Tom Clougherty

Reforming the regulators

Reforming the regulators
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We all know that the state grew enormously under thirteen years of Labour government. The most obvious manifestation of this was public spending – an increase of 60 percent in real terms took Britain from having one of the lowest levels of government spending in the OECD in 2000 (36.6 percent of GDP) to having one of the highest in 2010 (52.5 percent of GDP).

But while reducing spending is clearly the most pressing issue facing the coalition government, we should not overlook another area where the state has grown dramatically: regulation. The British Chambers of Commerce’s ‘Burdens Barometer’ estimates that net cost of major regulations passed since 1998 is £88.3bn, while the Labour government’s own Better Regulation Task Force suggested that the annual cost of regulation to the British economy had grown to an astonishing 10–12 percent of GDP – a figure roughly equivalent to the income tax burden.

Indeed, many economists argue that over-regulation does more damage to our growth prospects than high taxes, so addressing regulation will clearly have to be a major part of any pro-growth agenda. And Britain sorely needs an effective pro-growth agenda.

So what is the coalition government planning? Its ‘programme for government’ promises three things on business regulation: a one-in, one-out rule whereby new regulations can’t be brought in unless others are removed; sunset clauses, whereby regulations would expire unless specifically renewed by parliament; and a more business-friendly approach to compliance, with fewer inspections and less ‘box-ticking’. All of which is fine, so far as it goes – but we’ve heard these ideas before, and they seem unlikely to deliver anything better than benign stasis.

What is needed is a far more radical, structural reform of government regulation. A good first step would be to return the regulators to their original, purely economic role, which was to encourage competitive markets, with the aim that regulation would ultimately be rendered unnecessary. The social and environmental objectives that the previous government added have taken the regulators far away from this initial remit, and given further credence (as if it were needed) to a famous Milton Friedman dictum: “Nothing is so permanent as a temporary government programme.”

The next step, towards which the government should aim to make systemic progress over the course of two parliaments, is to wind up all the various sector regulators (except the financial ones, which need to be treated differently) and transfer any residual functions to the Office of Fair Trading. The OFT should become the UK’s sole market regulator, focusing on ensuring basic trading standards and competitive markets across-the-board. Such a move would reduce the up-front cost of the regulators by 80 percent, but would deliver much greater gains in the long run by freeing British enterprise from reams of red tape.

Of course, reforming the regulators is only part of the solution, and dealing fully with Britain’s regulatory leviathan will, in particular, require us to fundamentally rethink employment legislation, liberalize our archaic planning system, and pay far more attention to legislation emanating from Brussels. With so much to do, the government should really make a start now.

Tom Clougherty is Executive Director of the Adam Smith Institute. 'Reforming the Regulators' by Tim Ambler & Keith Boyfield is available at the Adam Smith Institute