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A Win-Win on Regulatory Reform

President Obama’s New Executive Order Will Gain from Britain’s Experience

SOURCE: AP/Kirsty Wigglesworth

In spring 2005, British Prime Minister Tony Blair, left, and his Finance Minister Gordon Brown, right, committed to modernizing their system of regulation while also maintaining protections. President Obama announced yesterday that his administration would also move toward a 21st century regulatory system.

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President Barack Obama announced yesterday that his administration would move toward a 21st century regulatory system. In doing so, it will be important to get the balance right, addressing obvious gaps in regulation while rooting out “regulations that conflict, that are not worth the cost or that are just plain dumb.”

The president’s words took me back to spring 2005 in the United Kingdom when Prime Minister Tony Blair and his Finance Minister Gordon Brown made similar promises in Britain. Obama said yesterday that regulation was essential to “protect the public against threats to our health and safety and to safeguard people and business from abuse.” Blair and Brown would have agreed. Like Obama, they wanted to modernize our system of regulation while also maintaining protections.

Later in 2005, I was appointed head of the agency charged with turning these promises into a reality. I knew it wasn’t going to be an easy task—Blair and Brown were not the first politicians to make similar promises, but previous attempts to address the burden of regulation had largely failed. Over the next five years, we developed and implemented the most comprehensive plan to modernize regulation that any country had ever attempted. Our task was to build a system of “better regulation”—a win-win system in which the protection of the public was maintained while minimizing the costs to business and others.

There are five lessons from the British experience that are just as relevant here as the Obama administration starts to implement its vision for the future of regulation.

First of all, the saying goes, “what gets measured gets done,” so we promised that by modernizing regulation we would reduce the annual administrative costs of regulation by £3.5 billion (around $5.5 billion) within five years. Britain’s gross domestic product is about seven times smaller than the United States so that’s equivalent to around $40 billion. This target covered costs such as form filling, inspections, providing information, and recordkeeping, but not the direct costs of providing protections such as purchasing safety equipment for workers.

To achieve this objective, each agency had to make a contribution to the overall goal, which led each one to look hard at the regulations they were currently administering to find ways to make them easier for business. Technology helped enormously because at many agencies, the main way to save money was to replace paper forms with electronic systems. Not only did this save business money; it also helped agencies. In total, there were more than 300 different measures taken across around 20 agencies—and every year each agency published a progress report setting out how much they had saved business. Independent panels including business representatives validated the claimed savings.

Second, regulation needs to be sensitive to the needs of small businesses, as President Obama pointed out yesterday. To achieve that, government officials need to understand the perspective of small firms. Small businesses told us they believed in what most regulations were trying to achieve—they did not want to harm their workers, or their consumers, or the environment. But they struggled to work out what the law actually required them to do.

Often they hired consultants to help them but these consultants made money by exaggerating the requirements. It was striking how poor the government guidance was—long, complex documents written in legal rather than plain English, and covered in disclaimers. Few officials in the British agencies even knew how difficult it was to make sense of their own guidance. So we issued a code of practice on what good guidance looked like and regulators worked to make their guidance accessible and useful for small businesses. Doing so saved business billions of pounds and improved compliance with the law.

Third, we asked ourselves: Who regulated the regulators? Regulators spent considerable time checking that business was protecting the environment or safeguarding worker safety. But no one ever spent time checking to see whether the regulators were doing all they could to minimize burdens while maintaining all the consumer, labor, and environmental protections required under the law. So we set out eight principles of modern regulation (such as “no inspection should take place without a reason”) and then spent time with regulators checking how they were doing against these. Review teams often included senior staff from other regulators along with independent experts. They published reports describing how each regulator was performing, and set out recommendations for further improvement. The result was to change the culture of regulators from a culture of enforcement to one of promoting compliance.

Fourth, we listened to businesses’ ideas on how to improve existing regulation. The primary focus in government was on what new regulations needed to be brought in, not on how to make existing ones work better. We needed to make government agencies accountable for the way that the current regulatory system worked, so we set up a website where business and others could make suggestions on how to improve regulation. Agencies had 90 days to respond publicly to suggestions. They were free to reject ideas, but when they did so, they had to explain publicly the reasons for that.

We also wanted to understand what regulations were most frustrating. Business, for example, complained about delays and inconsistencies in our land-use planning system (approvals that needed to be sought before new construction projects could commence) so we undertook a major review working with business and local government to see what improvements could be made to this process.

Similarly, business and trade unions were unhappy that a law that had been intended to reduce the number of employment disputes that went to court had had the opposite effect. So we worked with them to come up with a better way forward. In each case we were clear that protecting the public was essential, but if there was a more effective and less frustrating way to do so, we should adopt it.

Lastly, we learned that government needs a strong institution charged with improving regulation. What we were trying to do in Britain was an enormous change of focus across dozens of regulatory bodies—to succeed, we needed a strong group of people in government charged with driving all this reform forward. So we built an agency with a clear mission to minimize the costs of existing and new regulations while maintaining all of the protections for the public enshrined in the law. We looked far and wide for the best people (at one point, we had a dozen nationalities working in the Better Regulation Executive office) and fostered a culture of constant improvement. We were always looking for ways to improve our strategy to achieve our goals and constantly sought the advice of business, consumer groups, trade unions, regulators, the legislature, and colleagues in other countries.

The result of all this? We achieved £3.5 billion in savings by reducing the cost of red tape faced by business over five years. Perhaps equally important, we improved the perception of regulation. By 2010, 47 percent of businesses said that understanding what they needed to do to comply with regulations was straightforward—10 percent higher than in 2007. And the industrialized democracies’ Organisation for Economic Co-operation and Development reported that progress in Britain was “groundbreaking by international standards.” Still a long way to go, but not a bad start.

The new government that took office in Britain last year has built on the reforms instituted by the Blair/Brown government. They are introducing, for example, a so called one-in one-out regime to target all regulatory costs not just administrative costs, which means that for every new regulation they are committed to reducing the cost of existing regulation by an equivalent amount.

Tackling regulatory reform is never easy. Emotions run high in government and business. Too many people think that anything to reduce the costs of regulation has to mean reducing the protections that regulations provide. But that’s not true, as we demonstrated in Britain. President Obama said it right yesterday when he emphasized that the key has to be to find “more affordable, less intrusive means to achieve the same ends.”

Jitinder Kohli is a Senior Fellow at the Center for American Progress on the Doing What Works project. He was the first chief executive of the Better Regulation Executive in the United Kingdom from 2005 to 2009.

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