Regulatory stability: a Labour priority
Labour has many priorities. But given the importance of regulatory stability to its overriding priority of economic growth, regulatory reform should be one of the top ones.
“If we want to see businesses invest, if we want to build economic growth on strong foundations, then it will rest on stability” (Rachel Reeves Mais Lecture, 19 March 2024)
That quote summarises one of the most important points made by Rachel Reeves in her lecture earlier this week: if Labour is to achieve its growth mission, it needs to lay a secure foundation for the investment our economy so urgently needs.
She went to flag up stability of monetary policy and financial regulation as two key aspects of that. But I want to flag up another – which will need swift legislative action by a new Labour government. And that is to address the deep regulatory uncertainty left by the Conservatives.
Why regulation matters
Regulatory policy is not going to get anyone’s blood racing. Few voters are going to raise on the doorstep details of chemicals, data protection, medicines, or airline safety regulation (at least, not until something goes very badly wrong).
But, for businesses in those sectors, understanding what the rules on such things are, and having reasonable confidence in what they will be, are absolutely critical in order to attract investment.
The Conservatives’ record on regulation
Under the post-Brexit Conservative governments, however, regulatory policy has been about generating uncertainty.
The vast bulk of our regulation in these areas has been inherited from the EU, and was kept on, post-Brexit, in the form of “retained EU law”. That was sensible. But what has not been sensible is the Conservatives’ obsessive focus since then on finding ways in which to diverge from EU law, merely for the purposes of producing “evidence” that Brexit has not been a costly mistake.
That focus has delivered very little in terms of actual results. Even where Conservative legislation gave very wide powers to ministers to rewrite the rules (for example, see this provision, in the area of medicines), they have barely done so.
By 2022, hard Brexiters, such as Jacob Rees-Mogg, then Minister for “Brexit Opportunities”, were blaming that failure on “the blob” or “Whitehall inertia”.
That thinking led to the Retained EU Law (Revocation and Reform) Act 2023 (REULA), introduced by Rees-Mogg just as Liz Truss was ending her meteoric (as in spectacular crash to the ground) premiership.
As explained here, the central provision of REULA, in its original Rees-Mogg version, was the automatic repeal of vast swathes of retained EU law. The idea was that that would light a fire underneath Whitehall: if civil servants did not come up with reform proposals, the rules would just vanish into thin air. However, his successor and fellow hard Brexiter, Kemi Badenoch, belatedly realised that that fire would set light to the whole regulatory forest and not just Whitehall, and backed down during the passage of the Bill though Parliament, commenting (to the irritation of even more hard-line Brexiters) that she was a Conservative and not an arsonist.
So REULA has been less damaging than Rees-Mogg planned it to be. But it is still bad.
First, it created deliberate uncertainty by, essentially, ordering the courts to change the way in which retained EU law is to be interpreted. The government had no idea – and even now no one has much idea – what that change actually means in practice. But the government didn’t care about that – apart, revealingly, from VAT, where it has effectively disapplied REULA, realising that uncertainty there was too great a threat to tax receipts. Otherwise, it was entirely happy to sacrifice legal clarity on the altar of removing as many traces of EU law as it could.
Second, it gave huge powers to ministers to replace retained EU law with new law with very little Parliamentary scrutiny, no requirement even to consult, and with only one serious constraint, namely that the new law could not impose more “burdens” than the law it replaced (disappointing anyone who believed claims that post-Brexit regulation could impose higher standards than provided for in EU law). Probably with an eye on the likely fate of the current government, which by late 2022 was coming into focus, those powers are essentially “one shot”: so once used, they can’t be used again by a Labour government to repair the damage.
But REULA is a symptom, rather than the cause, of the underlying problem, which is that, apart from flailing around to find areas where they can trumpet “Brexit benefits”, the Conservatives have little coherent idea what they want to do about regulation, post-Brexit.
In many areas, what business has been telling the current government is simply not what it wants to hear:
that there are considerable advantages to businesses trying to operate across Europe, in terms of reduced costs and increased certainty, to modelling UK regulation on parallel EU regulation;
that (given the Windsor Framework) divergence causes problems in terms of trade between Great Britain and Northern Ireland; and
that identifying areas where the UK (or, often, given the Windsor Framework, Great Britain) could sensibly do something a bit different from the EU takes time, detailed engagement with the real needs of business, and clarity about what the objective is (apart from divergence for its own sake).
Faced with that reality, the current government’s regulatory policy has ended up in stasis, and we have the worst of all worlds: signalling a desire to change regulation but with no clarity about what the purpose of movement is or what direction it will be in; and diverging from the EU by accident (because EU regulation has moved on and ours hasn’t) but without any attention being paid to whether that is a good or a bad thing.
The result is all the uncertainty of change and divergence without any of its possible benefits.
What should Labour do about it?
Some things could be done at once, and without new legislation: -
Make it clear that divergence from the EU for its own sake is no longer policy.
Put Whitehall resources - probably largely into an enhanced mission in Brussels - into the detailed work of understanding where EU regulation has gone and where it is going, trying to influence it as much as possible from outside, and taking careful and evidence-based decisions about whether the general advantages of having similar regulations are outweighed by real benefits from not following them.
Where possible, use the huge powers that Conservative legislation has given Ministers to make the changes needed to turn those decisions into revised rules.
Improve regulatory resourcing. Many regulators simply do not have the resources they need, particularly in terms of skills and experience, to regulate efficiently or effectively. In many cases, such resources could be funded by allowing them to raise fees or, in some cases, by allowing them to retain a proportion of penalties imposed: and in many of those cases business would be happy to pay higher fees in return for swifter and smarter regulation.
But other necessary actions will require new legislation. They include: -
Removing the “no new burden” and “one shot” restrictions on REULA powers.
Improving mechanisms for consultation and scrutiny of legislative proposals.
Making it possible for new regulations to track corresponding EU regulations, so as to avoid unintended divergence or constant work updating UK/GB regulation to keep up, while keeping Parliament, business, and other interested parties informed about EU developments that affect such regulations.
To put it mildly, Labour will have many pressing priorities. Regulatory reform may not look like one of them. But Rachel Reeves was absolutely right to point out that the central challenge facing Labour is the UK’s abysmal growth performance. As she recognised, improving our trade deal with the EU is part of that, and the above proposals would help there - but, more immediately, they would help in delivering the objective on which she laid even more stress, that of laying stable institutional foundations.
To mix architectural metaphors, ending the years of post-Brexit regulatory chaos is a keystone of laying those foundations: it should be a priority for Labour in government.
Plus get better relation on civil servant level with English speaking master of EU policy and legislation aka the Irish
I need to update students on the changes made by REULA. Retained EU law was hard enough; understanding assimilated law will be even harder.