IoD – ‘How to fix post-Brexit regulation’

Three years after Brexit, and one year after the publication of a government paper on ‘the benefits of Brexit’[1], the UK is still struggling to define its post-Brexit regulatory path.

Most of us would agree that regulation in some form is essential to the functioning of an economy. If crafted effectively, it can help to foster growth and innovation. And in many instances, regulation can play a crucial role in supporting desirable societal outcomes such as protecting the environment or ensuring health and safety.

But poorly designed regulation can lead to an additional cost and bureaucratic burden for business – particularly smaller businesses, who may lack the in-house capacity to deal with it. According to a recent IoD survey, 13% of members highlighted regulatory burden as one of the three most important issues that they face, and a priority that should be addressed by policy makers.[2]

In January 2022, government ministers outlined some of their plans for the future of regulation.[3] Most controversially, they set a target to cut £1 billion of business costs from retained EU red tape. A relatively large body of ‘retained’ EU law has been kept on the UK statute book since Brexit to preserve legal continuity. It remains critical to large areas of business regulation, including workplace protections and environmental standards.

In September 2022, during the tenure of Jacob Rees-Mogg at the Business Department, the government published the Retained EU Law (Revocation and Reform) Bill, which stipulates that all law derived from the UK’s 40-year membership of the EU must be reviewed and either transferred into UK law or scrapped (‘sunsetted’) by the end of 2023.

During its passage through the House of Commons, the government was warned by business organisations like the IoD that this Bill, if enacted, would create significant business costs and uncertainty. At a time when business is facing many other challenges (e.g., high inflation and the prospect of recession), it is not seen as a business priority. Such a large scale legal ‘cleansing’ process would absorb an inordinate amount of civil service time and resources when officials should be focusing on other things. It would also create a huge job for enterprises as they sought to respond and adapt to any changes that might arise from the process.

There has also been lack of clarity concerning the number of pieces of legislation that will need to be reviewed. Only this week, the goalposts shifted further when it was announced that another 1,000 pieces of legislation had been identified as falling within the scope of the Bill. There are now 400 unique policy areas and 3,700 pieces of legislation that must be reviewed, reformed or abolished by the end of this year. The risk of unintended consequences arising from this process must surely be substantial. Despite efforts by a cross-party group of parliamentarians to amend the Bill, it has now navigated through the House of Commons and is currently being evaluated by the House of Lords.

Although media attention has been understandably focused on the retained EU Law Bill, there is another more prosaic way in which government could enhance the quality of the UK regulatory framework. This involves designing a regulatory governance process which provides relevant external stakeholders with the opportunity to scrutinise business impact at an earlier stage. In theory, this should be happening as part of the government’s Better Regulation framework. However, in reality, it’s an aspect of current administrative practice which is falling into disrepair and is in need of a substantial refresh.

Impact assessments are supposed to be prepared for all regulatory provisions where the annualised impact to business is greater than £5 million. They are subject to formal scrutiny by an independent verification body, the Regulatory Policy Committee, which consists of external economists and regulatory experts. However, in October 2022, the House of Lords Secondary Legislation Scrutiny Committee reported that many impact assessments do not provide an adequate basis with which parliamentarians can assess proposed legislation.[4] Furthermore, the quality of these assessments has materially deteriorated since 2017.

Even more worryingly, the Lords found that an increasing number of regulatory instruments had been laid before Parliament without an impact assessment being prepared by the relevant government department. In some cases, the impact assessment only arrived after the legislation had come into effect! There were also a growing number of cases where impact assessments were not accompanied by an independent assessment from the Regulatory Policy Committee.

For the Lords, the consequences of this situation were clear: “If Parliament is to perform its critical function of holding the Government to account, it is of paramount importance that the two Houses are given complete and comprehensive information about the basis on which policy choices are made and the reasons why alternative options have been rejected. We cannot perform that role without the right information at the right time.”

The lack of timely impact assessments is not only a problem for parliamentarians. It also reduces the opportunity for wider challenge from those who will be affected by the regulation, including the IoD and its members.

An example of how things can go wrong was recently provided at the Home Office. In early 2022, it introduced legislation that would have prevented printing businesses from using certain chemicals due to their potential use in illicit drug manufacture. The new legislation was based on an assumption by officials that it would affect only 65 firms.

However, following representation from industry bodies, it became apparent that the change would affect closer to 7,500 firms and the system envisaged by the new regulation would therefore not work. As a result, the regulation was revoked and a new policy approach was developed. However, a great deal of time, effort and uncertainty could have been saved if the impact of the proposed regulation had been assessed at an earlier stage by relevant business stakeholders.[5]

Of course, the motivation behind a good deal of regulation will always be inherently political, and it is right that democratically elected politicians have the final say on the nature of political objectives. But the effectiveness of regulation aimed at delivering those objectives can be immeasurably enhanced by enabling adequate time in the process for expert review and business feedback. Combined with a meaningful post-implementation review process, a re-vitalised framework of better regulation offers a practical rather than a political way to achieve more effective post-Brexit regulatory outcomes for business.

Dr Roger Barker, Director of Policy and Corporate Governance, IoD.

  1. ‘The Benefits of Brexit: How the UK is taking advantage of leaving the EU’. HM Government, January 2022.
  2. Policy voice survey of IoD members, December 2022.
  3. Read more and read more
  4. ‘Losing Impact: why the Government’s impact assessment system is failing Parliament and the public’. House of Lords, October 2022.