passionately that regulators should actively consider
all the measures available, and choose the best one.
Perhaps people dont need to be told what to do
if theyre given the right information to help
them take their own decisions. Being creative is the
only way to ensure that policy objectives are
achieved without creating additional and unnecessary
regulatory burdens: burdens which stifle the economy;
hold back entrepreneurs, and can cost jobs.
Regulatory failure can cost a lot of money without
achieving anything. The culture of Whitehall needs to
change to make sure that business and others are not
unnecessarily burdened with prescriptive regulation
where it is not necessary. This report is a
contribution to that culture change. We want to
inspire policy makers to use all the options they
have at hand.
when faced with a new problem like a health risk or a
perceived need to intervene in some market,
Governments will introduce a new "rule"
that requires people to behave in a particular way.
Yet a more openminded look at the options may find
that the policy can be delivered more efficiently and
effectively in a different way, one that does not
leave people feeling hemmed in by rules and
A wide range of options is available. These range
from classic regulation, where people are required to
behave in certain ways, to information and education
campaigns where people change their behaviour of
their own accord. Other methods include using
economic, tax and market mechanisms; self-regulation;
Bringing about a culture change
2: Cabinet Office guidance states that each RIA
[regulatory impact assessment] should include an
analysis of alternatives and potential unintended
consequences. When considering the quality of RIAs,
the Cabinet Office should assess how far Departments
have analysed alternatives to classic regulation, and
have considered the potential for unintended
4: We recommend that the revised Code of Practice on
consultation should also emphasise the need to
encourage stakeholders to identify all possible
alternative approaches to implementing policy and the
unintended consequences of policy intervention. One
way of achieving this is to ask consultees directly.
state regulation, which we call "classic
regulation" in this report, is where a law is
passed to tell people what to do or what not to do.
Classic regulation is the traditional way for the
State to seek to change behaviour. There are
advantages. Classic regulation can make it clear how
people have to behave, and sometimes this can be
easier for them than having to work out what to do
each time. However, there are disadvantages too.
Legislation has to be promoted, explained and,
importantly, enforced, if it is to have an impact.
People may not comply through ignorance; or they may
try to avoid or break the rules if they get in the
way of what they want to do. As a result, compliance
may be a problem, and costly policing may be
Tip 1: When introducing classic regulation it is
important to ensure that everything necessary for
compliance, monitoring and enforcement is in place,
that monitoring costs are minimised and enforcement
is adequately resourced.
Tip 2: Classic regulation may require enforcement. It
is important to identify the desired level of
compliance with a regulation when doing the RIA and
estimate the costs of enforcement needed to keep it
at that level.
The Government implements classic regulation because
it wants people to behave in a particular way. Not
surprisingly, not everyone will do so. This is one of
the most obvious unintended consequence of classic
regulation. A large number of factors will influence
the level of compliance. The higher the costs of
compliance, the greater the likelihood that people
will try to avoid complying. The level of enforcement
will influence the chance of being caught and
therefore the level of compliance. If the fine is
low, noncompliance and avoidance will be more likely
it may be cheaper to pay the fine than to
Market failure versus regulatory failure. One reason
often given to justify Government intervention is
that a particular market could be improved because it
is failing. The implication is that the
Government should step in to improve on the free
working of the market. But the perfect market does
not exist and there are many reasons why Government
intervention can make the situation worse. For
example, certain regulatory bodies who pass on their
costs to those they regulate may have little
incentive to minimise these costs (though the
regulated will try to ensure they do so). Some may
want to impose high standards in order to avoid blame
if things go wrong. And there may be little pressure
to withdraw from regulatory areas, unlike in a
competitive market where rivals will constrain
growth. Also, there are always incentives to do new
things, so regulatory bodies often tend to expand.
There is also the possibility of regulatory
capture, where a regulator becomes sympathetic
to the interests of those they regulate, and acts to
protect their interests.
Furthermore, it is easy to underestimate the costs of
regulation, which include effects on entrepreneurial
behaviour and innovation, as well as the costs of the
regulatory body and the compliance costs of the
people being regulated.
Tip 7: Regulatory failure can be worse than market
failure. Both need to be carefully considered before
5.3 Justifying the costs. Sometimes people who feel
strongly about some issue press the government to put
in place some form of regulation when there is
insufficient evidence of the benefits and likely
costs to back up their claims. Scientific evidence is
not always clear-cut and Government has to decide
whether the evidence available is sufficient to
justify intervention and whether some proposed
intervention could in fact have a beneficial effect.
The Government uses Scientific Advisory Committees to
Government also has to take into account the public
perception of risk. Some people take risks willingly
and would be against Government interference. Another
factor is that some risks are feared more than
others. Where there is a lot of uncertainty about the
risks, there may be a temptation to put off a
decision until there is better information, or until
the experts agree. But perfect knowledge may never be
achieved, while in the meantime damage may be done.
On the other hand, lobbyists may argue for extreme
knee-jerk responses, which would be disproportionate
to the harm even according to worst-case scenarios.
The Precautionary Principle says that when an
activity raises threats of harm to human health or
the environment, and the current state of scientific
evaluation doesnt allow the level of risk to be
determined with sufficient confidence, then
precautionary measures should be taken. But any such
measures need to follow the five Principles of Good
Regulation this is not an alibi for excess
regulation and regulation introduced under
this principle should be kept under review as
5.4 Enforceability. It is not generally a good idea
to bring in regulatory intervention that cannot be
enforced. A limited case for this can be made where
Government wants to send a signal, to bring about a
culture change, for example towards sustainable
development or encouraging firms to innovate. But
otherwise it clogs up the statute book. Regulatory
intervention may be unenforceable for technical
reasons (for example, it can be difficult to enforce
regulation in remote locations) or because it is
inconsistent with some other existing legislation.
Further, the agency responsible for enforcing needs
to have the necessary resources.
Incentives: using sticks and carrots
Taxes as a regulatory device. Taxes are sometimes
used as a regulatory instrument and not just to raise
revenue. There can be two reasons. One is to make
people pay for additional costs they impose on others
(as with road taxes or energy taxes) and the other is
that a tax can increase the price associated with
undesirable behaviour (such as consuming alcohol,
which can be bad for peoples health). If the
tax on a raw material is raised, companies may change
the production process so less of the taxed material
is used. Similarly consumers will switch away from a
product when it becomes more expensive.
One advantage of imposing a tax as a regulatory
device is that it leaves the decision of whether to
pay the additional costs or whether to change
behaviour to the people affected.
Using a tax as a regulatory device has disadvantages.
Some people or companies will try to avoid paying
them by legal or illegal means. And some objectives
cannot be achieved by applying a tax to increase the
price, because people may be prepared to pay the
price increase and may make no change in their
behaviour. A tax may exclude poorer people from
enjoying taxed products, and so can discriminate
Information and education
way to influence peoples behaviour is by giving
them information, or running a publicity campaign.
These too can be useful alternatives to classic
regulation. These techniques may be most useful where
it is not essential to cover everyone immediately.
The impact can be gradual and it will be hard to get
to everyone. Hearts and minds campaigns
can be used where other forms of regulation would be
socially unacceptable or unenforceable.
Information and education can be delivered directly
by Government; or the Government can require or
advise companies or individuals to provide it.
Consumers need information to make good choices. An
important form of consumer protection law requires
information to be provided to consumers. In order for
them to be able to compare similar products, such as
mortgages or credit cards, the regulator may require
companies to present information in a particular way.
There are situations where people would prefer to
know the risks and be left to make up their minds on
how to react to them rather than be subjected to
Information for individuals and companies.
Information and education is often used in the areas
of health and lifestyle, where regulation would
intrude too much on individuals freedom. The
following is an example of consumer education,
delivered by Government in partnership with business.
Since 1967 when the breathalyser was introduced, it
has been a serious offence to drive with more than 80
milligrams of alcohol in 100 millilitres of blood.
Over the following 30 years such enforcement
techniques combined with hard-hitting advertising
campaigns and the imposition of severe penalties have
led to a change in attitude and behaviour. The
"hearts and minds" campaign in combination
with the other measures have made drinking and
driving socially unacceptable leading to a
substantial improvement in compliance with the
drink-driving laws, and increased road safety.
As well as a duty on cigarettes there is a
requirement for a health warning on each pack, to
warn people about the risk to their health from
smoking and this message is reinforced by a
comprehensive health education programme. Classic
regulation such as a ban on smoking tobacco would
have been unacceptable. Legislation has been
introduced banning tobacco advertising.
Self-regulation and co-regulation
in the private sector have an incentive to ensure
safety and quality (they dont want to harm
their customers). They also want to get the message
across to consumers that their products and services
are safe and of good quality. In these circumstances
it is in the companies own interest to regulate
their activities and there is often no need for
government to regulate. Codes of practice are the
most common form of self-regulation. Others include
voluntary accreditation schemes, set up by industry,
or the adoption of a voluntary standard.
Self-regulation requires business to play by the
rules. Another source of problems can be that large
companies dominate their trade association and can
sometimes get away with non-compliance.
8.3. Co-regulation. If self-regulation is at one end
of a spectrum and classic regulation is at the other,
there are points in between. In some cases voluntary
codes of practice have significant Government
involvement. This is known as co-regulation.