Deregulating properly

The task force for innovation, growth and regulatory reform, led by Sir Iain Duncan Smith, reported last Tuesday. It was welcomed by the Prime Minister, which suggests that its general approach might find support among the Better Regulation Cabinet Committee. It sets out a blueprint with over 100 recommendations on how the UK can grasp the opportunities that Brexit brings to reshape its whole approach to regulation.

Its proposals include initiatives to allow greater freedoms to pension funds, to encourage investment in “sunrise” technologies and business start-ups, and to give greater flexibility to the financial sector, while retaining “prudent” regulatory protections.

Our departure from the EU allows us to change three restrictive EU approaches and to replace them with ones that are more in accord with common sense than bureaucratic diktat.

The first is that we can replace the EU’s precautionary principle by the more sensible cost-benefit analysis. The EU line is to prevent innovation until it is “proved safe.” The UK philosophy is more Popperian, recognizing that nothing can ever be ‘proved’ safe, and that we have to weigh up the benefits against the risks. The EU looks only at the downside, and does not take the advantages into account to set against them.

The second change to the EU approach we can make, one on which Sir Iain’s team stress strongly, is that we can move from process-driven regulation to result-driven regulation. The EU style is to set out in detail the technology that must be adopted to achieve the result it seeks. This shuts out inventiveness and innovation. The alternative is to specify the required outcome, and leave it to businesses and individuals to come up with ways of achieving it. This will almost certainly lead to more innovative and cost-effective ways of doing so.

The third change is to revert to the English Common Law practice of allowing interpretation to be decided by case law, rather than by detailed statutory requirements. This means in practice that we can enshrine principles in law, and allow interpretation to be built up by the decisions of juries and tribunals. We could require employers, for example, to provide “adequate” toilet facilities for employees, and instead of setting out in 150 pages of detail what that involved, leave it to the decisions made by good citizens sitting on juries and tribunals to quickly build up a body of case law specifying what previous judgements have decided that this required.

One of the most refreshing aspects of Sir Iain’s task force report is its recognition that regulations impose costs. Big businesses tend to like them because they can absorb those costs, and because they squeeze out would-be competitive market entrants who cannot. The emphasis should be on keeping those costs low enough to achieve their objective, while cutting out the bureaucratic creep that expands and extends them and makes life unnecessarily difficult for would-be start-ups. Implementing most of the task force’s initiatives would indeed tell the world that the UK is now open for business, and especially for new businesses.

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