Regulation isn’t cost-free and not every problem can be fixed with a new rule

Politicians all too often reach for the regulation lever because “something must be done” – it could be costing businesses £70bn a year, says Cory Berman

As of this September, all new building applications over 18 metres must include a second staircase. The rule was introduced after the horrific Grenfell Tower tragedy, to improve building safety. At face value, it sounds like a sensible – presumably justified – response to  a national wake-up call. Only it was neither – the government at the time could produce no evidence that it would save lives, and the cost-benefit analysis was overwhelmingly negative.

It’s the perfect example of politicians reaching for the regulation lever because “something must be done”, but in the process not only failing against their primary objective (to save lives) but actively damaging other key priorities (getting Britain building and reducing the cost of housing).

This is not a one-off – it is a pattern. Britain’s regulatory system is broken, and both businesses and the public are paying the price. 

Our current regulatory landscape is the result of successive governments saying that they want to reduce the burden, even launching “red tape challenges”, while simultaneously creating rule after new rule – often based on inadequate analysis and nodded through Parliament with practically no scrutiny.

That second staircase review is one example in many of poor regulation. Martyn’s Law is another, devised as a response to the 2017 Manchester Arena terrorist attack, the government’s own analysis estimated that the costs would outweigh the benefits by 70 to one. It is impossible to argue that this meets the proportionality requirement in the business department’s principles of economic regulation, yet it was enshrined in Statute regardless. 

Give the watchdog teeth

Since 2022, the Regulatory Policy Committee (RPC) – the independent regulation watchdog – has rated departmental assessments “weak” or “very weak” 25 per cent of the time. Since 2020, 60 per cent of the Treasury’s impact assessments were rated not fit-for-purpose. Regulations with poor analysis of their impact should not be able to proceed, yet right now there is no real consequence for shoddy work. 

To this end, Re:State’s new paper calls on the government to strengthen the RPC and give it teeth. Instead, it is rumoured that they want to scrap it entirely – a stunningly short-sighted decision for a government supposedly committed to cutting the cost of regulation and rewiring Whitehall. 

On top of this, while the system is waving through thousands of (often poor quality) regulations, it’s largely failing to review those already on the books to check they actually work. Departments are required to conduct Post-Implementation Reviews by law, yet in the last year just seven were recorded. 

This matters. Regulation is a go-to solution for policymakers because it is easy to pass, visible and appears cost-free. But regulation is not cost-free. The government’s Regulatory Action Plan estimates the cost to business at £70bn annually, equivalent to 3-4 per cent of GDP, though many believe the true cost is far higher. 

Whitehall should introduce a world-first system of regulatory budgeting, akin to the way the Treasury manages public spending, where a total spending envelope is set and divided among different departments

With growth stagnating, the government must be bold. Whitehall should introduce a world-first system of regulatory budgeting, akin to the way the Treasury manages public spending, where a total spending envelope is set and divided among different departments. Setting a multi-year envelope for regulatory costs by sector would force a more conscious approach to regulation – one which clearly articulates the trade-offs of enacting new rules. And for further motivation, the OBR should factor these into their economic forecasts as they do fiscal measures.

Ultimately, this is a question of political choice – as the second staircase rule exemplifies. Regulation has become the easiest route to visible action – a way for governments to respond quickly without confronting harder trade-offs. But politics is all about trade-offs. A government serious about growth must be willing to relinquish its favourite shortcut and accept that not every problem requires a new rule.

Cory Berman is a researcher at Re:State