This is the third article in our series on Brexit: Governing through uncertainty. The first piece in the series was an introduction and the second piece was on aligning government priorities, structures and functions.
Questions of whether or how Britain should continue to regulate different parts of the economy and society will become acute as the UK inherits EU regulatory functions. The public sector must develop capabilities to develop regulation in both new areas and areas where the UK has pooled sovereignty for generations.
Australian governments – federal, state, territory, and local – have had greater regulatory autonomy and have developed different approaches to regulatory design. These approaches should inform the UK public sector as it determines how to use its new regulatory authority.
Discussions of regulatory alignment and divergence highlight how a post-Brexit UK will need to develop its own regulatory institutions and determine its own approaches to developing appropriate regulations. The nature of any deal with the EU may require the UK’s public sector to develop capability in entirely new areas of regulation or may allow the UK government to develop new approaches to regulation that were not possible as an EU member-state. The public sector will therefore need to both expand existing capabilities and develop new capabilities to perform its future role.
Australia, by contrast, has had much greater regulatory autonomy, while still complying with a range of international obligations and aligning itself with international standards. Australia’s approach to regulation has supported its 28 years of uninterrupted economic growth. There have been many phases of Australia’s regulation reform journey and diverse approaches based on ideological, commercial, and broader public policy perspectives. These provide notable successes, and failures, from which to learn.
Since the 1980s Australian governments have sought to boost productivity and economic growth by expanding competition, opening the economy and reducing the burden of unnecessary ‘red tape’. Australia has seen the full spectrum of regulatory reform efforts, from simplistic to substantial.
At the simplistic end have been ‘one on, one off’ rules and mass repeal days in parliament. The former failed because they counted the number of pages rather than their impact, and the latter repealed largely redundant provisions. More substantive systematic efforts have focused on the regulation making process, with regulatory impact assessments and mandatory sunsetting provisions.
While civil society advocates typically seek to protect and increase regulation, business advocacy has been more complex. There are frequent calls for red tape reduction and more self-regulation. On the other hand, incumbent firms often privately support aspects of the status quo, as it offers a barrier against new competitors.
For lawmakers, however, there has been a consistent tension between:
These tensions have manifested as reduced support and funding for the implementation of regulation in the Australian public sector. This has allowed more efficient regulation in some cases. But it has also contributed to a series of substantial regulatory failures. This has occurred across the economy, in banking and pension funds, insurance, aged care, high-rise construction, energy markets, and water allocation. These failures have had significant impacts for investors, businesses, and consumers and have undermined confidence and trust in asset classes, big business, and institutions.
Some Australian regulators have responded with pendulum swings between being the ‘friend’ of industry and then later as the ‘cop on the beat’, with strict enforcement being either the last or the first resort depending on the pendulum’s position. Of course, both extremes are the wrong approach.
The example of high-rise construction in Australia’s major cities points to many of these themes. Successive government have sought to support construction businesses through supporting light-touch self-regulation and avoiding overt government involvement. They have also encouraged the development of high-rise construction as a means of urban densification to limit urban sprawl.
Australia’s liberal approach to trade has supported the development of international supply chains over which Australian regulators have been unable or unwilling to enforce domestic standards. This led to a series highly publicised failures – ranging from water faults, to fire safety violations, and structural flaws, including cracking. In response, governments have proposed different, and substantially more heavy-handed regulatory approaches.
Several of these themes have resonance in the UK and speak to some of the challenges and pitfalls that the UK must consider in developing or expanding its own regulatory approaches.
Instead, effective regulation is an unnoticed but critical platform that enables complex and prosperous societies. Delivering regulatory outcomes that satisfy governments, citizens, industry, and civil society is achievable. Nous has partnered with dozens of regulators to help them do so, focusing both on regulatory strategy and improving on-the-ground outcomes for regulatees. This relies on several drivers:
Regulatory challenges come in a range of forms. These include:
Different approaches can be appropriate for solving different regulatory challenges. For example, Nous used the following two approaches when working with Australian regulators. In the first example, a regulator sought to adapt an inherited regulatory system to better meet changing regulatory priorities. Questions of inherited regulatory programmes, or rather, whether or how to continue programmes, will become acute as the UK exists the EU.
The second example highlights how human-centred design approaches can help us to design regulation that better meets everyone’s needs. Ensuring that government processes respond to citizens’ expectations and support economic growth is an evergreen priority.
A new specialist regulator inherited a legacy regulatory system for development approvals on waterfront land. Industry stakeholders saw the regulatory system as contributing to unnecessary delays and additional costs on housing developments and more expensive housing.
Our focus was to ‘declutter’ and clarify regulatory requirements to ensure that all elements of the regulatory system aligned with the actual regulatory intent. As is not unusual, the practical regulatory processes and the regulatory burden had evolved significantly from the original regulatory intent. Each individual regulatory change responded to immediate controversies or perceived emerging challenges. But they were not always well thought through or designed with regulatees in mind. And the cumulative effect was that the system was out-of-step with government and public expectations. The critical challenge was to refocus the system on the core desired outcome, using the simplest possible methods.
A benchmarks framework provides a simple way for applicants to demonstrate compliance and receive approvals. Such a framework provides the unambiguous and predictable performance requirements for approvals and gives clear and easy methods for demonstrating compliance with legislative requirements. The benchmarks framework that Nous used for this project is shown here:
In situations where compliance cannot be easily demonstrated by the applicant, alternative methods are offered, and low-risk activities are flagged as ‘deemed to comply’.
A legacy of complicated and inconsistent guidance materials is being replaced by clear and unambiguous compliance indicators, reducing compliance costs for industry and regulators and improving approvals timeframes.
Implementing this new regulatory approach also required effective internal communications within the regulator. As is often the case, management and leadership team members could not match the technical knowledge of technical and specialist staff, but technical staff resisted change as they did not yet understand their organisation’s wider strategic objectives and its role in empowering local economies. Nous accompanied the new framework with change management to ensure buy-in from internal stakeholders as the regulator reformed to meet their external stakeholders’ needs.
A regulator sought to simplify the approvals process to improve the experience of opening a new business and hiring employees. In this case, an approach based on human-centred design principles enabled the regulator to understand their users’ different priorities and how existing systems got in the way of approvals and economic growth. We used fast sprint design process involving both regulators and regulatees and drawing on the Design Council’s double diamond approach:
Approaches building on human centred design are useful in many regulatory settings. But the regulatees in this case made it a particularly powerful tool. Small business owners work hard, want things solved, and don’t have time for long submissions or review processes. This approach gave them direct contact with the relevant regulator and enabled a swift resolution without forcing them to work through bureaucratic processes.
Our first step was to work together with the regulator and small business operators to identify the pain points that businesses experienced under the existing process. One businesswoman recounted that she exhausted her borrowed funds for fit-out and rent during establishment before she received the necessary approvals because there were so many delays and duplicative requirements from the regulators. The human dimension of this experience was highly motivating for the regulatory leaders.
Once we understood the current system’s limitations, we oversaw a co-design process to find actionable solutions that both achieved regulatory priorities and minimised the impact of regulation on applicants. Co-designing in sprints is a cost-effective way to understand problems faced by all parts of the service system and come up with solutions together. Codesigning with small business owners as part of the process helped to ensure their voice was heard in all parts of the process.
A critical difference in the Agile-inspired approach is that it allows for iterative change with immediate pilots and practical improvements – the perfect never gets in the way of the good. For example, instead of building a new integrated IT system for multiple approvals, participants co-designed an integrated electronic application form that was oriented around their needs rather than the inputs required for the existing IT system. This was used to generate immediate benefits for applicants while back-office systems were updated. Critically, the process of its development was what brought the multiple stakeholders together to see and improve the big picture.
This programme’s practical success has seen it expanded across multiple local councils across Australia.
Regulation is an inevitable part of the modern economy. And regulation should not be seen as a dirty word or something to be avoided at all costs. But any regulation must meet competing priorities across different stakeholder groups, different risk appetites, and different time horizons.
As the UK gains more regulatory competencies, it needs to consider the purpose of regulation and assess how best to balance the benefits and costs of regulation. First principles reviews and human-centred design approaches both provide a way to understand how to reshape existing regulation to better meet the government’s and the public’s expectations of regulation.
 See N Johnston and S Reid, An Examination of Building Defects in Residential Multi-owned Properties, Deakin University and Griffith University, June 2019.
You can read our full series on lessons for the UK on governing through uncertainty.
Get in touch to discuss how Nous can help your organisation deliver high quality regulation.
Published on 4 December 2019.