Regulatory Enforcement and Sanctions Bill [HL]

I welcome this opportunity to discuss Part 4 and set it in the context of the whole better regulation agenda. The aim of Part 4 is to help regulators ensure that they do not impose or maintain unnecessary burdens and that they deliver an efficient regulatory system with greater transparency. The intention is to provide for more effective enforcement of the regulations that Parliament has decided should be created. My noble friend Lord Borrie is right to say that this duty was not included in the draft Bill, but our intention to introduce it was highlighted in the Government’s document, Next Steps on Regulatory Reform, published in July. We had extensive meetings with many regulators throughout the summer and autumn. We listened to what they had to say and amended our proposals: for example, adding the provision on practicability and proportionality of the removal of unnecessary burdens in Clause 68(2). The Government do not intend that the regulators should, as a result of this duty, divert resources from their core function in a way that compromises their effectiveness or independence. We expect that, in reviewing their functions and removing unnecessary burdens, regulators should be able to target their resources more effectively and enhance the regulatory protections and outcomes. Given the wide range of comments here, I will take the amendments in turn. The Committee will note that the duty is to secure that unnecessary burdens are not imposed or maintained. That requires a process of identification and planned action, and it is for the regulator, following a review of the burdens that it imposes, to determine those that are unnecessary. As set out in Clause 68(2), where it is practicable and proportionate to do so, the regulator must remove those burdens. Amendments Nos. 180 and 181 would insert into the duty wording that would focus it on reviewing functions rather than on removing burdens. We accept that the duty should not require regulators to undertake an immediate review of all their functions nor to engage in endless detailed reviews of them. Nevertheless, we think that the impact of burdens on the regulator should be assessed on an ongoing basis. The aim is to require a meaningful review within reasonable time scales, and we will consider that part of the amendment. However, we feel that allowing the regulators to review, with a view to securing that unnecessary burdens are neither imposed nor maintained, would significantly dilute the duty and would not achieve the Government’s aim of better regulation. While that is the term of the duty to which Ofcom is subject, we are not here drafting a duty for Ofcom or indeed only for economic regulators, but rather one that would be applied to a diverse range of regulators. In light of that, I ask my noble friend to withdraw the amendment so that we may return to it on Report. Clause 68(2) recognises that there might be legitimate reasons not to remove unnecessary burdens where it would be disproportionate or impractical. That provides a safeguard, which regulators asked for during our consultation with them, that unnecessary burdens could be maintained if it was not practical or the cost or effort would be disproportionate to remove them. Amendments Nos. 182 to 184 would broaden that significantly to allow new unnecessary burdens to be imposed if not doing so would be impracticable or disproportionate. That is not necessary and would significantly widen the exemption to the duty. We considered it unattractive to specifically authorise the imposition of unnecessary burdens by regulators in the Bill. Again, I hope that will provide a basis for my noble friend to consider not moving these amendments. Amendment No. 185 seeks to establish who determines what is an unnecessary burden. I have already said that it is for the regulator, following the review of the burdens it imposes, to determine what is unnecessary. That is clear from the current provisions. I hope that my noble friend will agree that the regulator must always have regard to its other statutory duties and consequently will understand that we do not feel that it is necessary to state that fact here. With regard to the point made by my noble friend Lord Borrie about Ofgem, we are currently in discussion with it on ways in which its function might potentially sensibly be excluded from application of the duty where it has no discretion but to impose the burden. Additionally, the guide to the Bill provides examples of what might be considered unnecessary, and it is intended that that will remain in the published guidance. What is necessary or unnecessary will be specific to the circumstances, and it would not be helpful or appropriate to seek to specify this matter in the Bill. However, we are willing to consider clarifying that it is the regulator who decides what is unnecessary following a review of its functions, and I hope that that will enable my noble friend to consider mot moving this amendment. The aim of Clause 68(3) to (6) is to provide transparency. The Bill has no other enforcement mechanism; action is leveraged by way of transparency. The provisions in the Bill require a regulator to whom the duty has been applied to publish a statement, as soon as is reasonably practicable, setting out what it proposes to do in the following 12 months about any unnecessary burdens that have been identified. Subsequent annual statements should also report on what has been done in the previous 12 months in connection with any unnecessary burdens that were identified on the previous statement, and should explain why a burden that is unnecessary has not been removed. Thus the report should look forward, as well as back to what has been done. My noble friend’s Amendments Nos. 186 to 188 would dilute those reporting provisions by removing, first, the requirement to report on what has been done by the regulator since the previous statement and, secondly, the requirement to explain why unnecessary burdens have been maintained where it would have been impracticable or disproportionate to remove them. That would compromise regulatory accountability. Amendments Nos. 189 and 190 would introduce the ability to revise a statement in the period to which it applies. Although it may be unpalatable for a regulator to report that progress has been less than expected, we believe that such transparency is essential. Allowing regulators to produce a revised statement part-way through the year could effectively allow inconvenient goal posts to be shifted. We acknowledge that the Bill requires regulators to have regard to the statement throughout the period to which it relates. If the regulatory environment changes during that period, they will be able to take that into account in their statement. The extent to which they justifiably depart from the statement can be reported in the next statement. The Bill allows regulators to publish a single statement every 12 months in the manner that is most appropriate to them; for example, in annual reports. I trust that the Committee agrees that there is nothing to be gained from requiring a duplication of statements, especially from those regulators that already produce annual reports about their regulatory improvements. My noble friend Lord Berkeley, in his Amendment No. 191, seeks to exclude a number of economic regulators from having the duty applied to them at all, ever. I thank my noble friend for the opportunity to say what we believe this part should not capture. Some regulators—in particular the Office of Fair Trading, the Competition Commission and some economic regulators—have expressed concern that the potential application of the duty to some of their regulatory functions might undermine their effectiveness. Let me assure them that we do not intend the power to be exercised over their competition functions in a way that would give scope to undermine or second-guess their decisions in competition and merger cases. Consequently, we do not see a case to apply the duty to the Competition Commission. However, the clause provides an avenue for implementing a recommendation made by the Select Committee in its recent report on economic regulators that: "““economic regulators be statutorily required to facilitate the competitiveness of UK firms by ... removing regulatory burdens from firms wherever possible””." I am very sympathetic to the view expressed by my noble friend Lord Berkeley about the perceived infringement of regulatory independence, should a Minister decide to apply the duty to those regulators listed in the amendment. The power allows a Minister not only to direct the operational decisions of a regulator but to require the regulator to conduct a review of the burdens that it imposes in exercising the regulatory functions listed in the order, and to act on the findings of the review. Nevertheless, I am grateful to my noble friend Lord Borrie for his suggestion that we apply the duty in Part 4 to economic regulators in the Bill. That will be one way to address the concern about independence. We would like to take that point away and consider it. I suggest to the Committee that we come back to it on Report.