Stephen Hammond MP: A bonfire of the regulations

Seven Conservative MPs have teamed up with the Centre for Policy Studies and ConHome to propose ideas to turbo charge the UK economy. Yesterday, Charlie Elphicke argued that we need to reform the banks so they can finance the recovery.

Stephen Hammond is the Member of Parliament for Wimbledon. 

It is a truism in politics that all oppositions promise to cut waste and to deregulate . Then governing starts and Governments find it more challenging than they first thought. On 26^th September 2011, the Coalition Government published a summary of the progress made on cutting costs of regulation; it estimated the gross reduction in regulatory costs totalled some £3bn. This is real progress.

The Labour Government’s regulatory impositions on industry wrecked our competitiveness and productivity. The World Economic Forum Global Competitiveness Report 2011-2012 reports that the Coalition is already starting to make up some of the lost ground and is now ranked 10^th. We are in the top ten again for the first time since 2007 but still well down from the last time Conservatives were in office in 1998 when we were ranked 4^th. To his credit the Minister, Mark Prisk, recognises this “there is much more to do.”

The Government has a deregulation committee that overlooks and administers the “one in one out” rule which was introduced in Sept 2010. The purpose is to control the amount of new regulation and ensure any new regulation is offset by the abolition of current regulation. Can it be improved further still? Firstly there could be an assessment of total cost to industry. Under the one in one out approach the new costs could outweigh current costs. Secondly could there be more of a qualitative test? There is clearly a risk that swathes of costly new EU regulations could be introduced while obscure outdated and uncostly regulation is deleted. Finally rather than regulatory offset can we go further to more wholesale regulatory deletion?

The Prime Minister is committed to a supply side revolution. It may be worth thinking about a cross government Minister of State for Deregulation, specifically tasked to remove regulations, redefine regulatory impact assessments and demolish the health and safety culture.

For the more radically inclined, the “one in one out” could be boosted – for example “one in three out”. Any new regulation would need to pass a cost test which identifies and quantifies the costs to industry both of this new regulation but also the cumulative cost of the measure. The cumulative cost test is necessary as it recognises that regulation has a layering impact such that new costs are added to existing.  Additionally a new relevance and proportionality test could sit alongside the cost test such that any new regulation can only replace regulation of equal impact, proportionality and importance.

Regulatory Impact Assessments should be reformed. For example, a presumption against new regulations could be adopted. Any new regulation would need to prove why it is necessary and to what problem the proposed regulation is a solution. Secondly, the private sector cost/public benefit ratio could to be changed to favour lower private costs and increased public benefits.

The EU is a major source of the regulatory burden on the UK. It is not simply the volume of regulation - it is its economic impact. Lord Triesman, in 2006 then FCO Minister, said “we estimate that around 50% of UK legislation with significant economic impact has its origins in the EU”. New EU regulation might be subject to the same enhanced cost/benefit ratio test described above. Any country should have the power of veto if the cost benefit ratio or a cost impact analysis showed either excessive private cost incurred or detriment to private industry in line with the new test.

Small business is disproportionately impacted as it is less able to bear the burden of cost of excessive regulation. The impact of Health and Safety Regulations combined with employment regulation and changing standards overwhelm small firms. The Chancellor was right to introduce a  moratorium for small business. The more we can use exemptions for smaller businesses the better it will be for our economic growth.