Helping or hindering? How to make regulation an effective policy delivery tool

By on 15/07/2022 | Updated on 17/07/2022
A man wearing glasses carries a pile of files and paperwork.
Record keeping can divert businesses from more economically productive activities. Regulators should seek to minimise administrative burdens

Regulations are designed to protect consumers, health, the environment, society. But if not implemented properly, they can fail in their objectives or have unintended consequences that can in turn harm the economy. Here Tony Cash sets out five key approaches to ensuring regulation helps rather than hampers

Governments can achieve their policy objectives in various ways. From seeking to influence people’s choices, inform and persuade – through ‘nudges’, campaigns, and financial incentives – to implementing regulations that impose rules, backed by the possible use of penalties to enforce compliance.

Regulation is an important policy option and we sometimes take its benefits for granted. Markets could not exist without regulation and they are necessary to protect consumers, health, the environment and society. The challenge with regulation is that although its intention is to help, in practice it might hinder business success, for example through imposed costs, by creating barriers to entry, or by stifling innovation, such as through prescriptive regulation preventing experimentation with new products and services. These effects might in turn hamper economic growth.

Why might regulation fail?

There are other challenges too, not least that regulation might fail to achieve its intended outcomes. For example, it may fail to sufficiently protect consumers, the environment, health, the financial system – as with the 2008 financial crash – or those receiving care. There are many possible causes of such failure: regulation may not be well targeted in terms of scope, application or enforcement; it may be insufficiently dynamic and fail to adapt to economic, social and technological changes or to changes in the behaviour of the regulated; and it may fail to consider the larger economic and social system in which it operates. In the case of the 2008 financial crisis, some argue it was the result of failures to identify and then to act robustly to address, the systemic risks of sub-prime lending and derivative products.   

Read more: When push comes to ‘nudge’: how governments can influence the behaviour of citizens

A second, more subtle but sometimes even more significant failure is when the regulation, despite its good intentions, causes significant adverse unintended consequences – particularly when those consequences harm those that the regulation is designed to protect. So, for example, rent controls benefit those who receive lower rent, but could also lead to a reduction in available rental property if some landlords decide that it is no longer worth continuing to rent out their property under the new regulations. Regulation is usually likely to involve compliance costs on the regulated, but the benefits need to outweigh the costs and any adverse consequences kept to a minimum.

Five approaches to ensure regulation helps

Over recent decades many governments and organisations such as the OECD have promoted and applied various ways to make regulation a more effective and helpful policy tool. Five key approaches are listed below:

  • The potential regulatory failures mentioned above might be avoided by listening to those who will be, or are, affected by regulation, before the regulation is imposed. Regulatory practice should be informed by consultation with both regulated entities and those the regulator seeks to protect. As well as specific consultations on potential changes to regulation, this may involve standing consultation panels run separately for those who are regulated and those that the regulator protects.
  • A regulator should seek to minimise administrative and other burdens on those they regulate. For example, record keeping and completing regulatory monitoring returns might divert a business, especially a small business, from more economically productive activities. Regulators should consider the aggregate burden of regulations, not just that of each individual regulation. Minimising burdens can be achieved in many ways, for example by aligning the regulator’s information requests with the information that regulated entities should be gathering anyway, and by using information technology to simplify processes. Where possible (and in accordance with data protection laws), information and intelligence should be shared between regulators and public bodies. Regulators should pay particular attention to the impact of regulation on smaller businesses who have fewer resources available to them to cope with the regulatory burdens. Options for helping small firms range from extra support and guidance, to giving them longer to implement new rules, to even exempting them from some compliance and reporting requirements if appropriate. The costs of any new burdens should be outweighed by the benefits. Information requests and other measures should be reviewed periodically to see if they actually make a significant difference to achieving regulatory outcomes. As the UK 2017 Regulatory Futures Review said “regulators should periodically (around every five years) review their regulatory approach, with a view to stripping back accumulations of excessive standards and process controls”.  
  • Regulators should adopt whichever risk-based approaches are most suitable for their specific sector(s). This involves targeting effort where the potential harm caused by non-compliance, or the likelihood of non-compliance is greatest. This requires having the right intelligence, and analysis of it, in place to make such decisions. The result of taking a risk-based approach should mean that the regulator’s limited resources are allocated to where its efforts will best achieve its regulatory goals. It should also mean that those who fully comply with or exceed regulatory standards should not face the same burden – for example, frequency and detail of information requests, supervision, inspections – as those who do not comply. Risk-based approaches may also involve thematic approaches. This might involve a regulator focusing on a particular issue or concern for a year, such as governance standards in the regulated entities, and then moving on to focus on another issue the following year, such as a specific compliance issue.
  • Regulators need to consider at what stage to target their intervention, which may be different across the range of issues and risks they deal with. So, for example, whether to focus on measures that prevent the issue arising, on measures that catch the problem as soon as it arises, or that allow some harm to occur and ensure victims are compensated – for penalties imposed on the non-compliant – afterwards. One important consideration here is the degree of hazard and whether any detriment is easily reversible after it has occurred, such as a small financial detriment, or if it is irreversible, such as in the case of serious injury. Another consideration is the resource implications of the different approaches both for the regulator and regulated.
  • The regulator should promote compliance, not just look for non-compliance. They should aim for their efforts to be catalysts for improvement in the sectors they regulate. For example, monitoring and inspection might include support and advice as well as seeking to find non-compliance. Regulators could highlight and share examples of good practice across their sectors.

Good regulation helps society

Although regulation may fail to achieve its goals or have unintended consequences, it is still an important option. Sometimes alternatives to statutory regulation such as information campaigns, positive incentives or even self-regulation by an industry or profession will not be enough to provide sufficient protection for those who need it. The potential problems with regulation identified in this article are not inevitable. The five key approaches to making regulation an effective policy tool that I have set out can significantly reduce the likelihood of such problems occurring.  

Although sometimes evaluations might show a particular regulation is no longer needed, generally the aim of the policymaker should be to improve regulation rather than simply deregulate. As the chief executive of the UK Environment Agency, Sir James Bevan said in 2021 regarding environmental protection in England: “…we must avoid false choices. Better regulation isn’t code for deregulation. The test for any changes in legislation must be that they will deliver better environmental outcomes as well as being good for the economy.” A similar test should apply to all regulatory proposals – will they deliver better policy outcomes and benefit the economic and society? Will they help, rather than hinder? Applying this test robustly and consistently can ensure that regulation is an effective part of the strategic policymaker’s toolkit.

Upcoming seminars Tony Cash, the author of this article, delivers for Global Government Forum include:
Delivering Public Good through Policy
The Strategic Policy Maker’s Toolkit – Two-Day Training Seminar
Targeting Regulation on Risk
Dynamic Regulation – Regulating for Now and the Future

Read more: Three biases that policymakers must avoid in crises – and how to do it

About Tony Cash

Tony Cash is an expert on policy, strategy and regulatory best practice. He is a former civil servant and his roles included Head of Strategy and Communications for the Joint Trade Policy Unit and Deputy Director of the Department for Business internal training team. In his role as a training consultant, he has trained people in policy-making best practice and better regulation across the UK and overseas (including Bermuda, British Virgin Islands, Cayman Islands, Dubai, Guernsey, Ireland, Kenya, Malta and South Africa). He has worked with many government organisations on impact assessment. He also provides training on many related subjects including change management, governance, leadership, parliamentary affairs, project management, public service reform, risk management and strategic management. He delivers training in a wide range of formats including online. Tony is also an organisation development expert (MSc OD) and holds qualifications in coaching (Certificate in Executive Coaching), training (CIPD Certificate in Training Practice), project management (PRINCE 2 Foundation and Practitioner) and Neuro-Linguistic Programming.

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