Legislative and Regulatory Reform (Regulatory Functions) (Amendment) Order 2014

Lord Curry of Kirkharle Excerpts

Tuesday 11th March 2014 Grand Committee

[Viscount Younger of Leckie]

My Lords, the code provides a flexible framework that individual regulators can apply in a proportionate manner. It supports and enables regulators to design their service and enforcement policies to best suit the needs of their service users, while allowing resources to be focused on the non-compliant. The Regulators’ Code encourages greater transparency in the way regulation will be delivered, encouraging trust, open dialogue and accountability between regulators and those that they regulate.

The code applies to a wide range of people exercising non-economic regulatory functions, including more than 60 national regulators, from the large regulators, such as the Health and Safety Executive and the Environment Agency, to much smaller regulators, such as the Sports Ground Safety Authority and the assay offices, which happen to be part of my intellectual property portfolio.

The code also applies to a number of regulatory functions exercised by Ministers and those exercised by all 433 United Kingdom local authorities. Such diversity, not only in size and resource but in purpose, has been considered in developing the code, which is flexible in its nature. It does not add burdensome requirements, and regulators can apply the principles in a proportionate manner to suit local demands. Regulators are obliged to have regard to the code, but this duty is subject to any other requirement affecting the exercise of regulatory functions. This means that the duty to comply with the code is a secondary objective. It does not undermine the regulator’s primary protection duties.

This revised code has been produced in response to a post-implementation review carried out in 2012 and an eight-week consultation on a revised code in 2013. Both the review and the consultation found that regulators had generally accepted the code and its principles-based approach. National regulators had by and large adopted the principles into their enforcement policies. The Health and Safety Executive, for example, has a clear explanation on its website detailing how it meets the provisions of the code, including the use of risk assessment to guide its regulatory activity. The Forestry Commission is also a good example of a regulator which has adopted the code principles. Its enforcement policy details how enforcement activity is carried out in accordance with the code and principles of good regulation.

However, we found that there was nevertheless room for improvement. First, we found that many local authorities had not consistently adopted the principles. For example, enforcement policies could not be located on 15% of the local authority websites reviewed. Where local authorities had published enforcement policies they were not fully compliant with the principles of the code. Secondly, there was a lack of transparency about how regulation would be delivered, and we received feedback that some of the code’s provisions were overly prescriptive and burdensome. Thirdly, business representatives felt that the code had failed to promote open and early dialogue with regulators because visibility of the code among businesses was low. Many businesses had little or no knowledge of the code’s existence.

The updated Regulators’ Code builds on the experience of and lessons learnt from the existing Regulators’ Compliance Code. It adopts five principles which were in the previous code. The first principle is that regulators should carry out their activities in a way that supports those they regulate to comply and to grow. The second principle is that regulators should provide simple and straightforward ways to engage with those they regulate and to hear their views. Thirdly, regulators should use risk assessment methodologies to support their regulatory activities. Fourthly, regulators should share information about compliance and risk, and fifthly, regulators should ensure that clear information, guidance and advice are available to help those they regulate to comply. In response to the feedback we received, the new code also includes a sixth and final principle that regulators must ensure that their approach to their regulatory activities is transparent. The code encourages regulators to do this by publishing service standards which set out what business and the public can expect from their regulators. The other significant difference is that the provisions in the revised code have been simplified so that the code is now clearer in setting out expectations and, as a consequence, it is also much shorter.

The revised code was published in draft in July 2013 and the Better Regulation Delivery Office has organised a series of UK-wide awareness-raising events and training sessions since then. This has ensured that regulators have had time to review their existing policies and procedures and they have been assisted to meet the provisions of the code. In addition, the Better Regulation Delivery Office is continuing to work with regulators and bodies such as the Local Government Association to develop tools, including enforcement policy and service standards templates, to help regulators to comply with the code provisions. We have also worked extensively with the business community and trade associations to ensure that they are aware of the new code. As a result, we are confident that regulators will comply with the new code and that businesses will know what they can expect of their regulators when the code comes into force as soon as early April. In the unlikely event that a regulator does not comply with the provisions in the code and it is not able to provide any justification for departing from the principles, the Better Regulation Delivery Office will work closely with the individual regulator to remedy the non-compliance.

Businesses and their representatives will also be able to hold regulators to account by challenging any non-compliance with the code principles. In the first instance this could be through dialogue with regulators, and if that was insufficient, they could of course seek permission to judicially review any non-compliance. We believe that this will provide a sufficient incentive to encourage regulators to adopt the principles in the code.

I would like to stress that the introduction of this code will not add additional burdens or introduce more bureaucracy for regulators or businesses. As I have stated, the Regulators’ Code shortens and simplifies the provisions contained in the existing Regulators’ Compliance Code to make it easier for regulators to comply. It does not override any existing statutory requirements but sits alongside them. It will enable regulators to direct limited resources to the areas of greatest need, thereby reducing the bureaucracy and burdens on low-risk, compliant businesses.

I turn to the second instrument. The purpose of the regulatory functions order is to update the regulatory functions which are within the scope of the Regulators’ Code. These functions are subject to the statutory principles of good regulation set out in Section 21 of the Legislative and Regulatory Reform Act 2006.

The better regulation principles provide that regulatory activities should be carried out in a way which is transparent, accountable, proportionate and consistent. In addition, regulatory activities should be targeted only at cases where action is needed. The Government believe the better regulation principles and the Regulators’ Code should be applied by the broadest possible range of national regulators, Ministers and local authorities exercising non-economic regulatory functions.

To this end, we have consulted Monitor, the Groceries Code Adjudicator, the Regulator of Community Interest Companies and the claims management unit of the Ministry of Justice, which have agreed that their functions should be in scope of these statutory provisions. The 2014 order therefore adds these bodies to the list of those already in scope.

It is my firm belief that the revised Regulators’ Code and order extending coverage are important parts of the Government’s overall package of better regulation measures. They are an important step in developing modern, open and transparent approaches to regulatory delivery. I therefore commend this order and the Regulators’ Code to the Committee.

[Lord Curry of Kirkharle (CB)]

My Lords, I support this change. I need to declare an interest. I chair the Better Regulation Executive and work very closely with the Better Regulation Delivery Office. I am tempted to say that I regularly meet the regulators, both individually and collectively. I have created a forum, the better regulatory outcomes group, where we meet regulators on a three or four-monthly basis. It was at such a meeting that we floated the concept of revising the code in the first instance. The regulators were very supportive of this, in that many of them are already adopting the principle of the code, as the Minister has said—but it was inconsistent. They recognise that, today, with better regulation being a high priority for government and the encouragement of economic growth being of paramount importance for the economy, for regulators to be seen to be supporting growth and encouraging companies to grow is of higher priority than it was when the original codes were introduced. I therefore commend this change to the Committee and firmly support it.

[Baroness Hayter of Kentish Town (Lab)]

My Lords, I thank the Minister for introducing the draft order and the code, and particularly for the extension in scope to the other regulators. It is perhaps worth the Committee remembering, as it is perhaps not evident from the code or from what has been said, that the main purpose of regulation is to promote and protect the interests of consumers, particularly in sectors where market forces alone would not deliver the best outcome or where consumers cannot effectively alter service delivery. That is what regulators are all about: in a way, they are standing in the shoes of users or consumers to make sure that they get a fair deal.

Just 52 years ago this month, on 15 March 1962—which is why we will have World Consumer Rights Day this weekend—in a special message to Congress on protecting consumer interests, President Kennedy wrote that all of us deserve to be protected against fraudulent or misleading advertisements, of the right to be protected against unsafe or worthless products, and of the right to choose from a variety of products at competitive prices. He went on to outline the steps taken in America to increase the inspection of foods and improve safety on the highways, and to cut back on deceptive trade practices and high utility bills—it all sounds familiar, does it not?—while recommending,

“a law to require consumers to know how much they are being charged in interest”,

plus,

“laws to tighten safeguards against monopolies and mergers which injure the consumer interest”.

Some of those measures are not caught by what we are looking at today, but it is interesting that he described them as being,

“immensely important to the well-being of every American family”.

That is what we should concentrate on today because similar things are of interest to every British family. Therefore, it is worth looking at whether the code measures up to what is demanded of it.

As has been suggested, there is much in the code to be applauded. It calls for clarity of language, clear expectations, reduction of unnecessary bureaucracy and petty rules, and less duplication of information requests, which is clearly very important. These things are vital for the effective working of any regulator. However, I wonder whether the Government have looked at the code as it applies to themselves, given the incredible red tape they introduced under the transparency Act that was imposed on trade unions and charities where no mischief had been identified. It would be interesting to know whether the Better Regulation Task Force could look at the Government to see whether they had measured up to their expectations of the code.

Perhaps the concern of any consumer representative is that this code seems to be all about working with the regulated community. We should remember that on the whole we are talking about industries which, for whatever reason, cannot be trusted to treat the customer fairly without a regulator, or to be responsive to the needs of users. However, there is nothing in anything we have heard or read about the regulator listening to or consulting those whose interests the regulators are meant to promote. This is very different from the position of the two other main regulators for financial services and legal services respectively, where consumer panels are required by statute to ensure that the end user’s view is fed into the regulators’ work. There are also, quite rightly, practitioner panels because obviously we want regulation, as far as possible, to work with the grain, to be practical, and to encourage the provider to do the right thing without the regulator having to come knocking on their door.

However, consumers also have a role to play. Without an input from consumers and their representatives, we would not have achieved redress for tenants and landlords who use letting agents, or for complaints against CMCs. What was not being done by the regulator of CMCs is now covered, fortunately, by this code. We know that the regulation of letting agents and CMCs was inadequate. The regulators had not addressed consumer needs adequately, as evidenced by the amount of complaints and consumer detriment which built up. Therefore, I worry about whether we are listening only to providers and not to the people affected by them.

It is the case that regulators need real teeth to be effective. It was, of course, your Lordships’ House which managed to convince the Government to give the Groceries Code Adjudicator proper teeth from day one. That success improved the legislation, so having real teeth matters in order to protect consumers. It is our contention that regulators and those who oversee them should feel the need to hear from and represent the consumer interest. Under the Legal Services Act 2007, the regulator’s objectives include,

“protecting and promoting the public interest”,

and “the interests of consumers” as well as “promoting competition”. The Act requires the Lord Chancellor, when appointing the LSB board members, to have regard to the desirability of appointing people with experience or knowledge of consumer affairs, the handling of complaints, and the differing needs of consumers.

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[Viscount Younger of Leckie]

There are no consumer representatives mentioned in my brief. However, in addition to the ones I have mentioned, 20 business and trade associations responded to the consultation and there were meetings with the National Consumer Federation. I am more than happy to write to the noble Baroness to clarify the relationships and contacts we have had on this with consumer representatives.

[Lord Curry of Kirkharle]

I am not sure whether it is on the list, but Citizens Advice is in the forum I established with regulators. It was represented and certainly took part in the initial discussions regarding the revised code.

[Viscount Younger of Leckie]

I thank the noble Lord, Lord Curry, for that intervention and hope the noble Baroness, Lady Hayter, will find it helpful. The noble Baroness also raised the issue of legal services. The Legal Services Board is subject to the regulatory principles in the Legal Services Act. The Regulators’ Code sits alongside those principles and does not override them.

I remind noble Lords that the purpose of these two complementary instruments is, first, to revise and update the current Regulators’ Compliance Code with the draft Regulators’ Code. The second instrument updates the regulatory functions that are currently within the scope of the Regulators’ Code and the principles of good regulation. The Regulators’ Code encourages transparency and accountability in the relationship between regulators and those they regulate. It enables regulators to direct resources to the areas of greatest need, reducing bureaucracy and ending the culture of tick-box regulation. I commend both the Legislative and Regulatory Reform (Regulatory Functions) (Amendment) Order 2014 and the Regulators’ Code to the Committee.