Regulatory approaches
Government tries to change behaviours or control activity in pursuit of its policy objectives in a variety of ways, each of which could be regarded as regulatory in nature. These include imposing taxes (and granting tax reliefs), taking direct control (public services), creating rights or obligations for people to enforce against each other through the courts and seeking to cajole or persuade (nudge strategies).
Government may also prohibit activity or permit it only subject to compliance with rules and enforcement by regulators. This may be referred to as the 'command and control' regulatory approach and is the focus of this briefing.
General principles of good regulation
The UK regime incorporates various principles and disciplines that many consider to be the hallmarks of a good regulatory regime and which resulted from various ‘better regulation’ initiatives over many years.
The principles
For instance, many regulators are required by statute to 'have regard to' the following five principles of good regulation when performing regulatory functions. The statute does not define the meaning of the principles but refers to explanations elsewhere, which we have included in summary form below.
- Transparent – rules should be comprehensible, and the objectives should be stated.
- Accountable – regulation should have criteria against which its effectiveness can be judged and those responsible can be held to account for its effectiveness.
- Proportionate – regulation should be the appropriate response for the issue concerned. This involves having regard to the possible disadvantages of regulation and alternatives (eg, doing nothing or providing education).
- Consistent – regulation should be consistent not only in itself but also with other regulation, so that regulation collectively is ‘joined up’ and results in consistent outcomes.
- Targeted – regulation should focus on the problem it seeks to address with a goals-based approach and minimise side effects. Enforcement should be based on risk. Regulation should be subject to systematic review and modified or eliminated if appropriate.
There is room for debate about the detail, but ICAEW believes that these principles are generally sound.
The Regulator’s Code
Statute also requires regulators within its scope to 'have regard to' the UK Regulators’ Code when developing policies and operational procedures that guide their regulatory activities and when setting standards or giving guidance which will guide the regulatory activities of other regulators. The Code provides, for instance, that regulators should:
- carry out their activities in a way that supports those they regulate to comply and grow;
- provide simple and straightforward ways to engage with those they regulate and hear their views;
- take an evidence and risks based approach;
- share information about compliance and risk; and
- ensure clear information, guidance and advice is available to help those they regulate meet their responsibilities to comply.
The better regulation framework
The law also provides a framework (the 'better regulation framework') which imposes the following disciplines on regulatory processes:
- A Regulatory Impact Assessment (IA) 'should be' prepared for all significant regulatory provisions and where expected by parliament and other stakeholders. An IA is a tool used to inform policy decision-making using a cost-benefit analysis. It summarises the rationale for government intervention, the different policy options and quantifies expected costs and benefits.
- Secondary legislation impacting business must include provision for review after five years (a post-implementation review). There are exceptions and Government is required to publish information on regulations that are exempt from this requirement, with the intention that regulation that is no longer needed should be removed.
- Government provides detailed guidance to its departments on application of the framework, including how impact assessments should be prepared.
Scope of application of the principles etc and diversity in regulatory approaches
The Principles of Good Regulation and the Regulators’ Code apply only to those regulators specified in secondary legislation. This lists around 30 regulators by name and refers to local authorities (of which there are hundreds) and Ministers by function, but it does not (and does not purport to) apply to all UK bodies that might be thought of as regulators. Nevertheless, they cover many regulators and are therefore a significant feature of the UK’s regulatory landscape.
There are other laws designed to apply good regulatory disciplines to the UK regime, but there is no single model applying to all regulators. The net result is that there is an enormous variety of regulatory approaches in the UK as a whole and regarding each of the key components referred to below.
Key Components of a rules-based regulatory regime
The key components of the UK’s rules based regulatory regime are that:
- a body makes rules to a defined end and those rules have force;
- a body enforces them (or should do so);
- there is external accountability for the actions of rulemaking and enforcement bodies (which we refer to collectively as regulators for convenience).