘The Future of Regulation’, has shown that the cost of regulation increased significantly during the 2010s – despite repeated promises from Government to shrink the regulatory burden.
The report by Tom Clougherty & Robert Colvile is the first to go line by line through the official impact assessments produced to accompany 3,528 pieces of legislation. It shows that between 2010 and 2019, gross annual costs to business increased by £35 billion, along with £39.6 billion in one-off costs. If pension reforms are added in, these figures rise to £57.1 billion a year, with £148 billion in one-off costs.
On a net basis, costs to business increased by £6.0 billion a year in today’s money – almost the equivalent of a 2p increase in corporation tax.
However, the report – which has been welcomed by senior Conservative figures – shows that these findings are almost certainly a colossal underestimate. Our regulatory system, it argues, is simply not fit for purpose.
Both the data and anecdotal evidence show that regulatory impact assessments are generally produced by junior staff to justify decisions already taken. The figures they contain are often alarmingly woolly, or riddled with errors.
In one example, the MiFID II financial regulations were claimed to deliver a net annual benefit to business of £105.20, rather than a net annual cost of £105.2 million. In another, the Government claimed that introducing a tax on plastic bags at supermarkets was a ‘deregulatory’ measure, in order to claim £1 billion in regulatory savings across the parliament.
More broadly, only one department – Defra – has a full audit of the regulations it has imposed. Thousands of EU rules were introduced into law without any costings. And the promise to reduce the burden of regulation was fatally undermined by the Treasury’s decision to exempt itself from scrutiny.
The report welcomes the publication of the new Better Regulation Framework – but laments the fact that any attempt to restrict the overall growth of the regulatory burden appears to have been abandoned.
It therefore urges all political parties to commit to a system that takes the impact of regulation as seriously as the impact of tax and spending.
In particular, it argues that:
- A new Regulatory Audit Office should be created, to provide independent scrutiny of policy proposals – rather than departments and regulators being allowed to mark their own homework.
- Regulatory reform and monitoring should be centralised under a senior government minister, with the same oversight of regulation that the Chancellor has of fiscal policy.
- The Government should establish a new regulatory budget to replace the one in, one/two/three out rules and the Business Impact Target.
- It should also carry out a comprehensive audit of the whole body of UK regulation. All regulation and associated analysis should be brought together in a sophisticated, machine-readable open platform.
- Any decision to regulate should be properly scrutinised and externally audited as part of the policymaking process, not as an afterthought.
- All regulations should be evaluated against clear success criteria after implementation, with their impact being re-examined five and 10 years after being passed.
Robert Colvile, report co-author and CPS Director, said:
‘The reforms outlined in this report are intended to change the way policymakers on both left and right think about regulation. At the moment we simply do not know what regulations successive governments have imposed, or what their impact on the economy is – and the picture gets more blurry with every new measure. We need to do far more to monitor both the stock and flow of regulation – and to make ill-considered rules both harder to pass and easier to remove.’
Sir Jacob Rees-Mogg MP, former Secretary of State for Business, Energy and Industrial Strategy, said:
‘This impressively detailed report has an essential message. It is that regulation must be taken as seriously as spending. Until it is, the burden on business will increase. This means that the economy will not grow, which will make us all poorer than necessary.’
John Penrose MP, formerly the Prime Minister’s Anti-Corruption Champion, said:
‘This is a hugely welcome and important report from the CPS. Every pound of red tape costs has the same effect on our economic growth, jobs and exports as a pound taken through tax. But governments of every stripe behave as though it is free. Treating red tape costs as seriously as taxpayer-funded spending is long overdue, and it is wonderful to see CPS making the point so powerfully.’
