In case you had not noticed, there will be a national election next month. British Prime Minister, Rishi Sunak is relying on positive economic indicators, such as the recent drop in inflation to boost support for his flagging party. However, there are many obstacles to overcome, not least the fact that, according to the IMF, Britain’s economy will be the worst performing large economy in 2024 and average annual growth rates have more than halved since the global financial crisis of 2007-08. The UK’s regulatory environment, although held up as a model of international best practice, now faces significant challenges that continue to stifle innovation, investment, and growth. Accumulated regulatory costs, estimated to be as high as three to four per cent of GDP (or approximately £70 billion in 2023), can place a costly burden on businesses and prevent them from taking what could be profitable risks. In fact, a staggering forty five per cent of businesses perceive regulation as an obstacle to their progress. To this end, the white paper on ‘Smarter Regulation: Delivering a Regulatory Environment for Innovation, Investment and Growth’ (the White Paper), published in May 2024, proposes comprehensive reform to streamline regulatory processes and enhance economic productivity.

What are the main proposals set out in the White Paper?

The White Paper provides the following:

Definition of a Regulator for Business

“Definition of a regulator of business: we are ultimately concerned with any body that meets each of the below:

1. have direct (statutory) powers to design, implement or enforce regulations, or are indirectly granted those powers from a body with direct powers;
2. directly regulate businesses operating in a given sector or type of activity (rather than individuals, such as professions);
3. have some degree of operational independence from a ministerial department, but are one of: jointly accountable to ministers and Parliament, Ministers only, or Parliament only; and
4. exercise functions relating to matters which are reserved (or excepted, in Northern Ireland) to U K Government and/or U K Parliament.”

Regulators must be transparent in how they are meeting Growth Duty (see below). Businesses will benefit from a registry of regulators and a portal to access regulations.

Growth Duty

Section 108 of the Deregulation Act 2015 provides that a person exercising a specified regulatory function must keep in mind that the UK has a robust desire to promote economic growth. This is known as the Growth Duty. In performing this duty, regulators must consider the importance of the promotion of economic growth and ensure any regulatory action they take is necessary and proportionate.

Recently, the Government extended Growth Duty to Ofgem, Ofwat and Ofcom, to authorise that these regulators must have regard to the desirability of driving economic growth when making decisions concerning the energy, water, and communications sectors.

The White Paper will introduce a Growth Duty Performance Framework which will make Regulators accountable on an annual basis through regular reporting. At first, reporting will not be mandated by statute; however, this will be kept under review. The information collected through the Framework will be shared to ensure regulators can learn off each other and identify and implement best practices.

Duty to understand economic impacts of regulations

Given that a third of innovators state that regulation hinders their ability to roll out their creations, the Government proposes to work with Regulators to set up a voluntary system for reporting and analysing the impact regulations they introduce have on competition. Independent scrutiny of the cost/benefit of new regulations will also be introduced.

Duties and objectives

Regulators must have a minimum set of duties required for them to achieve correct outcomes and these duties must be transparent and accessible to businesses.

Appeals

The Government believes there must be an “accessible and transparent appeals system, that holds the decision making of regulators to account and provides businesses with confidence that challenge can be made where there is a case for doing so”. The White Paper reforms aim to end the long delays in getting decisions from appellant bodies which leads to uncertainty for businesses. To this end, a dispute resolution pilot programme will be set up to offer organisations an alternative to Judicial Review and statutory appeals, both of which are costly and cumbersome.

Enforcement

Regulatory enforcement must be proportionate and effective, deterring non-compliant behaviour without stifling investment and innovation that are diligent in their compliance. In line with the Macrory principles, regulator enforcement regimes should

• change the behaviour of those who breach regulations;
• remove financial benefit gained from non-compliance;
• be responsive and proportionate when considering what sanctions are appropriate;
• repair any harm done due to non-compliance; and
• completely discourage future non-compliance.

In seeking to achieve this balance, the Government intends to review in due course the potential ‘chilling effect’ that turnover-based fines (such as those imposed by the GDPR) can have on prospective investors who may be put off by the risk of incurring disproportionate fines for non-compliance.

Conclusion

The proposals in the White Paper will be welcomed by businesses, providing them with the freedom required to grow and increase profit. Concerning the bigger picture, with Brexit providing freedom from the EU regulatory environment, the UK Government has the opportunity to align British regulations with its strategy for economic growth. To this end, it has committed to leading by example. Whitehall will be required to include how they are abiding by the principles outlined in the White Paper in their annual reports. In addition, the White Paper states that the Better Regulation Framework will be strengthened and improved to robustly analyse the costs of regulations and identify non-regulatory alternatives.

If you require expert legal advice and representation on regulatory compliance, please email us at [email protected] or phone 0121 249 2400.

The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article, please contact 43Legal.