Don’t just pick away at regulations, says Terry A’Hearn: think radically, and we could meet public aims while transforming competitiveness.

Having spent nearly 20 years as a regulator in Australia, I’ve come to believe that regulation will be radically reinvented in the 21st century.

Britain has laid many of the modern world’s foundations: Newtonian physics, industrialisation and the Westminster system of parliamentary democracy, to name just three. Could a new, 21st century regulatory paradigm be Britain’s next export to the world? I believe the government’s regulatory reform ambitions provide an opportunity for just that.

Too often, debates over regulation get bogged down in a simplistic ‘more versus less’ argument, but this dichotomy should be consigned to the dustbin. In the 21st century, the world faces huge economic challenges – most immediately, sovereign debt crises and the threat of a double-dip recession. On top of these risks come the massive challenges of population growth, rapid urbanisation, security issues, climate change, and dwindling natural resources. The existing regulatory paradigm, even if made more efficient, will be completely inadequate for these challenges.

A new paradigm is required: one that swaps process requirements for outcome conditions; disavows costly inspections in favour of personal accountability; builds systems around service users rather than public agencies; exchanges rigid procedures for negotiation and empowerment; and concentrates on producing positive outcomes as well as controlling negative ones.

I spent years putting this philosophy into practice as an executive at the Victorian Environment Protection Authority in Australia, where I led reforms to reduce red tape by 50 per cent – and we had some success in changing the fundamentals of our regulatory paradigm. For example, we created the world’s first Environmental Corporate Licences, in one case reducing 26 site licences with 224p of prescriptive conditions down to a single company-wide licence with a mere three pages of outcome conditions. We used this process to negotiate regulatory priorities at senior management level.

I believe regulation can be made quick, simple and cheap for companies which comply (the majority) and painful and expensive for companies which don’t (the minority), while unlocking the innovation needed in the 21st century.

Let’s start with environmental regulations. First, reporting requirements can be slashed by exempting companies from submitting data, provided their CEO certifies their compliance performance.

Second, all the various environmental obligations on a company could be combined into a single ‘compact’. This would streamline paperwork dramatically and allow for priorities and timelines to be set through senior negotiations.

Third, a new law could enable environmental regulators to consider ‘alternative compliance mechanisms’. Any regulated company could propose a new way of meeting regulatory requirements, supporting business innovation suited to a company’s market settings.

Environmental regulation is my speciality, but the same approach could be applied across many portfolios.

Now let’s go further. Many reform programmes use the existing system as a starting point – but this is a poor way to generate transformational reform.

Regulatory policy is often founded on compliance and risk mitigation of a single, ‘siloed’ policy issues, rather than taking a system-wide perspective. This makes it hard to think about ‘breakthrough’ rather than efficiency reforms, so I suggest taking a much more holistic view.

You could, for example, invite a regulated company and the third sector to explore the question: ‘If we were starting from scratch, how would we meet the agreed outcomes?’ This would free people up to design a new approach from first principles. Asking the top companies in a regulated sector what creates the conditions for excellence in their industry can help identify the kind of non-regulatory policy solutions currently being promoted by the Cabinet Office’s ‘nudge’ unit.

Regulations should enhance, not reduce, the competitiveness of regulated businesses: one set of energy efficiency regulations at the Victorian EPA cut a million tonnes of carbon and created annual business savings of £25 million. And regulations can be required to improve policy outcomes in other portfolios: we designed a litter scheme that helped immigrants settle in!

This is big picture thinking – but such discussions soon identify both the potential benefits of change, and the way to attain them. In my experience, these approaches quickly generate new ideas that harness collective wisdom and provide the basis for substantial, not incremental, reform.

Terry A’Hearn is the director of regulatory innovation at environmental consultancy WSP Environment & Energy.

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Written by Terry A'Hearn