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Economy needs to be released from burden of regulation

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The government should adopt a radical approach to reversing the rising tide of red tape that the manufacturers’ organisation, the EEF, says is hampering business growth and investment.

In its report, Reforming Regulation, the EEF has argued that tackling the issue of business regulation will be key to encouraging new firms and to creating jobs.

While welcoming the steps taken so far, the EEF believes that the UK needs a major culture change across government and a real drive to control the costs of new regulation.

In particular, the report highlights the government’s decision to exempt EU legislation from its plans to ease the regulatory burden.

The omission of EU laws from the ‘one-in, one-out’ rule which applies to UK-generated rules could lead to an unchecked rise in new environmental and employment regulations, the EEF claimed.

According to the report, 52 per cent of almost 300 manufacturers surveyed saw regulation as an obstacle to expanding their businesses, with rule compliance rated as the second worst aspect of the UK business environment behind taxation.

The employers’ group picked out employment and pensions policy, which affect all businesses, and environmental policy, which has a disproportionate impact on manufacturing, as the main sources for the additional regulation that is coming on stream.

Together, these areas accounted for 56 per cent of the cost of European regulations introduced over the past decade and 65 per cent of the cost of domestic regulations.

In response, the report makes a series of recommendations which the government should introduce to change the regulatory environment.

Specifically, it puts the case for far-reaching reform in two areas: a robust and transparent system of measuring and controlling the costs of regulation; and the need for policymakers to develop some fresh-thinking about the way regulation is conceived and implemented.

As far as controlling costs is concerned, the EEF wants to see a shift in focus from simply reducing bureaucratic costs that arise from existing legislation to reducing the overall flow of business regulation.

All proposed regulations should be subject to challenge by providing the recently established watchdog, the Regulatory Policy Committee, with sufficient resources to carry out its role effectively.

The ‘one in, one out’ system for new regulations must be a stepping stone to the introduction of enforceable departmental regulatory budgets covering both European and domestic regulation, something that should be in place by 2015.

The government should work with its European partners to set up a body that can offer an effective challenge to EU regulatory plans and to improve the quality of EU impact assessments.

Finally, moves must be made to reduce the burden created by frequent changes in non-statutory standards; this should be done by setting clear ground rules for standards-makers, the EEF said.

On the question of government departmental culture, policymakers need to concentrate on reducing the net costs of regulation and should make regulation a matter of last resort and only when there is an overwhelming case for it.

Seven-year ‘sunsetting’ reviews should be treated as an opportunity to take a strategic look at the cumulative effect of regulation and to consider major reforms before assessing individual regulations.

Policymakers should be provided with clear guidance on the range of alternatives to regulation, and more civil servants should be sent on secondments to industry, the EEF concluded.

Steve Radley, the EEF’s director of policy, commented: “Regulation is an essential part of a well-functioning society and can deliver major benefits. However, where it is excessive, ill-conceived or poorly implemented, it can impose significant cost on individuals, businesses and the wider economy with little or no benefit.

“Over the past two decades we have been promised reductions in costs, only to see them rise year on year. A bold new approach to regulation is now needed to meet the Chancellor’s aim of making the UK economy open for business. We need an open and transparent system that sets limits for total costs of regulation, whether they originate in Brussels or Westminster, and then sticks to them.”

Mr Radley added: “There have been some positive early signs from the coalition, and we now need to see decisive action that will turn these intentions into results that actually help business to deliver a re-balanced economy.”