British industry is undergoing a period of unprecedented regulatory reform as part of a government drive to reduce the costs and burdens on business. Over the next year, it will become clearer how effective this reform will be.

Following independent recommendations from the Hampton Review and the Better Regulation Task Force (BRTF), Chancellor Gordon Brown launched the Better Regulation Action Plan in May 2005 with the aim of boosting flexibility and enterprise.

The plan sets out the government's commitment to regulating only where necessary, reducing the cost of administering regulations, and rationalising the inspection and enforcement arrangements for business.

Estimates of the regulatory burden carried by business vary widely. For example, the British Chambers of Commerce has calculated that the total cost of complying with red tape introduced since 1997 is £39 billion a year, based on the government's regulatory impact assessments. Whereas, the BRTF has suggested that the total cost of regulation probably amounted to 10-12 per cent of gross domestic product, of which perhaps £30bn-40bn could be attributed to administration.

The Better Regulation Bill, an integral part of the reform agenda, will shortly be introduced to Westminster. It aims to remove unnecessary legislation and streamline regulatory structures. Its key features are to:

  • amend the Regulatory Reform Act 2001 to make it faster and easier for the government to deregulate;
  • create a new risk-based approach to inspection that shifts resources away from routine inspection for businesses in safer areas with a proven track record, towards businesses in higher risk areas;
  • reform the penalty regime, to help companies comply with the rules but also create tougher penalties for persistent offenders;
  • enable the merging of inspectorates to take place, ultimately reducing the number of regulators from 29 to 7.

Consultation on the legislative proposals closed in October, and the Bill will be introduced to Westminster early next year. Subject to parliamentary approval, it will become law in summer 2006. In October 2006 a second bill will be considered for the next session of parliament to contain additional deregulatory measures.

The deregulation drive has recently been furthered with the launch of an innovative scheme to measure the cost of red tape imposed on business by government departments. The Cabinet Office project, which was inspired by a similar scheme in Holland, will entail interviewing businesses, charities and independent organisations to gauge how much it costs them to comply with government regulations. The study will cover all regulations imposed by government departments and their agencies, including those derived by European legislation. Ministers will then set quantifiable targets to reduce the administration burdens facing business.

A new online portal has also been introduced to allow businesses to challenge the government to simplify or scrap particular regulations they believe are too onerous. The government will have a maximum of 90 working days to respond to proposals submitted through the portal at www.betterregulation.gov.uk.

Brussels is also making significant moves towards deregulation, with European Commission President José Manuel Barroso planning to scrap more than 60 draft laws that would probably increase bureaucracy if they were given the go ahead. Mr Barroso has pledged that Brussels will systematically check that proposed laws do not lead to more burdens and hinder economic growth.

Business leaders have welcomed the deregulation initiatives as an important step towards making government more responsive to the problems faced in dealing with excessive red tape. It is now a case of waiting to see how effective this step will be.

Kelly Harris is a public law specialist with commercial law firm Shepherd and Wedderburn. 0131 473 5382.

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