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Brexit may provide regulatory opportunities, but ministers can’t ignore the costs

The positive vision set out in Iain Duncan Smith’s new report on post-Brexit regulatory freedom fails to acknowledge the trade-offs involved.

Brexit, EU and UK flags concept

The positive vision set out in Iain Duncan Smith’s new report on post-Brexit regulatory freedom fails to acknowledge the trade-offs involved, writes Joe Marshall  

In February, the prime minister asked prominent Tory backbencher Sir Iain Duncan Smith to identify opportunities for regulatory reform outside the EU. Four months on, his Taskforce for Innovation, Growth and Regulatory Reform – TIGRR – has bounced into action, producing a 130-page report which sets out how the government can make the most of the ‘one-off opportunity to set out a bold new UK regulatory framework’ and ‘seize the opportunity’ of Brexit.

TIGRR have made an important contribution to the debate about how the government should exercise its new found regulatory freedoms. However, the report is weakened by only looking at one side of the equation ministers must solve.

Regulatory reform could deliver a Brexit dividend

The TIGRR report echoes large parts of our recent report, Taking back control of regulation, in setting out how regulatory reform could allow ministers to reflect different policy preferences, better reflect the UK’s comparative strengths (like its large financial services sector) and incentivise innovation and promote new technology. The proposal to ensure that regulation is ‘proportionate’ gives a nod towards reducing burdens on small businesses and adopting a more permissive interpretation of the precautionary principle than the EU – which critics argue stifled innovation.

Helpfully, the taskforce identifies a number of sectors where regulatory reform could unlock benefits, such as promoting fintech and more permissive use of gene-editing. It also makes sensible suggestions to expand the use of regulatory innovations like sandboxes – which allow firms and regulators to test new products in controlled environments.

TIGRR’s authors are keen that the exercise is not seen as a ‘simplistic bonfire of red tape’. There is talk of maintaining high standards in areas like food and the environment – where the evidence shows little public appetite to deregulate and where weakening standards could most clearly risk disputes under the level playing field provisions of the Trade and Cooperation Agreement. There is also a focus on how regulation is ‘implemented’, not just on the outcomes is seeks to achieve.

But despite this, there are trappings of previous red tape challenges, such as the revival of the formulaic ‘one in, two out’ rule, which risks a focus on gaming rather than results. Some recommendations also appear to be politically popular but economically trivial ‘quick wins’, like ending the EU ban on traders using only imperial measurements.

And some aspects of the report are not really about post-Brexit reform at all – with much of the discussion on how to promote net zero illustrating how Brexit provides a political opportunity for regulatory reform in areas where the UK had much freedom to act while in the EU.

It’s right that the government needs a strategy for post-Brexit regulation

As we recently argued, the government needs a clear plan for managing divergence from the EU. Again, the TIGRR report echoes this call, and the government’s welcome move to seek a head for the Cabinet Office's new Brexit Opportunities Unit, tasked with developing a ‘cross-government strategy for regulatory change’, should help improve coordination between departments.

We also welcome TIGRR’s call to reform how new regulatory policy is made. The report recognises the limits of the Regulatory Policy Committee’s current mandate and the need for policymakers to consider the wider implications of regulatory change when proposing reforms – such as its impact on trade.  

And it is good to see the report speak about the importance of effective parliamentary scrutiny of regulation, and the need to ensure parliament is adequately resourced to play this role. Of more concern are its proposals to delegate more powers to regulators, quicken the pace of regulatory change through greater use of secondary legislation and to allow the courts to more readily depart from inherited EU law. These recommendations, which risk undermining the opportunity for greater ministerial accountability for and parliamentary oversight of regulation outside the EU, need to be treated with caution.

Ministers cannot ignore the potential costs of departing from EU rules

The TIGRR review makes an important contribution to the debate on how the government should use its post Brexit freedoms. However, it only speaks to one side of the argument.

The report fails to acknowledge that divergence from EU rules may come at a cost. For instance, major overhaul of GDPR data protection rules risk the EU withdrawing its (yet to be confirmed) data adequacy decision – without which businesses will find it much more difficult and costly to transfer personal data from the EU to the UK. Likewise, liberalising rules around genetically engineered organisms could lead to a clash between Westminster and the Scottish government – which wants to remain aligned with EU rules in this area. Perhaps most importantly, divergence from EU rules in Great Britain could deepen the border down the Irish sea, with Northern Ireland still obliged to follow many EU rules on goods. This also means it will be essential to keep track of new EU regulations that affect the UK – something the TIGRR report says little about.

So while ministers should explore TIGRR’s ideas, they also need to do a full assessment of the benefits and risks before springing into action. However, our report warned that the government is not yet equipped to do so. Identifying the opportunities of post-Brexit regulatory freedom is one thing. Making the difficult trade-offs involved in taking advantage of them will be much harder.

Institute for Government

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