Select Committee on Public Administration Minutes of Evidence



  1.  Regulation[2] has attracted increased attention in contemporary public administration as other policy instruments (notably state ownership) have declined in importance in the western countries. So it is not surprising that over the last twenty years the search for ways of achieving "better regulation" and of assessing the quality of regulation that has become central to the policy agenda in the UK and numerous other states.

  2.  The UK's "principles of good regulation" as announced in 1998[3] represent a valuable first attempt to spell out desiderata for good regulation[4]. But those principles, and their application, are limited in at least three ways.

    (i)  The "principles" (transparency, accountability, targeting, consistency and proportionality) as currently formulated have a proverbial character. That is, they tend to clash with one another at the margin and cannot all be satisfied at once. For example, the much-criticised Dangerous Dogs Act of 1991 was a case where consistency and targeting, and transparency and targeting, came into conflict[5]. We need ways of scoring regulatory regimes to ascertain design by sacrificing another.

    (ii)  Difficult issues remain as to how to factor risk into regulatory assessment, notably in the "precautionary" problem of trading off Type I and Type II errors (broadly, errors of over-regulation and under-regulation in the face of uncertainty), on which the principles offer no guidance.

    (iii)  Until recently, the emphasis on assessing and monitoring regulation was almost exclusively laid on the regulation of business by government, but the regulation of public sector bodies by arms-length overseers is also of increasing importance, with major compliance costs at stake. The Cabinet Office Regulatory Impact Unit has now begun to give attention to regulation of public-sector bodies, but its work is in its infancy and much more remains to be done in this field[6].

  3.  Indeed, the whole question of how to develop design principles for the burgeoning regulation of public sector bodies deserves to be a central question for the next government, and there is a case for establishing a Royal Commission or similar body to investigate the matter in depth. There are at least three reasons for making such a recommendation:

    (i)  Regulation of public-sector bodies has grown substantially over the past twenty years under both Labour and Conservative governments. Staff in oversight bodies for public organisations rose approximately 90 per cent over two decades in which both the civil service and local government service were substantially downsized.

    (ii)  There are few coherent principles governing its operation, with markedly different styles by different oversight bodies and no clear ways of assessing the effectiveness or value for money of such bodies.

    (iii)  There are important managerial, organisational and even constitutional issues (relating to the placing of overseer organisations within the parliamentary and government system) at stake in the design and operation of such regulation.

  4.  Regulation of both the public and private sectors is closely linked to the management of risk to organisations and their stakeholders (including overall levels of risk exposure, risk distribution and risk/risk trade-offs). Business risk management has become increasingly salient in the private corporate sector in recent years, as a result of experience with high-profile system failures, more regulation and litigation, and developments in corporate strategy. Similar issues arise in the management of the public sector, where organisations must handle major policy, business and systemic risks[7]

  5.  In principle a business risk management approach can make a constructive contribution to public-sector management, to assist with balanced judgement over risks and help public managers to steer the difficult course between casual risk-taking and excessive caution. However, private-sector approaches cannot be carried over wholesale to the public sector, or at least key parts of it. That is because private-sector business risk management approaches tend to be focused on a single organisation or profit centre, measure risk largely in terms of shareholder value and do not place the main focus on systemic risk.

  6.  A public-sector-specific approach to business risk management would need to focus on regimes or policy delivery systems rather than single organisations alone, on systemic risk as much as risk affecting one organisation, and on encouraging intelligent deliberation rather than mechanical routines. Developing such an approach is a major challenge for the future management of public services.

January 2000

1   All Souls College Oxford and Centre for Analysis of Risk and Regulation, London School of Economies and Political Science. Back

2   Broadly denoting control of individuals or organisations by sending rules and standards and attempting to secure compliance with those standards. Back

3   See Better Regulation Task Force, Principles of Good Regulation 1998 ( Back

4   See Industry Forum in Association with the Smith Institute, Empowering Government: Reforming the Civil Service, London, Industry Forum 1999. Back

5   See C Hood, R Baldwin and H Rothstein, "Assessing the Dangerous Dogs Act: When Does a Regulatory Law Fail?" Public Law Summer 2000: 282-305. Back

6   See C Hood, C Scott, O James, G W Jones and A J Travers, Regulation inside Government Waste-Watchers, Quality Police and Sleaze-Busters, Oxford, Oxford University Press 1999; C Hood, O James and C Scott, "Regulation of Government has it Increased, is it Increasing, Should it be Decreased?" Public Administration 78 (2) 2000: 283-304. Back

7   See C Hood and H Rothstein, "Business Risk Management in Government: Pitfalls and Possibilities" Appendix 2 in Report by the Controller and Auditor General, Supporting Innovation: Managing Risk in Government Departments. HC864 1999-2000, London HMSO 2000: 21-32. Back

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