Red Tape or Red Mist?

Red Tape or Red Mist?

Poor Chris Philp. Not only is he being blamed by his own colleagues for suggesting the now binned cut to the 45% tax rate. But his statement at a Conference meeting that companies with fewer than 500 employees will be exempt from all business regulations has been seized upon, with some claiming that it means a complete free-for-all: companies able to discriminate, sell dangerous goods, send children up chimneys and so forth.

Not so fast. All that is happening as of 3 October is that Rees-Mogg’s Business Department has changed the definition of SME to include such companies. It is one of the benefits of Brexit. It must be nice for Jacob to have at last found one, his previous department charged with finding such opportunities having been peremptorily abolished. SMEs are currently exempt from certain reporting requirements under the Companies Acts, including reporting on gender pay gaps and executive pay ratios. Panic over then?

Not quite. The government statement can be found here. The statement says that the exemptions will be “applied in a proportionate way to ensure workers’ rights and other standards will be protected”. But the eagle-eyed will have spotted that the intention is to extend the exemption to “other regulations in the future” ie not just reporting requirements and to “all new regulations under development as well as those under current and future review, including retained EU law”. There is of course no explanation of what those “other regulations” might be. Nor what “other standards” will be protectedIn short, while things have changed a bit but not as much as those objecting now claim, they could very well in the future.

Now take the Retained EU Law (Revocation and Reform) Bill. It is a complex piece of legislation but its intention is to remove all retained EU legislation and directly applicable EU rights from the statute book by the end of 2023, other than what the government wants to keep. This is an immensely complex task. There are thousands of such laws in every sector (employment, the environment, planning, finance, consumer rights are only some of the affected areas). They are not conveniently put in a separate box marked “EU law”. Pretty much all the laws affecting these areas will need to be carefully reviewed, line by line, unpicked and put back together again without the undesired EU laws and rights. There will necessarily be new regulations. So companies with 499 employees or fewer could be made exempt from them. The potential for change is considerable.

Now doing all of this while keeping the same protections as before, as the government claims to want, would be a monumental task, even assuming the government keeps its word, itself a colourable assumption. Many rules are in secondary legislation so will get little Parliamentary scrutiny. It is highly likely that there will be insufficient time to do the detailed scrutiny necessary and also to understand how the changes interact with all the relevant case law. One would need a lot of faith in the relevant government Ministers and departments to carry this out without, in Peter Cook’s immortal line, “cocking the whole thing up”.

Does the government really want to retain the same protections as before? Its Growth Plan (no laughing at the back, please) is predicated on more deregulation. What that deregulation is and how it will affect existing rights is wholly unclear. Will employment protections be weakened or abolished? What financial regulations will be loosened and what might their impact be? If smaller companies are exempt altogether, will this lead to larger companies dividing themselves up into units under the threshold to take advantage and not be undercut by competitors?

It is easy to describe regulations as red tape as if they were pointless costs with no benefits. But while there is a cost, good regulation can give companies a competitive advantage, for instance, by giving reassurance to customers about the value of their offering or to good workers. The issue is not whether there are costs but whether these outweigh the costs of not having such regulations, costs which are often borne by the weaker party or those least able to cope with the consequences or by all (as in environmental matters). That balancing exercise needs to be done. It involves something more than uttering slogans about “slashing red tape”. Of one thing we can be certain. The legal analysis needed to understand the effect of these changes will keep many lawyers profitably employed for some time. Companies will doubtless be delighted to use the savings from not complying with rules to pay lawyers.

There is an opportunity here – and a trap – for Labour. Starmer would be wise to get his brightest junior Shadows to understand, scrutinise and challenge the detail of these changes. And explain them clearly. He should ensure they do not overheat the rhetoric and cry wolf until the wolf actually appears. Overstating the case risks letting the government off the hook. The government has damaged its reputation for competence and focus. Voters will be receptive to well-founded objections, as will Tory MPs worried about their seats. They know now the government can be pushed.


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