Regulatory Enforcement and Sanctions Bill [HL]

My Lords, I beg to move that this Bill be now read a second time. I welcome this opportunity to put it before noble Lords. For six and a half years as director-general of the Confederation of British Industry, we pushed every day, representing business, for regulatory reform. Today is a step in the direction of such reform. The burden of red tape kills the flower of enterprise. It destroys jobs and wealth creation, which pays the tax which pays for schools and hospital. The Government have listened to business. It is about improving the way in which we encourage regulatory compliance. Regulation provides essential protections to society and brings invaluable benefits. It ensures that our air is clean, our medicines are safe and that the rights of everyone are protected. It can help to ensure that businesses treat customers fairly, while not standing in the way of the effective competition that drives greater choice and value for money for consumers. It also creates a level playing field for business. Moreover, quality, well implemented regulation reduces civil and criminal litigation, which means less time in court. Less time spent on preparing for court might be bad news for lawyers—I used to be one—but is very good news for everyone else. However, businesses, charities and public servants regularly complain about the amount of time they spend on regulation and rules, and the consequent bureaucracy. To address these concerns, the Government are pursuing an ambitious programme of regulatory reform. The key elements are, first, regulating only when necessary and doing so in a way that is proportionate to the risk; secondly, reducing the cost of administering regulation through exacting targets; thirdly, rationalising inspection and enforcement arrangements; and, fourthly, tackling businesses that deliberately or consistently flout their regulatory responsibilities. Proportionate regulation and inspection arrangements can help to drive up standards and to deliver outcomes on the ground, whether in the form of improving public services and the environment for business, or driving forward economic reform. In May, the Government renewed the process of assessing the impacts, costs and benefits of government policy making. The revised impact assessment is designed to increase transparency, improve economic analysis and embed these principles in the earliest stage of policy making. I am pleased to note that this Bill, when it was issued in draft, was accompanied by the first of these new impact assessments, which was welcomed in many quarters. The Government have a code of practice on consultation. This year we asked people what they wanted from the consultation process. As a result of this we will revise our code of practice. Further, the Government’s commitment to issuing guidance to legislation 12 weeks in advance of implementation remains. We are adding further weight to this and are developing a new code of practice. As an expression of their intent, the Government have already published a guide to this Bill. The better regulation agenda within government is moving ahead apace. There is a dynamism to it that has to be welcomed in every part of society. Business asked us to simplify employment legislation, so measures will be introduced in this House shortly to tackle employment dispute resolution regulations, which as a whole will bring expected savings of more than £150 million every year. Work is under way to improve the design, delivery and take-up of employment law guidance. That is expected to deliver £365 million of administrative savings for business every year. Business also asked us to simplify the planning laws, so we have introduced a new single planning form for businesses, replacing the multifarious forms of each different local authority. That will save business £124 million every year. More widely, there is a cross-government commitment to reduce administrative burdens on the private and third sectors by 25 per cent by 2010, and an announcement detailing our good progress in delivering on this target will be made before Christmas. The UK’s better regulation agenda is widely regarded across the world as being the most ambitious anywhere. The OECD tells us that our policies on better regulation are the best in the world—we are the number one. The World Bank ranks us as sixth in the world and second in the EU, beaten only by Denmark. Individual business people with experience of working internationally agree that the UK has a better regulatory environment than most of our competitors. But, of course, it could be better. I do not like coming second to anyone, not even Denmark. Better policy-making alone is not enough. The way we handle compliance and enforcement is every bit as important. This Bill will complement the existing initiatives and deliver the following benefits. Businesses will benefit from greater consistency and co-ordination, and reduced regulatory burdens for compliant business. The Bill will help to ensure that rogue traders do not enjoy an unfair advantage from failing to adhere to the law. Local authorities will benefit from a more effective division of regulatory responsibilities, greater clarity and consistency in the way that central government set a framework for the work of local authorities. National and local regulators will benefit from a more flexible, modern sanctioning regime which is both transparent and proportionate, and the public will benefit from a more coherent and effective system of regulatory enforcement. This Bill builds on and takes forward the better regulation agenda, taking further important steps towards modern and effective regulatory enforcement, by making four significant changes. Part 1 will create in statutory form an expert body, the Local Better Regulation Office, with a remit to improve the way in which the Government, regulators and local authorities work together in enforcing regulations. Part 2 will create a statutory framework giving greater certainty and consistency of treatment for businesses which operate across local authority boundaries by granting them a right to one single primary authority. Part 3 will give regulators access to a suite of more flexible and proportionate sanctions, which will provide alternative routes to promoting better compliance with relevant regulations. Part 4 will bring greater effectiveness and accountability to the way in which regulators work in practice by putting a greater focus on the removal of unnecessary regulatory burden. Together, the measures in the Bill will transform the legislative framework of regulation, ensuring greater certainty for those businesses that are doing their best to comply with the law. There will be swifter and more appropriate treatment for those businesses that seek to gain an unfair advantage by deliberately flouting regulation, and a more strategic focus on securing standards of protection for the public in the most effective way possible. This, in the end, will get rid of bureaucracy and layers of regulation. The Bill is at the heart of the Government’s intention to ensure that the UK is one of the best possible places on this planet in which to do business. Local authority professionals play a critical role in the enforcement of regulation in this country. They have a history which goes back to the great public health and government reforms of the 19th century. However, their services are often insufficiently respected. I have been struck by the enormous range of public protections which are provided by their work and which so many of us take for granted. For instance, they protect the public from dangerous food, dangerous goods, dangerous premises; they protect from scams, including those committed by organised crime; they also protect the public’s health and safety, both at work and elsewhere. The services are rightly proud of their ethos of providing support and advice to business in helping to ensure that it is compliant with the law. Local authority enforcers sit at the centre of a system that has grown up over decades within a framework set by multiple government departments, initiatives and regulators. It is a very complex system and, because of this very complexity, it has not always been as effective as it might have been. Parts 1 and 2 of the Bill aim to strike a careful balance by ensuring that the legitimate expectations of business are met within the system while at the same time ensuring that local authorities retain the freedom and flexibility that they need to get on with doing their job effectively. I am particularly grateful to the business community for the way in which it too has worked with us in ensuring that the practicality of the Bill is not lost. Part 1 of the Bill will create a statutory public corporation, the Local Better Regulation Office, LBRO, charged with the statutory objective of ensuring that local authorities carry out their regulatory functions effectively and in a way that is compatible with the five principles of better regulation. LBRO has already been established as a company; the Bill will give it statutory form, with the powers and duties that it needs to take forward this work. First, the Bill will allow the LBRO to issue guidance to local authorities in England and Wales. It will not—repeat not—duplicate the work of the existing national regulators, which are the experts in their respective fields. It will, however, seek to support local authorities in developing a cross-cutting approach which is consistent with the principles of better regulation. Secondly, the Bill will give LBRO a function of providing expert advice to Ministers on the way in which local authorities perform their relevant functions and on legislation, both old and new, to provide for more effective policy making at source. This will help ensure a more considered and strategic approach to the framework set for them at the centre. Thirdly, the Bill will give LBRO a role in preparing, publishing and keeping updated a list of priorities for local authority enforcement. Here it will be taking forward the good work carried out independently earlier this year by Peter Rogers, which was the first systematic attempt to establish a core list of priorities for local regulatory enforcement. Finally, LBRO will carefully allocate a modest budget to allow it to support its partners to promote best practice in local authority regulation. Those four core functions for LBRO are set out in Part 1 of the Bill much as the Government consulted on them in May this year. I specifically draw the attention of the House to two changes reflecting representations made to us during the consultation. First, to give greater clarity on LBRO’s relationship with the major national regulators, there will now be a requirement on LBRO to reach an agreement on how it will work with each of them in the form of memoranda of understanding. Secondly, a number of consultees were concerned that LBRO should have sufficient power to enable it to deliver its ambitious objective. Therefore, subject to safeguards, a reserve provision was added to the Bill allowing LBRO to make adherence to its guidance compulsory. Those were two suggestions that came out of consultation; the Government listened; they are in the Bill. Part 1 addresses local authorities’ regulatory work with business as a whole but Part 2 of the Bill is more narrowly focused. It provides a framework to allow more consistent regulatory treatment of firms that operate across local authority boundaries. The Hampton review highlighted the difficulties that can arise when multiple local authorities take different approaches to regulatory compliance and enforcement with businesses whose operations extend across more than one local authority area. That structure of localised enforcement, with responsibility often spread among several hundred local authorities, can be a poor fit with the needs of businesses operating in multiple locations all over the country. The business is faced with uncertainty, expense, demoralisation of its employees and confusion in its customers, and can be unsure how to act compliantly with regulations on which conflicting advice may well have been given and different enforcement procedures have been inconsistent. The result is, without doubt, additional cost to the business and consequent lack of competitiveness. I recognise the important role that local authorities, the local authority co-ordinators of regulatory services—LACORS—and bodies such as the Health and Safety Executive have already played in co-ordinating work with major businesses through the existing home authority and local authority schemes. They have been enormously beneficial both to businesses and local authorities and we want to build on them. However, the existing schemes are informal and voluntary. They are not always open to businesses that urgently need them. Competitiveness is being destroyed, and we have to deal with that. Some nationwide firms deal with more than 400 local authorities. There are occasions when communications between authorities are simply not effective. As one of the major retailers noted in its response to our consultation, major inconsistencies are rare but they have significant costs for the businesses involved. Where inconsistent approaches occur, they can have major implications: uncertainty in planning for rolling out new product lines, for instance, or money being wasted where, on the basis of primary authority advice, a firm has implemented a nationwide policy that has subsequently needed to be revised because of a challenge in just one local authority area. The primary authority principle enshrined in Part 2 of the Bill will ensure that where a business and a local authority have committed time and effort to the establishment of an effective advisory relationship, there should be a presumption that, unless there are good reasons for local variation, the advice the business has been given should hold good across the whole country and that the business should be able to plan its operations confidently on that basis. The primary authority scheme is underpinned by three key provisions. The first is a right for the LBRO to nominate a local authority as the primary authority for a business that wants one. The second is a statutory framework for consultation between other authorities and the primary authority where significant enforcement action is proposed. That will require the primary authority to check for consistency between advice the business has been given and the enforcement action that is proposed. The primary authority may object to the action where it is inconsistent with the advice previously given, but the action will have priority. Thirdly, the Bill also allows for a process of binding arbitration by the LBRO, where the enforcing authority or the business wishes to challenge the primary authority’s approach. The consultation process on this aspect of the Bill is very thorough. My officials are particularly grateful for the care and expertise that were brought to the discussions over the summer by so many different parties. A number of concerns were raised about the primary authority scheme. Consequently, a number of changes were made to the Bill to ensure that the scheme works effectively. It is in everyone’s interest that the scheme works, but it is new and it causes concern. We made certain changes after consultation. Concerns were raised about the ability of local authorities to resource the primary authority role. The LBRO will be under a duty to consult with an authority and to take resource constraints into account before nominating it to act as a primary authority. The LBRO may also provide funds itself. The Bill now includes a power allowing a local authority to recover from the business partner any costs incurred in running the scheme. The Government strongly believe that it is right that where a business derives benefit from the work of a given local authority, that should not be at the expense of other spending priorities for that particular authority on its own—not least the support it will want to give to smaller businesses in their attempts to comply with regulation. Earlier drafts of the Bill included a power for the primary authority to object to an enforcement action where it considered that the action was inappropriate. There were concerns about the wide-ranging character of this power and the Bill has focused the primary authority’s role more clearly around checking for consistency of the proposed action with advice that it has previously given to the business. There were also concerns that the requirement to consult a primary authority might undermine the practical protections that prompt and effective regulatory enforcement provides. It is not the Government’s intention to inhibit officers from giving advice to business or from taking action when delay of any sort would jeopardise protections. The Bill therefore now contains a power to make detailed exemptions to the requirement to notify primary authorities in advance of taking action, allowing examples to be specified in a way that will be most useful to practitioners on the front line, dealing with urgent cases. Part 3 is aimed at promoting greater adherence to the law by businesses. It provides additional civil enforcement tools to complement regulators’ existing criminal sanctions. In his review Philip Hampton identified a number of cases where the relative inflexibility of the existing regime for regulatory sanctions meant that businesses operating outside the law could gain a competitive advantage. This was largely because the penalties available fell far short of the commercial value that comes from the decision to ignore the rules. For example, Hampton highlighted a case where an individual was fined only £30,000 for abandoning 184 drums of toxic waste, a penalty which in no way reflected, first, his personal gain from disposing of them, for which he received £58,000, or the wider costs to the community, as the waste authorities had to spend £167,000 to dispose of the waste properly thereafter. Hampton recommended that there should be a thorough review of the system, and in particular that the Government should explore the potential for a range of administrative sanctions to provide a more appropriate, relevant and flexible response than criminal prosecution. In response to this recommendation, the Government invited Professor Richard Macrory of University College London to take a deeper look at regulators’ penalty regimes. In his final report, published in November 2006, he found most regulators to be over-reliant on criminal prosecution as a means of tackling regulatory breaches. He identified what he called a ““compliance deficit””, when non-compliance has occurred but no enforcement action is taken because the appropriate tool is not available to the regulator in an appropriate case. He set out a vision for a penalties system that would allow for a flexible and proportionate approach with a broad range of sanctioning powers, where regulators could respond to the needs of individual cases and the nature of the underlying offence would be paramount. He set out six penalties principles that should underpin such a system. These are that a sanction should aim to change the behaviour of the offender; aim to eliminate any financial gain or benefit from non-compliance; be responsive and consider what is appropriate for the particular offender and the regulatory issue; be proportionate to the nature of the offence and the harm caused; restore the harm caused by regulatory compliance, where appropriate; and aim to deter future non-compliance. Part 3 implements the main legislative recommendations of Professor Macrory’s report, with the aim of putting those principles into practice. It creates a framework within which regulators can acquire access to a suite of civil sanctioning powers while not hurting their current criminal sanction capability. Not all the powers will be necessary in all cases; sometimes comparable powers already exist, and sometimes they will not be appropriate in a particular context. The Bill therefore allows Ministers, by order, to select particular options from the range of new civil sanctions, depending on the particular regulatory regime, and the regulator, whoever it may be, will be obliged to use those sanctions when they could usefully complement their criminal sanctions. This is flexible. This is new. This is different. This is a way of making the punishment fit the crime. The range of sanctions set out in the Bill is as follows. First, fixed monetary penalties will help to address the compliance deficit identified by Professor Macrory and allow regulators the option of imposing penalties in respect of low-level non-compliance. Secondly, variable monetary penalties will address the problem identified by Professor Macrory where criminal fines have not always been set at levels reflecting the financial gain to the business arising from the non-compliance. Thirdly, compliance notices will allow the regulator to require the business to take certain steps to bring itself back into compliance. Fourthly, restoration notices will allow the regulator to require the business to take steps to put right a situation which has followed from the breach of regulation. Fifthly, stop notices will, in serious cases, allow a regulator to require a business to cease all activity or likely activity that has given rise, or is likely to give rise, to a significant risk of serious harm. Finally, enforcement undertakings will allow for a more fundamental change in the traditional relationship between the regulators and business. The provisions in Part 3 are enabling powers. Before making an order giving the regulator access to the new powers, the Minister must be satisfied that the regulator is acting in a way that is compliant with the principles of what we are trying to achieve and with the Hampton report. I wish to recognise the contribution that the Government’s partners have brought to developing the Bill; throughout the consultation, representations were made to us that there was a need for more safeguards and detail to be provided in the Bill. The Bill before the House today reflects a number of changes in response to that public consultation. Finally, Part 4 will create a power for Ministers to apply a duty to regulators requiring that they do not impose or maintain unnecessary regulatory burdens. It is envisaged that this will be used where the duty will help promote a regulatory approach which is more consistent with less and better regulation. This part of the Bill will help to deliver an efficient regulatory system with greater accountability, potentially giving regulators a statutory duty not to impose or maintain unnecessary regulatory burdens. That is new. Regulators have committed themselves to an ambitious programme of regulatory reform in the past few years, some of the results of which, for many of them, will be published shortly. Many will also now be required to have regard to the principles enshrined in the compliance code. Compliance with the duty in Part 4 would require that a regulator should review the burdens that it imposes in its work, and act to minimise any burdens that are found to be unnecessary. It must then report on the action taken. Regulators who have worked with us during an informal consultation period in recent months to finalise the provisions have pointed out the need for proportionality in removing burdens and to ensure that the benefits of any action outweigh its costs. The duty therefore requires the removal of unnecessary burdens only where it is practicable to do so. The intention is to provide for more effective enforcement of the regulations that Parliament has decided should be created. The statutory instrument to apply that duty will be subject to the affirmative procedure. There will be an opportunity to examine each one fully. This measure will ensure that the critical protections that regulations provide, and which the regulators expertly enforce, are carried out in a way that sets the best possible framework for British business to carry out its work and, crucially, to remain competitive in the global environment. I close by paying tribute to the hard work and expertise that all our stakeholders have brought to scrutinising the draft Bill: from business, from the enforcement community and from national regulators themselves. This is an excellent foundation for further work between us on the basis of the reforms in the Bill. It will help to create a modern system of regulatory enforcement. It sets the framework for greater effectiveness of our regulatory system, securing better protections for all of us. It allows for more proportionality in the way in which businesses are regulated, securing more certainty and competitiveness for decent, honest businesses. It secures more accountability for the way in which regulators go about their work. My time as director-general of the CBI enabled me to see at first hand time and again how something that is, on the face of it, a well-intentioned piece of regulation goes on to cause unnecessary expense, bog down wealth creation, kill enterprise—specifically small businesses—and drive commercial activity into a mire of bureaucratic compliance. The regulation itself loses credibility among the very people who should respect it and it ends up not only being a red tape sledgehammer cracking the occasional nut but reducing global competitiveness, debilitating the businesses of the country, and making the lives of regulators and the officers of local authorities impossible. The Bill is designed to put an end to all of that and I commend it to the House. Moved, That the Bill be now read a second time.—(Lord Jones of Birmingham.)