Over recent weeks and months the government has talked a lot about regulation and in particular its tendency to slow down investment, discourage innovation and so hold back growth. The government has taken some sensible steps to change some of this and hopefully we will see some more.
But as I noted in my recent report on environmental regulation for the Department for Environment, Food and Rural Affairs, “we don’t regulate just for the sake of it … Effective regulation should be something to be proud of.” And even as it has cut back on regulation in some areas, the government has increased it in others like the labour market – partly on social justice grounds but partly because the idea is to use regulation to drive up standards and hence productivity. In other words, ministers see that regulation, done right, can help rather than hinder growth.
Not surprisingly given its attempt to get to grips with a dreadful economic and fiscal inheritance, the government has not really sorted out its overall approach to regulation. Instead we get the steer that this is something the government will come back to in time: June’s 10 Year Infrastructure Strategy said: “Alongside sector specific activities, and following the outcomes of the individual sector reviews, the government will set out an updated approach to economic regulation by the end of 2025.”
Does this lack of clarity matter? Articulating a coherent approach to regulation may not be the most important thing on the government’s to-do list, but its absence can have a real impact if it confuses private and public sector actors for whom this stuff really matters; if it leaves those working for regulators themselves uncertain as to what the government wants; and if it leaves the public (to the extent that they notice) a bit baffled as to what this government is all about. So clarifying a modern ‘progressive’ approach to regulation can pay dividends.
Supporting, not submerging
Of course regulation will differ depending on what it is trying to regulate. But at its heart it is all about how you make people undertaking a particular activity do it in a way that is in the public interest and probably not exactly the way they would do it otherwise.
That is hard enough to accomplish. But the real complexity is that you want to do it in a way that does not submerge those subject to the regulations – the firms, the developers, the schools, the housing providers, the volunteers – in endless, complex red tape that stops initiative and innovation, adds to costs and at worst has perverse effects on their behaviour.
In market activities, progressives want to regulate mainly because of the fear that activity left unchecked may not always be in the interests of citizens and customers, of the environment or even of economic growth itself – at its most extreme, tending towards monopolies. So regulation here should be about enabling private sector activity to flourish, with fair competition driving up quality and without costs being heaped on society.
Where the activity is more public sector led – such as education, health or transport – then regulation is also partly to ensure that ‘provider capture’ does not happen and that the interests of the pupils, parents, patients, passengers come first. Regulation, defined more broadly to include targets and league tables, was used as part of the once-popular approach to public service reform, New Public Management, to try to improve the performance of things like schools and hospitals. In several areas, local public institutions were given more freedom to operate but with regulation and ‘surveillance’ on top of it. This did improve outcomes – at least to a degree – but it also suffered from many of the same factors affecting regulation of the private sector.
In the 1990s, regulation also became a sort of ‘substitute’ for public ownership. If you regulated you could potentially get the benefits that (may) come from private ownership and the incentives for efficiency that it should create, alongside the control that public ownership (supposedly) gives you. That didn’t work as well as was hoped: the private sector was more voracious and skilled in evading regulation than expected and for all sorts of reasons the regulators turned out to be too weak. So change is needed and is happening in many areas from rail to water.
Establishing a level playing field while maintaining protections
Now, when the government’s focus is on growth and productivity, regulation has to pick up two ends of the spectrum.
At one end, it must play its role in creating predictable, stable, level playing fields and do it in a way that allows innovation and does not engender excessive risk aversion or time consuming red tape.
The rhetoric seems pretty good in this area. For instance the government’s recent Industrial Strategy makes clear that: “As we set out in our Regulation Action Plan, published in March 2025, the UK’s regulatory framework has become too complex, uncertain and risk averse. It imposes significant burdens on industry, particularly on high-growth businesses.”
And in response it aims to: “Reduce regulatory burdens and speed innovation, cutting the administrative costs of regulation for business by 25%, reducing the number of regulators, using the Regulatory Innovation Office to clear the path to market for the latest innovative challenger products, and making specific changes for sectors to support business investment.”
As long as the focus of all this remains on growth and ‘what works’ it seems a sensible agenda. Smart, pro-growth regulation is what is needed rather than deregulation of the chainsaw variety loved by Argentinian President Javier Milei (and which appears to be proving disastrous for his country).
But the government will be aware that quite often the worst thing for business is changing regulators and regulations just for the optics of having done something and that abolishing and/or merging regulators may create much better outcomes in the longer term but will definitely cause short term disruption.
At the other end of the spectrum, the government does need to regulate to protect the wellbeing of our citizens and our environment and to improve outcomes. That means regulation that responds to genuine concerns – and this has to embrace the reality that the public is often pretty risk averse. So, for instance, people would put a high value on never having the lights go out, or not being poisoned by a firm’s products, or not allowing a school or charity to risk a child’s safety on an outward bound course.
Mitigating those risks - and even more acutely, responding to moments when those risks actually materialise – incentivises government to introduce tough regulations that do put up costs (and prices) and which may be a barrier to at least some kinds of innovation. Some feel, for instance, that some of the regulations that understandably came out after the Grenfell tragedy – like needing two staircases in many new blocks of flats – have been excessive, with a lot of negative consequences (some directly at odds with the government’s ambitious house-building targets).
Taking on the culture of risk aversion
Balancing the need for growth with the need for safety and other goals will always be tricky. But we don’t make it easy for ourselves even when relatively simple steps could be taken to improve things.
In my recent review for Defra I found a number of issues that bedevil many areas of regulation. One is the overlapping and unclear set of duties that regulators have been given over the years – and the lack of really solid steers from government departments and ministers on how they should balance them. In environmental regulation there is also a massive degree of risk aversion in the system, which has arisen due to several factors: the legal framework under which regulators operate; great fear of judicial review; the culture within many regulators (not helped by the risk averse culture of the civil service and by politicians’ traditional lack of tolerance for ‘failure’); and the quality and type of people involved in both the governance and operations of many regulators, partly but not wholly due to pay issues and the private sector poaching good staff from the regulator.
All this has led to an excessive focus on process rather than on good outcomes for all stakeholders. This is what led to my proposal in the environmental context for regulators to have more discretion to focus on those outcomes (albeit a ‘constrained discretion’, not a free-for-all). There is also the issue of complexity of the regulations and the guidance around them, making it hard for many to follow even when they wanted to, and the lack of real concern for the customer experience.
The small chance of being ‘found out’ does not help, certainly in much of environmental regulation, and nor does the lack of much of a punishment when you are, in areas like fly-tipping. In economic regulation – mostly of the privatised utilities – we still also suffer from the legacy of a pricing system (RPI-X) designed to sweat the assets when now we need it to focus on investment and maintenance.
So it is right to have a very hard look at regulation across the piece, to reduce complexity and delay; and to focus regulation on outcomes rather than extreme risk aversion.
We need regulation and it must never become a term of abuse. But we can certainly do an awful lot better.
Dan Corry is the Future Governance Forum’s chief economist and has served as head of the Number 10 Policy Unit and senior adviser to the prime minister on the economy from 2007 to 2010. He was appointed as a Non-Executive Director on the Defra board in September.