Gordon Brown: Some mothers!

"The truth is that globally and nationally we should have been regulating them more. I've learnt from that. So you don't listen to the industry when they say 'This is good for us' ".

Financial Times
23-May-2005
By Gordon Brown

Today, Alan Johnson, trade and industry secretary, John Hutton, chancellor of the Duchy of Lancaster, and I will announce details of a new, risk-based approach to regulation to break down barriers holding enterprise back. The modern challenge is to enhance the flexibility needed for a successful economy and to tackle the regulatory concerns we know all industrial economies face, without sacrificing the standards a good society needs.

Under the old regulatory model - which started in Victorian times - the implicit principle has been to inspect all premises, procedures and practices, irrespective of known risks or past results. Under this model, everyone was inspected continuously, information demanded wholesale, and forms filled in at all times, the only barrier being a lack of regulatory resources.

The new model we propose is quite different. Under a risk-based approach, there is no unjustifiable inspection, form-filling or requirement for information. Not just a light but a limited touch. Instead of routine regulation trying to cover all, the risk-based approach targets the necessary few.

This risk-based approach will help move us a million miles away from the old belief that business, unregulated, will invariably act irresponsibly. The better view is that business wants to act responsibly. Reputation with customers and investors is more important to behaviour than regulation. Transparency, backed by a light touch, can be more effective than a heavy hand.

So a new trust between business and government is possible, founded on the responsible company, the engaged employee, the educated consumer - and government concentrating its energies on dealing not with every trader but with the bad trader, who should not be allowed to undercut the good. This new risk-based approach has wide application from environmental health to financial services and even taxation.

So how will we ensure a one-third cut in inspections - or 1m fewer checks every year - and a 25 per cent reduction in form filling?

Following the Hampton review of regulation, we will legislate in the new year to reduce 29 regulators to just seven, embed the risk-based approach at the heart of regulators' statutory duties, and make it quicker and easier to remove unnecessary regulations. And in the next session we will introduce a second bill removing outmoded and unnecessary regulations. We will begin a widespread consultation with businesses to identify regulations that should be removed or simplified.

But regulators must not wait for legislation to apply the principles of the risk-based approach and instead immediately begin working together, for example, with joint inspection.

Reforms in local authorities must form a central part of this new approach. Every year 73 per cent of all business inspections are carried out by 611 separate local inspectorates. Even with the "home authority principle" a supermarket chain could be subject to inspection by 203 separate trading standards offices. In future, it would only have to deal with one set of standards, working through a new Consumer and Trading Standards Agency. An incentive scheme will promote more joint work between local authorities and may consolidate local inspectorates.

David Varney, the new chairman of HM Revenue & Customs, is rigorously applying the risk-based approach to tax administration, consulting with business on a single tax account for small businesses. This will mean a single point of contact for all taxes, piloting single inspection, a risk-based approach to visits, and flexible payment options that suit modern business needs. Take value added tax: already 70,000 companies no longer have to provide forms that account for every VAT transaction but make one calculation and pay one flat rate. Working with the chambers of commerce, we will encourage the 600,000 companies eligible to benefit from this simplification to take up the opportunity.

European Union regulations account for 50 per cent of significant new rules imposed on business. From July, our presidency of the EU will give us the opportunity not only to apply a competitiveness test to EU rule-making but to extend the risk-based approach to benefit businesses across Europe. As the Better Regulation Task Force has recommended, Britain will set challenging, quantifiable targets to cut the administrative burden of regulation.

To ensure that this agenda and the necessary culture change in government take place, a Better Regulation Executive has been created, with an externally recruited chairman, extending this new relationship of trust between government and business.

The writer is chancellor of the exchequer