Relaunching the Deregulation Agenda

The Deregulation Initiative was relaunched within the DTI in 1992 (following the Conservatives’ successful re-election, see Chapter 10) and led by Neil Hamilton. It had three objectives:

... better existing regulation, by cutting unnecessary burdens on business and reducing compliance and enforcement costs; effective new regulation, by ensuring that potential costs and the views of business are accounted for in framing and implementing new regulation; and greater official awareness of the views and needs of business.

(Hansard, HC Deb. 19 October 1992 vol.212 col.230)

A Departmental Deregulation Minister was appointed in each government department, seeking to address the difficulties previous attempts had faced with resistance or lack of engagement. There were also attempts to support small firms’ engagement with regulations, with the establishment of Local Business Partnerships. These were forums for local business communities and local authorities to discuss regulation-related issues, argued for as something of particular benefit for smaller, newer businesses. Hamilton (1994: 30) explained:

The aim is to help business understand their responsibilities under regulations so making it easier for them to comply, while also helping local authorities understand how regulations are operating on the ground so helping them to focus enforcement effort on those flouting the law.

Perhaps the most significant development was the replacement of the EDU with a new, high-profile Task Force formed by Michael Heseltine (Secretary of State for Trade and Industry). This consisted of representatives of large companies, a couple of academics and Lord Sainsbury as an adviser.

The work of this new group was focused on seven sectoral task forces, generally related to specific areas of regulation and those with appropriate expertise leading in each area. For example, Chair of the Construction Task Force was the Chairman of Bovis Construction Ltd with the task force composed of other construction company directors and partners. In 1994, the Task Force produced a report (DTI, 1994a, Deregulation Task Forces Proposals for Reform) that proposed 605 ways of reducing regulatory burdens.

The work of these predominantly large business-led task forces included consideration of the effects of regulation on small business. The first section of the report was titled ‘Small Businesses’ and included 13 proposals. These tended to make the case for universality and against the case for differential treatment of small businesses. For example:

Do not create exemptions, barriers and thresholds for small business regulation. Regulate only where essential—and then universally.

Make regulators and enforcers into “enablers” not “threateners”. Punish persistent and deliberate offenders. Help the ignorant, the uninformed and the hard-pressed to do better.

(p. 1)

In this way, there was a shift in focus of the deregulation effort to general market liberalisation, less tied to small businesses. For example, it was proposed that, in relation to the British Standards Institution, a simple guide be produced for small firms with clear advice, including recommended consultants they should use. However, while recommending the avoidance of exemptions, the Task Force did nonetheless recommend that consideration of small businesses be given when formulating regulation:

When drafting regulations, assume all businesses are small. Use the “small business litmus test”.

(ibid)

This litmus test was described in detail by Hamilton (1994: 29):

In recognition of the particular difficulties faced by small firms with regard to complying with regulation, the Government has introduced a small business litmus test as part of carrying out compliance cost assessments. This will normally take the form of departments identifying two or three typical small firms in the sector affected by the proposed regulation and discussing with them the practicality of the measure and the impact it will have on their business. Departments may carry out an alternative form of test where this would give a better and clearer picture of the impact on small firms.

The 1996 guidance for Compliance Cost Assessment under the Deregulation Initiative highlights the introduction of the ‘small business litmus test.’ Prime Minister John Major, in the foreword to the document, wrote that he was ‘particularly pleased to see the inclusion in this new guidance of a small business litmus test, requiring consultation with some typical small businesses on the practicality of new regulatory proposals.’

An area where a distinctive approach to small firms was recommended was that the small company audit threshold ‘should be raised substantially’ (p. 45). The idea of employee status in small firms was also revisited, here in relation to the challenges in the construction industry and need for ‘flexibility’: ‘An individual should be able to agree with an “employer” whether to be treated as an employed or self-employed person, accepting that he/she will be bound by that decision’ (p. 65). Again, this is less in relation to small business exceptionalism and more about the industry as a whole, challenging the nature of employment rights and the nature of employment within the desired free market.

At the same time, the White Paper Deregulation: Cutting Red Tape (DTI, 1994c) set out the deregulation agenda and particular actions that were being taken across government departments. It argued that, without deregulation, there were dangers of fewer jobs, higher prices and less choice. This paper listed existing changes and those that were planned, including detailing where proposals from the Task Force were not accepted, for example, the recommendation for changes in the Treasury. The Treasury did not agree with the interpretation of the law presented by the Task Force and, on this basis, did not accept that the proposals would have the intended effects or would create significant risks for investors. Task Force recommendations that were adopted included raising the VAT threshold and statutory audit requirements so as to exclude many small firms (based on turnover): ‘500,000 of the smallest companies no longer need to have their accounts audited’ (DTI, 1996: 86).

The Deregulation and Contacting Out Act (1994) made over 30 specific deregulatory changes to the law. It also informed the creation of a new Select Committee to consider new deregulation orders in terms of their potential burdens within 60 days. This introduced a power to amend or repeal primary legislation to reduce burdens meaning that, in order to remove a perceived burden, secondary legislation could be used to amend primary legislation. This raised significant concerns (including from the Labour Party) about the transfer of powers from Parliament to Whitehall, that is, away from the democratic process (Hansard, HC Deb. 24 November 1994 vol.250 cols.764-789). Although the broader issue of what are sometimes referred to as ‘Henry VIII powers’ would continue to be a topic of heated debate, especially with the passing of the EU (Withdrawal) Bill in 2018.

During the 1995-1996 session, 19 Deregulation Orders were submitted before parliament, but the following year this dropped to 12, then 5 and then 4. Examples included removing the need for three yearly re-author-isations of deductions of union subscriptions from salary; permitting bookings at registry offices up to 12 months in advance instead of 3; and relaxing the restrictions on opening hours of licensed premises over Millennium Eve. Nonetheless, despite the limited use of these mechanisms, concerns about the approach led to a consultation in cabinet in 1999 and to a paper called ‘Proposed Amendments to the Deregulation and Contracting Out Act 1994.’ The negotiations between the government and Parliament led to the approval of the Regulatory Reform Act 2001.

More generally, the DTI (1996: 87) set out the new approach to deregulation:

The Government has introduced a requirement that no Department may bring forward new regulatory proposals that affect business without a Risk Assessment and a Compliance Cost Assessment. Ministers must personally certify that the cost to business of any proposal is justified by its benefits and that, if the proposal implements an EU requirement, no gold plating or double banking is included without full justification

This represented a further formalisation of the deregulation agenda and a further attempt to ensure different government departments attended to the government’s objectives in this area.

DTI (1996) also provided examples of achievements of the Deregulation Initiative such as lifting restrictions on Sunday shopping and pub hours and revising food regulations ‘that allow development of innovative products like fromage frais’ (p. 85). It listed ongoing efforts to further reduce regulatory burdens (‘without reducing necessary protection,’ p. 85) including in relation to statistical returns, tax, health and safety, labour, planning, financial services, food, with over 1000 regulations identified for repeal and amendment.

The extent of deregulatory efforts, the White Papers produced and the task forces assembled led to a further criticism of this agenda expressed in the House of Commons in 1996:

Deregulation has spawned an entire new layer of bureaucracy, created new buzz words and produced a new layer of Government. The Leader of the House, a Cabinet appointee and the Prime Minister are all concerned with deregulation—without it, some might not even have jobs. There is a deregulatory Minister in every Department.

Pamphlets, circulars, booklets and departmental reviews are churned out. Experts and advisers are to be found in local government, and even the Institute of Directors has deregulation advisers. The cost is enormous.

The Select Committee is just one deregulatory initiative. Lord Sainsbury’s task force, which has been taken over by Francis Maude, is another. The task force suggested that 605 pieces of legislation were ripe for repeal, and the Prime Minister added another 400. Of more than 1,000 measures identified, 643 have been repealed—but few have had the impact that Conservative Members would like. Comparing that figure with the 7,845 statutory instruments added to our legislation since January 1994 puts the matter in perspective. Admittedly, many of those instruments correct complicated or inadequate primary legislation such as the Jobseekers Act 1995 and the Children Act 1989, but that does not explain the need for 3,243 new statutory instruments already this year.

(Hansard, HC Deb. 22 May 1996 vol.278 cols.250-257)

The critique of increased bureaucracy and complexity around a deregulation agenda that was growing in scale but failing to achieve significant, demonstrable gains is one that would persist as the subsequent Labour government continued to pursue this agenda (and the coalition and Conservative governments that were to follow, see Chapter 11). In some ways, this area of policymaking represents an example of how small government advocates created larger government machinery in their efforts to achieve their aims. We will see another example of this when we discuss Business Link in the next chapter.

Conclusion

The development of enterprise policy under the Conservative administrations of the 1980s and 1990s saw a significant new role for the private sector in regional policy and therefore a key platform for the development and delivery of enterprise policies, for example with the creation of LEAs. Not only were these organisations private sector-led, they also had to compete for financial support from the private sector more widely, creating new forms of influence on the policies developed and delivered. This approach also provides an important example of where government finance increased rather than simply being replaced with money from the private sector. This included forms of conditionality attached to central government money exerting powerful mechanisms of control over regional bodies and limiting the extent to which these bodies represent forms of decentralisation, truly independent of central government.

Instead, it was the powers of local authorities that were reduced in this period.

The Conservatives also prioritised deregulation, not only in specific areas of regeneration classified as enterprise zones, but for the country as a whole. This agenda may have exacerbated rather than resolved some of the country’s problems. For example, Piore and Sabel (1984: 182) argue that ‘by pushing industries into unfamiliar situations and promoting radical restructurings, deregulation also lowered productivity, and it may have raised unemployment.’ The deregulation agenda was also limited in the extent to which it could meaningfully impact the activities of small businesses.

A key element in this limited impact was the lack of commitment from other government departments, despite the role of the deregulation agenda in the broader aims of market liberalisation. The lack of commitment to an enterprise policy agenda can be seen as limiting the scope and impact of the policies. Enterprise policy agendas have often struggled to have sufficient profile to achieve significant cross-government support, even during the ‘enterprise culture’ period. In this case, it may also have reflected the limited degree to which government departments were willing to limit or compromise the regulations they introduced in the name of start-ups or small business growth.