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Regulatory Enforcement and Sanctions Bill


21st May 2008

Speaking on behalf of the Conservatives, Jonathan Djanogly tells MPs that he supports the principles of the Bill but has concerns about the effects on small businesses in particular.

Mr. Jonathan Djanogly (Huntingdon) (Con): Debates and Bills aimed at reducing the country's regulatory burden are always welcome to the Conservative party. However, we have been here before. Indeed, the Minister for Employment Relations and Postal Affairs and I have personally been here before, when we debated this exact issue at the time of the Government's last unsuccessful effort at regulatory reform, namely the Legislative and Regulatory Reform Act 2006-just two years ago.

The Minister welcomed that particular piece of legislation, arguing that it gave a power to remove unwanted regulations through legislative reform orders. Those provisions, however, were themselves designed to upgrade the failed regulatory reform orders that the Government had implemented some five years earlier. Looking back, we remember that great things were predicted in regard to slashing red tape in business. On 15 May 2006-almost two years ago to the day-the Minister said that the Bill would provide initiatives on

"reducing the administrative burdens of regulation, consolidating and simplifying legislation to make it easier to understand and work with, and deregulation."He continued:

"It will also allow us to reduce administrative burdens, such as by simplifying administrative requirements for business when setting up a business or hiring staff, by ensuring that inspection is risk-based to reduce the burden on those who comply with regulation".-[ Official Report, 15 May 2006; Vol. 446, c. 719.]

Such grand ambitions we had, back then! But did not that sound just a little bit like what the Minister predicted today? He said a moment ago that this Bill would provide lasting benefits to business, and, in his final flourish, that it would boost business competitiveness.

Last time, the practice turned out to be rather different from the theory. By the end of 2007, when the legislation had been in force for nearly a year, it was reported by the Financial Times that the law had yet to cut or even amend a single regulation. An update from the Minister today on the outcome of the existing package of reforms would therefore be appropriate. Perhaps we should not be surprised that, in his opening remarks, he rather interestingly omitted to mention the Government's record to date. So here we are again. Is this going to be third time lucky? Given the Government's record of failure on this issue, the Minister will understand my, and business's, caution.

Mr. Graham Stuart: My hon. Friend is highlighting the fact that we are experiencing a deregulatory "Groundhog Day", ever to be repeated. This is not a day for party political partisanship, so I do not particularly want to dwell on the failures relating to endless criminal offences, the failure to make our streets safer, or the endless education Bills that have failed to make our schools better. I hope, however, that my hon. Friend will be able to persuade the Minister either to tell us that he will be back in 18 months when this legislation has failed, or at least to admit that he needs to go back to first principles, rather than imposing yet more regulations on top of the regulations that we already have.

Mr. Djanogly: If the Government's future record is going to be anything like their past record, we will indeed be back here in 18 months, unless they are preparing for a general election and do not have time to deal with more regulatory reform. My hon. Friend makes an important point. In its 2001 manifesto, the Labour party pledged to cut red tape. However, the British Chambers of Commerce's burdens barometer of 2007-presumably things have got worse since then-showed that the total cost of new regulations on business since Labour came to office stood at some £55.56 billion.

Judy Mallaber: As party politics have been introduced into the debate in the previous intervention, and as the hon. Gentleman is so interested in this issue, may I ask him to encourage the Conservative members of the Regulatory Reform Committee-a Committee set up by this House-to attend its meetings? Unfortunately, I have to leave this debate shortly to attend pre-arranged meetings. However, since I have been a member of that Committee, I have attended every meeting. I have seen only one Conservative member there, for a short period of half an hour, at one meeting. Please will he encourage them to turn up to the meetings of that Committee of the House, which was set up to look at this subject?

Mr. Djanogly: The hon. Lady has made her point, but if, as a Front Bencher, I were to comment on a Committee of the House, I am sure that people would jump on me from a great height.

We welcome the stated aims of the Bill. It seeks to implement the principles of risk-based and proportionate regulation. Those principles stem from the Hampton and Macrory reviews on regulation, and were generally welcomed by all parties in the House at the time. However, we remain to be convinced that the Bill, as currently drafted, will totally achieve those aspirations. Indeed, we have many serious reservations about significant parts of the Bill, in relation to its practical operation and its legal effect.

The Bill requires business to take a leap of faith. It proposes that regulators be awarded additional powers to sanction business, in exchange for a promise of a better regulatory environment. We recognise the concern expressed by the CBI that

"in order to be comfortable with the awarding of these new powers to sanction business, employers need confidence that regulators will deliver their side of the bargain."

Indeed, we are concerned that much of the Bill could put small businesses-which are already buckling under the increased corporation tax and capital gains tax burdens placed on them by the Government-at a significant disadvantage.

The Conservative party is currently working on measures to drive out the "regulate first" culture in Whitehall, which has blossomed under this Government. This issue is very important to us. To that end, my hon. Friend the Member for Rutland and Melton (Alan Duncan), the shadow Secretary of State, has launched an independent taskforce, led by Sir David Arculus, to look into an overhaul of the regulation machine. All aspects, including the use of targets, management and training, and the vital need to address the wider cultural issues-including in the civil service-will be examined in order to make regulation the last resort rather than the first option.

In the meantime, the Conservatives welcome the mood music coming from the Minister about the need to reduce the burden of regulation. To be credible, however, he must put this into the context of the new regulatory proposals announced by the Prime Minister last week. An example is the regulations dealing with agency workers' rights. They were released to the press yesterday without a ministerial statement being made to the House, and with no indication of their cost to business, which is likely to be huge.

Neither we nor the business community has forgotten the record of this Government to date. Despite their manifesto promise to cut red tape, they have presided over a £65 billion rise in the cost of regulation since being elected, or the equivalent of 40 new regulations every working day. The Federation of Small Businesses has calculated that the average small business now spends some seven hours a week simply complying with Government red tape. Some people argue that this is all the fault of the EU, yet the evidence shows that, all too often, the Government gold-plate EU directives. The British Chambers of Commerce estimates that the UK's average elaboration ratio-as it calls it-for 100 directives implemented between 1998 and 2002 was 334 per cent. In other words, the Government provided three times the verbiage and potential regulation in relation to EU directives than it needed to.

The result is that the cumulative burden of regulation is now deterring small companies from creating jobs. Over the past few years, we have seen a steady decline in the proportion of small and medium-sized enterprises that are employers. Today, seven out of 10 SMEs employ no one. As the chairman of the Forum of Private Business put it:

"The fact of the matter is that there are no more employers than there were in 1997. This increase in the number of small firms is all about more companies without employees."

We have heard a lot of talk from Labour before about wanting to cut the regulatory burden on business. In 2001, we saw the introduction of the regulatory reform orders, which, we were told, would transform the process and lead to the scrapping of thousands of regulations. Yet the reality has been somewhat different. In 2005, the Cabinet investigated progress. In four years, Ministers had managed to identify only 63 possible laws that they were willing to tackle. Worse still, of those, they managed to implement only 27. Given that over the same period, there were more than 12,000 new statutory instruments, that was a dreadful indictment of Ministers failing to deliver on their promises.

Andrew Miller: I am sure that the hon. Gentleman was not seeking to manipulate the figures in a misleading way, but those 28 regulatory reform orders did not affect only 28 regulations. For example, the Regulatory Reform (Fire Service) Order 2005 covered dozens.

Mr. Djanogly: With respect, even if we acknowledge that it did-I am sure the hon. Gentleman is right in that respect-it does not change my overall point.

Then, when regulatory reform orders were clearly not working, Ministers introduced the Legislative and Regulatory Reform Act 2006, and I have already shown how ineffective it has been. We need to remember that this was the very Bill in which the Government proposed-and, thankfully, lost-their so-called Henry VIII clause, which would have allowed them to change any law or order without recourse to Parliament. I have to say that was one of the least inspired proposals to emerge from the Minister's Department.

After all that failure, people are entitled to ask what this third attempt at deregulation will offer the business community and, just as importantly, whether it is going to work. As the Minister explained, there are four main parts to the Bill, which I shall deal with in turn. In doing so, I congratulate my noble Friends on their work in the other place, but I reiterate that we do not feel that we are yet quite there.

As the Minister said, part 1 provides for the establishment of the local better regulation office. Its stated purpose is to promote greater consistency among local authorities and between them and central Government. The first two parts of the Bill stem, as I have said, from the Hampton and Macrory reviews, which established the need first for risk-based and then for proportionate regulation.

We support the general argument in favour of making regulations risk-based. As the Hampton review identified, if regulatory action is required, it is vital that it be drawn up and implemented in a way that relates directly to the risk it seeks to mitigate. All too often, regulations and their enforcers have acted in a way that completely fails to understand the scale of the risk involved and therefore the degree of regulation that is appropriate. That is the sort of calculation that, in practice, most businesses make on a daily basis, but naturally it is all too often missing in the public sector.

One example of the failure to take account of risk was provided by the Chartered Institute of Public Finance and Accountancy to the Hampton review. In 2002-03, local authority trading standard officers inspected 10 per cent. of all traders' weights, identifying inaccuracies in 6 per cent. of cases. Yet in the same year, they inspected 22 per cent. of all alcohol measures, even though only 2 per cent. were found to be inaccurate. Clearly, in that instance, resources could have been better allocated. The case in point also shows how small businesses-for instance, pubs-can feel the burden disproportionately. That is supported by a survey carried out by the FSB, which found that although two thirds of small businesses want to grow, half see regulation as

"a serious barrier to growth".

The establishment of the LBRO follows on from the Hampton review and is the Government's response to the clear need to improve the quality and wide variance of local authority regulatory services. Those include trading standards, environmental health, licensing and fire and rescue services. We have a number of concerns about that.

First, we remain suspicious of the claim that it is realistic to assert that a single, small organisation will be able to deliver a step change in regulatory practice across nearly 500 much larger local authorities in England and Wales. To effect the kind of improvements needed on poor performance, regulators will need a change in the internal management, training and culture of that organisation. How realistic is it that the LBRO could deliver that on its own? We think that that needs to be looked into further. Secondly, why do the Government believe that the answer to the problem of poor regulation locally is to create another super-regulator-a point raised by my hon. Friend the Member for Wellingborough (Mr. Bone) earlier?

Andrew Miller: The hon. Gentleman cannot have it both ways. We often hear from Conservative Members that so many local authorities are Conservative controlled-a matter of fact, as it happens. Is it not within the hon. Gentleman's party's control to determine the degree of light touch to which local authority regulators work? Is there not prima facie evidence that we need some central co-ordination through the proposed LBRO?

Mr. Djanogly: Possibly, but the extent to which that is the case needs to be looked at further in Committee. People ask why the Bill introduces a super-regulator to regulate the regulators, which is another issue for careful consideration in Committee.

Thirdly, we are concerned about the precedent that clause 7 represents. As far as I can tell, the Bill would allow for the first time an unaccountable body to have the ability to turn mere guidance into direction-and not just its own guidance, but that of five other regulators, including the Health and Safety Executive, the Environment Agency and the Food Standards Agency. Until now, that power has been in the hands only of a Secretary of State, accountable to this House, and only for exceptional matters. This is a very substantial change, about which we still have significant concerns.

Part 2 is designed to establish "primary authorities" so that businesses operating in more than one local authority area can choose to be regulated by a single authority. We understand the concern of many small businesses or business organisations that the measure could unfairly create two regulatory regimes: one for larger firms and one for smaller firms. Thus, a large store would be able to choose who it would like to regulate it. Given the number of outlets, that would make it a very substantial contract and the chief executive officer of that large store would no doubt wish to work with, say, a pragmatic business-friendly Conservative council offering the most efficient, least bureaucratic regime. So far, so fair. However, where does that leave the local convenience store in the business-unfriendly council area? As a small shop with one outlet, it has no choice. It will have to be regulated by the local regulator, and if it is badly run, it may be at an immediate disadvantage.

Equally, there is considerable potential for consumer confusion and bureaucratic dispute. If a complaint is made against, say, a store in one city, but the same store has chosen to be regulated by a different local authority, to whom do consumers complain and how can they be sure their complaint will be pursued? There are some serious issues to be debated.

Without significant levels of intervention from the LBRO, the system may not work. In order to make certain that there is consistent application of regulatory activities by local authorities, we need seriously to consider the suggestion that the LBRO be given powers to ensure that authorities that do not demonstrate adherence to the Hampton principles are called to account.

Andrew Miller: So the hon. Gentleman agrees with me that the LBRO should have overarching powers.

Mr. Djanogly: No, in that case, I am putting forward a concern of the CBI. It is a valid concern and I am saying that we should look further into it.

The Parliamentary Under-Secretary of State for Business, Enterprise and Regulatory Reform (Mr. Gareth Thomas): When the hon. Gentleman comes on to the detail of how the LBRO will work and, indeed, to deciding whether the Conservative party will support it, will he take into consideration the comments of the British Chambers of Commerce, which said:

"We look forward to working with LBRO to improve the regulatory landscape... We welcome these proposals as a means to take forward the Government's commitment to ensuring a lighter touch on compliant businesses, but be tougher on rogue traders."?

Mr. Djanogly: I am sure that the Government will bear that in mind in their subsequent negotiations with business.

We also share the concerns voiced by the British Retail Consortium that the powers given to primary authorities to ensure co-ordination of regulatory enforcement have been much weakened since the recommendations of the Hampton review. As the Bill is currently drafted, local authorities must only "have regard" to an inspection plan agreed on by a business and a primary authority and endorsed by the LBRO. We should fear even more red tape if a primary authority can ignore an inspection plan that has been both costly and time-consuming to draw up.

The decision to allow primary authorities to charge for their services also rings legitimate alarm bells for businesses, which, of course, already pay for enforcement services through their local rates. If they used the primary authorities, could they be subjected to a regime of double taxation? Unless the powers of the primary authorities are bolstered, businesses may see them as just another unnecessary extra expense. We look forward to debating our concerns about this part of the Bill with Ministers, and establishing just how far the Government have thought it through.

Part 3 gives regulators a wide range of powers and sanctions, often involving fines, which can be imposed without recourse to the courts. We do not oppose civil penalties per se, but we feel that we should review the extent to which they should be restricted. As drafted, the Bill specifies no such restriction. Nor are the new powers being granted to a handful of public bodies; they are to be granted to a total of 27 different designated regulators, who will be able to fine in relation to offences arising from more than 140 enactments listed in schedules 6 and 7.

Andrew Miller: May I apply the same test that I applied to the Minister? I note that the Bill contains no apparent definition of the fixed penalties that could be imposed, but we are working on the presumption that they will be imposed on rogues. Does the hon. Gentleman envisage any limit to the scale?

Mr. Djanogly: Let me go back a step and say that I do not necessarily believe that the penalties will be attached to rogues. If there is to be a scale from caution to big caution to small fine to big fine to heavy-duty prosecution-a full scope of response, in other words-I do not think that someone who incurs a low-level fine should necessarily be called a rogue. I think that businesses that incur fines and have no recourse to arguing against them might object to being called rogues as well.

Andrew Miller rose-

Mr. Djanogly: I shall move on, if I may. The hon. Gentleman has had a good go.

On Third Reading in the other place, Lord Lyell said that in effect the Bill gave the regulators

"the power to be investigator, prosecutor, judge, jury and sentencer".-[ Official Report, House of Lords, 28 April 2008; Vol. 701, c. 26.]

That is a matter of great concern. The combination of wide powers being granted to a large number of unaccountable regulators for a long list of offences could be both disproportionate and unnecessary.

Mr. Thomas: I appreciate the anxiety expressed in the other place by the former Attorney-General about the possibility of regulators' behaving in the way that the hon. Gentleman has described, but will he acknowledge the existence of an important additional protection? When a business has been investigated and there are concerns about its performance, it can appeal to an independent tribunal. Is that not an important safeguard?

Mr. Djanogly: I think that it is important, and I also concede that this measure does not exactly constitute the Henry VIII abolition of Parliament-type clause that we saw in the "Leg and Reg" Bill which became the Legislative and Regulatory Reform Act 2006. However, we still have worries about the extent to which it will be applied. We are also worried about associated constitutional reforms that would give an all-powerful role to unelected bodies.

Mr. Bone: It is a fact that anyone who has ever run a small business and been faced with a regulatory fine, however wrong that fine is, has not the energy, the time or the money to appeal against it.

Mr. Djanogly: That is a good point with which we agree, and which was picked up by the CBI, which has said that there

"should be the opportunity for independent review before a penalty notice is issued."

The British Retail Consortium regards the sanctions as "unacceptable", while the Forum of Private Business, in its response to the pre-legislative consultation, attacked the Government for trying to present the measure as a "simplification" and said that it regarded this part of the Bill as a "deal-breaker". Interestingly, the BRC also condemns the introduction of administrative penalties, believing that they would undermine the risk-based approach to regulation. If enforcement simply means handing out the equivalent of parking fines, how will that encourage better regulatory practice?

What is clear is that this part of the Bill could put small businesses at a significant disadvantage yet again. Whereas medium and larger businesses will be quite able to pursue the tribunal and appeals processes, most small firms will have neither the time nor the wherewithal. Ordinary people such as owners of small shops, farmers and drivers of vehicles are likely to feel compelled just to pay up and get on with trying to run their businesses and earn a living, rather than allowing their time to be taken up with such procedures. If we get these measures wrong, they could be deeply resented by many thousands of small businesses and sole traders across the country.

Part 4 creates a power allowing Ministers to require regulators not to impose or maintain unnecessary regulatory burdens. It would seem to be well intentioned, but I have been made aware of concerns expressed by the National Consumer Council, not least that there is a potential for this explicit and overriding measure to restrain the ability of regulators to protect consumers. We shall seek to explore that further in Committee.

The stated aims of Ministers are welcome, but we have heard all this before, and we remain to be convinced that the Bill will achieve those aims in its current form. We have other fears as well. We heard today of the Government's announcement of their intentions in relation to the Temporary and Agency Workers (Equal Treatment) Bill, which was the result of what I would describe as a classic "beer and sandwiches in Downing street" operation. I have still not seen the proposals, apart from what the papers have said, and I have since discovered that the same applies to many organisations. Given that the CBI has said that the regulation could cost British industry up to 250,000 jobs, I consider the absence of a ministerial statement and the Minister's failure to mention the matter during the debate to be cause for grave concern.

Mr. McFadden rose-

Mr. Djanogly: I shall continue, if the Minister will allow me, because this is an important issue. We are talking today about the Government's attitude to regulation.

Andrew Miller: It is the wrong context.

Mr. Djanogly: No, it is not. We are talking about changing the cultural values of Government, local government and other public bodies in regard to regulation. If those cultural values are to switch to beer and sandwiches at No. 10 Downing street in order to wrap up regulation, I am gravely concerned about how the Bill will deliver anything like what the Government are proposing.

Mr. McFadden rose-

Andrew Miller rose-

Mr. Djanogly: I give way to the hon. Member for Ellesmere Port and Neston (Andrew Miller).

Andrew Miller: The 250,000 figure that the hon. Gentleman cited does not relate to yesterday's announcement, and is any event based on a speculative view similar to that which was expressed when Labour introduced the minimum wage. The view proved to be false then, and it will be shown to be false now.

Mr. Djanogly: As the hon. Gentleman is well aware, the figure relates to his very own private Member's Bill, on which the Government will presumably base their further reforms.

Mr. McFadden rose-

Mr. Djanogly: I will now give way to the Minister.

Mr. McFadden: I thank the hon. Gentleman for finally giving way. Does he accept that the CBI's estimate of job losses related to the private Member's Bill introduced by my hon. Friend, and not to the agreement that it negotiated and to which it signed up yesterday? Does he accept that those are two different things?

Mr. Djanogly: The Minister is right in so far as the Government's beer-and-sandwiches deal is separate from the private Member's Bill that was pulled today. However, he should tell the full story, and reveal that the CBI described his deal as the "least worst option". We need to get to the bottom of the extent to which it is the worst option. The House has not been told what will be the impact on British business of his proposed deal with the unions, and he should tell us that at the earliest opportunity. The private Member's Bill was never about defending workers from exploitation, as the hon. Member for Ellesmere Port and Neston announced at Prime Minister's questions earlier today. That is covered by existing legislation, and it will also be covered by the Employment Bill, which the Government are separately bringing before the House.

What we have opposed and will continue to oppose is a one-size-fits-all straitjacket of regulations that will destroy the flexibility that is key to the British workplace. Given that more than 90 per cent. of businesses are small and that large sections of the Bill could make things worse for them, we do not believe that the net effect of this Bill will necessarily be good for business. Therefore, although we will not oppose the Bill today, if it becomes clear in Committee that our concerns are justified, we will have no hesitation in voicing our opposition at the appropriate stage.

1.50 pm



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