With new technologies, climate change and a global pandemic, the world is changing faster than ever, so our approach as Civil Servants and Regulators to tackling challenges, must also change.
I am the first to admit that regulation is not often considered an exciting topic at most dinner parties – or anywhere else.
Regulation has long suffered with an image problem for being boring, bureaucratic and unnecessary. And though this can sometimes be true, regulation has a vital role to play. It improves our everyday lives – protecting consumers, citizens and businesses.
Regulation is one of the key levers of government (alongside tax and spending) that we have our disposal to achieve policy objectives.
It spans essentially any rule set by the government or regulators, whether through guidance, codes of practice, licensing requirements or legislation. And those of us in the Better Regulation Executive have made it our life mission to make regulation, well… better!
To most people, regulation is rarely associated with promoting innovation. But actually, it is the gatekeeper of the market, determining which products and services are allowed to reach consumers and which won’t make it.
Regulation, when done right, can actually stimulate new ideas, cut investment risk and build consumer confidence in new innovations.
It does this by providing clarity for businesses on the outcomes that the government and society expect, providing confidence for consumers around safety.
Think about the extraordinary speed which COVID vaccinations were both developed and approved in the UK. Crucial to this breakthrough was the role played by our Medicines and Healthcare product Regulatory Agency (MHRA) adopting an agile approach, working with industry to rigorously test new vaccines through a ‘rolling review’ of evidence from clinical trials on an ongoing basis.
This condensed the time taken to approve vaccines, whilst still ensuring all the usual steps and expected standards of safety, quality and effectiveness were met. It provided us with access to vital vaccines as soon as possible whilst ensuring patient safety.
This more agile approach to regulation is the future, especially in a world where innovation is happening at a scale, speed and complexity often dubbed the ‘Fourth Industrial Revolution’.
New technologies and innovations often don’t fit hand in hand with existing regulatory frameworks which can be notoriously prescriptive. The risk is that imposing detailed requirements based on current technologies can lock out innovation.
We, as policy-makers, need to strive to make our approach to regulation more agile. This means taking a more future-facing, outcome-focused, experimental, responsive, collaborative and global approach to how we develop it. And the Better Regulation Executive has set out a world-leading vision for how we can achieve more innovation-friendly regulation in a White Paper.
But domestic regulatory reform alone can only get us so far. Many new technologies and innovations are truly global in terms of their market and impact.
That is why the UK spearheaded the creation of the Agile Nations, a forum with six other nations, to collaborate on experimental regulatory approaches to new technologies. This paves the way for countries to co-operate in helping innovators navigate each other’s rules, test new ideas with regulators and scale them across global markets.
Here in the UK, Departments and regulators are already leading the way trialling new approaches to regulation.
This is demonstrated by UK policy-makers recently being named among the top 50 global public sector leaders, the ‘Agile 50’, who have pioneered an agile approach to regulation. To celebrate their achievement, and provide some inspiration, we’ve interviewed some of the winners.
Iain Forbes, Head of the Centre for Connected and Autonomous Vehicles
Iain has pioneered an outcome-focused regulatory approach to self-driving vehicles which can be updated as technology evolves. This regulatory approach supports the deployment of vehicles in the real world safely and has been emulated by other countries.
It is very tough to design a regulatory framework for technology which doesn’t yet exist! We try to start from a good sense of the outcomes we are trying to achieve, think carefully about where early action is needed to set a direction, and engage widely to ensure we aren’t inadvertently stifling innovation by closing off options.
Emma Tunley, Policy Manager at the Solicitors Regulation Authority
Emma is responsible for Solicitors Regulation Authority Innovate, a programme to help legal service providers develop their businesses to support new types of tech – including by developing adaptive regulation for the adoption of LawTech.
The adoption of ‘LawTech’ in the legal service market is at an early stage. Agile regulation is therefore a key principle for how we work. It means we regulate in a way to not hinder innovation in order to make way for the disrupters.
Tim Johnson, Policy Director at the Civil Aviation Authority (CAA)
Tim established a new capability at the CAA to support innovators in bringing new products safely to market, including creating new mechanisms for regulators to engage with innovators such as drone operators. This included a new advisory service for innovators; a new regulatory ‘sandbox’ to allow testing; and a regulatory lab which identifies regulatory barriers to innovations like flying taxis.
Start with a plan, try it, learn, adapt and start the cycle again. You need to actively engage with a wide range of stakeholders – any single stakeholder will rarely have the complete answer, including the regulator. A culture of continuous learning is vital, along with accepting accept that the plan won’t always workout as you intended.
Comment by Matthew Bleasdale posted on
Excellent blog, though I think you undervalue regulation in terms of key levers - it is THE key lever, and far outweighs tax and spending in terms of market impact. With effective regulation the full capacity of the market can be brought to bear, while tax and spending can only ever be a fraction of it.
Good regulation is so vital that Hayek and Keynes were talking about it back in the 1930s, and still their lessons haven't been learnt by government!
Those lessons to me are the underpinning philosophy of effective regulation. What Hayek said was that governments should allow markets to deliver, in effect saying that markets have to be structured in such a way as they self regulate. That's because two heads are better than one and no government can even be more efficient than the market. Meanwhile, Keynes was all about government ensuring liquidity in the market effectively, just as you note in the blog, "by providing clarity for businesses on the outcomes that the government and society expect" and ensuring that it is rewarded. The amalgamation of the two philosophies is what effective regulation looks like to me.
On poor regulation, take for example the Feed-in-Tariff Contract-for-Difference. It clearly is the worst type of market intervention, putting a direct barrier of government decision-making between the development and construction of low carbon generating capacity. It also is a clear barrier to new entrants and innovative companies, piling on administrative costs and delay with no return, while being an ineffectual mechanism for trying to drive supply chain growth (its actual effect being to put significant barriers in the way of it). That's because of the massive market intervention, uncertainty about the intent of government, and the lack of direct reward for the desired outcome in relation to supply chain growth. Effective regulation in this area would define the desired outcomes of the market (it is already defined in the Supply Chain Plan scoring matrix) and set the liquidity metric (the total subsidy pot) and then let project developers build as they want. In effect what the market would then do would be to evaluate the competition, decide on the value and build accordingly. The great thing about it being, not only can it be tweaked from period to period, but also initially it could be run alongside the existing system to provide continuity in the regulatory environment.
Take also the Covid-19 Business Interruption Loan Scheme (CBILS), the poor regulation around the scheme not only prevents businesses from getting loans, it actually degrades the facilities in the market to support lending to businesses! Before CBILS the British Business Bank ran the Enterprise Finance Guarantee, guaranteeing 75% of a loan while allowing the business and lender to agree on the terms. CBILS increased that guarantee to 80%, however restricted the securitisation, amount, etc. meaning that sound companies are not able to take out lending. And in our case stopping the development of a major growth technology that would otherwise lead to significant economic benefit coming out of the pandemic. What's really odd is the disparity in the provisions within CBILS based on the amount of the loan - why does the government want to restrict borrowing rights for loans of one size compared to another? It is frankly bizarre.
The points made in the blog extend also to the manner in which government and subsidiary bodies (e.g. Innovate UK) conduct their activities. In effect when they set out their processes they are regulating their own internal structure and the way they do business. The faults within those processes can have major impacts, for example in our case we estimate they have led to an economic impact of £5.75b in UK offshore wind sales, and a £3.9b excess spend in offshore wind generation cost (100% paid for by electricity consumers through the FiT CfD), on top of which that £5.75 also counts against balance of trade and doesn't take into account potential exports!
I wish you all the best in the fight for better regulation, and would only add that self-regulating markets are only as effective as the balance between labour and capital. The top-down decision making that goes hand-in-hand with large business is the same fundamental flaw in state communism, too few people making decisions to ensure the market optimsies effectively. It is in regulating the structure of companies (the etymology of the name being the key to the balance of power) that the most effective regulation can be brought to bear.
Comment by Nick Morgan posted on
This is a great and really thought provoking blog that tackle issues of regulation in a sensible way - recognising its benefits, limitations and how a better approach to regulation is not necessarily reducing protections but thinking about enabling the future. Much better than how regulation is normally banded about politically.
I would love to learn more about what this all means in practice. I feel like this blog is only scratching the surface!