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Explanatory Notes to Legislative and Regulatory Reform Act 2006
2006 Chapter 51 |
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These Notes refer to the Legislative and Regulatory Reform Act 2006 (c.51) which received Royal Assent on 8 November 2006 LEGISLATIVE AND REGULATORY REFORM ACT 2006 ___________________ EXPLANATORY NOTES INTRODUCTION 1. These explanatory notes relate to the Legislative and Regulatory Reform Act 2006. They have been prepared by the Cabinet Office in order to assist the reader in understanding the Act. They do not form part of the Act and have not been endorsed by Parliament. 2. The notes need to be read in conjunction with the Act. They are not, and are not meant to be, a comprehensive description of the Act. So where a section or part of a section does not seem to require any explanation or comment, none is given. SUMMARY AND BACKGROUND 3. Part 1 of the Act provides powers for a Minister of the Crown to make orders. The powers replace the power in the Regulatory Reform Act 2001 ("the 2001 Act") to make Regulatory Reform Orders ("RROs"). Part 1 sets out what the powers are, the conditions and restrictions which apply to them, and the procedure which must be followed in exercising them. 4. The impetus for this Part comes from the Government's review of the first four years of the operation of the 2001 Act, and from the findings of the Better Regulation Task Force contained in its report Less is More: Reducing Burdens, Improving Outcomes, published in March 2005. 5. Part 1 contains two order-making powers which are subject to a number of substantive and procedural protections which are outlined below. 6. It is important to note that in addition to these protections, at second reading in the House of Commons the then Parliamentary Secretary in the Cabinet Office, Mr Jim Murphy MP, gave "a clear undertaking (..) that orders will not be used to implement highly controversial reforms" (Hansard, 9 Feb 2006: Column 1058-1059). 7. Part 2 contains provisions which are intended to promote more effective inspection and enforcement by regulators and to ensure that they exercise their functions in a way that is consistent and proportionate without compromising regulatory standards or outcomes. In order to achieve this, the Act establishes statutory principles of good regulation, based on the Better Regulation Commission's Principles of Good Regulation, to which regulators exercising regulatory functions specified by order must have regard 1. These statutory principles will also inform a Code of Practice issued by the Minister, to which regulators must have regard when determining any policy or principles by reference to which they exercise specified regulatory functions. 1 From 1st January 2006, the Better Regulation Commission (BRC) took over the duties of the Better Regulation Task Force. The BRC is an independent body whose terms of reference are to advise the Government on action to reduce unnecessary regulatory and administrative burdens; and to ensure that regulation and its enforcement are proportionate, accountable, consistent, transparent and targeted. 8. Part 2 has its origins in the recommendations of a review entitled Reducing administrative burdens: effective inspection and enforcement, which the Government appointed Mr Philip Hampton to lead. 9. Part 3 makes provision about legislation relating to the European Communities. In the first place it amends the Interpretation Act 1978 ("the 1978 Act") to make provision about references in domestic legislation to Community instruments which have already been amended at the time that the domestic legislation is made; and to make provision about references in domestic legislation relating to the European Economic Area. In the second place, Part 3 makes provision about how Community obligations are implemented in domestic law, primarily in order to reduce the number of domestic instruments that need to be made. Amendments are made to the European Communities Act 1972 ("the 1972 Act") so that: an order, rules or a scheme can be made under section 2(2) of the 1972 Act, as well as regulations; certain subordinate legislation can make ambulatory references to Community instruments; and the power to make a statutory instrument under section 2(2) of the 1972 Act can be combined with the power to make a statutory instrument under another enactment, where the procedural requirements attaching to the exercise of the two powers differ. 10. Part 4 contains supplemental and general provision, and the Schedule to the Act details the legislative provisions which are repealed by the Act. TERRITORIAL EXTENT 11. This Act extends to the whole of the United Kingdom, subject to the provisions of section 34. TERRITORIAL APPLICATION: WALES 12. The Act applies in relation to Wales and includes provisions that relate specifically to the powers of the National Assembly for Wales ("the Assembly"). 13. Part 1 of the Act provides, at section 11, that an order may not make any provision conferring a function on the Assembly, modifying or removing a function of the Assembly, or restating any provision that confers a function on the Assembly, without the agreement of the Assembly. 14. Where the agreement of the Assembly is not required under section 11, a Minister proposing to make an order under the powers in Part 1 must consult the Assembly in accordance with section 13 where the proposals, so far as they apply in Wales, relate to any matter in relation to which the Assembly exercises functions. 15. In Part 2 of the Act, section 24 provides that a Minister may specify, by order, which regulatory functions (as defined in section 32) are covered by the Principles and Code of Practice (sections 21 and 22). However, a Minister may not specify a regulatory function that is exercisable only in or as regards Wales: instead the power to specify such functions, by order, is conferred on the Assembly. 16. Part 3 of the Act contains provisions dealing with legislation relating to the European Communities. Section 27, which makes provision to include a power in section 2 of the European Communities Act 1972 ("the 1972 Act") to make orders, rules and schemes in addition to regulations, is the only section in that Part that has separate provision in respect of Wales. Subsection (3) of section 27 contains an amendment to the Government of Wales Act 1998 consequential on the amendment made by subsection (1). Subsection (6) further provides that the power of a Minister of the Crown to make an order under subsection (5) to amend enactments or subordinate legislation referring to regulations made under section 2(2) of the 1972 Act to include a reference to any order, rules or scheme, shall also be exercisable by the Assembly, insofar as it relates to a matter in respect of which functions are exercisable by the Assembly. This power is exercisable by statutory instrument (subsection (7)). 17. Amendments will be made to the Act to reflect significant changes to the devolution arrangements in Wales made by the Government of Wales Act 2006. The amendments will be made by order under the powers in sections 157 and 160 of that Act. COMMENTARY ON SECTIONS PART 1: ORDER-MAKING POWERS Powers Section 1: Power to remove or reduce burdens 18. Section 1 confers power on a Minister of the Crown to make any provision by order which he considers would serve the purpose of removing or reducing any burden, or removing or reducing the overall burdens, to which any person is subject as a direct or indirect result of any legislation. Legislation is defined in subsection (6). The power is a broad one, and it is intended to be so. In the first place, it may be noted that the Minister may make "any" provision which would serve the purpose stated, subject only to the restrictions set out in the Act. 19. Subsection (3) defines a "burden" as:
20. A financial cost: this limb of the definition covers any financial costs, including administrative costs and policy or 'compliance' costs resulting from understanding and complying with legislation. So, for instance, section 1 could be used to reduce or remove the costs imposed on a business or a charity resulting from filling in health and safety forms required by legislation. It might be used to reduce or remove the costs resulting for a person from legislation of having to apply for a licence or consent. It could also be used to reduce the costs which result from making arrangements to avoid a situation where a criminal offence would be committed. In such a situation, to remove the sanction and repeal the underlying offence would be to reduce those costs. 21. An administrative inconvenience: this limb of the definition covers administrative inconvenience even where it does not result in a financial cost. For example, a requirement on an individual to fill in a form may not result in financial cost, but could be inconvenient for that person. 22. An obstacle to efficiency, productivity or profitability: in some cases legislation may not impose a cost on a person but may prevent them from being as efficient, productive or profitable as they would otherwise be. 23. "Obstacle to efficiency" could cover, for example, obstacles to the economically or administratively efficient exercise of a person's or body's existing statutory functions. This could include provisions in legislation which prevent a regulator from carrying out its functions of inspection or enforcement in a risk-based way, thus requiring the regulator to expend administrative effort and cost on low risk activities or operators, and preventing it targeting its resources at the high risk. (Note however that "efficiency" should be distinguished from "effectiveness": it cannot be said to be an obstacle to "efficiency" that a person exercising certain statutory functions does not have other functions which might be desirable from a policy perspective, even if those other functions would make them more effective in achieving certain policy objectives.) 24. "Obstacle to productivity": a tenancy restriction preventing farmers diversifying into non-agricultural activities to improve the viability of their business, might be an example of a bar on productivity. So an order could remove or reduce a restriction resulting from legislation that farmers may only use certain land for agricultural purposes. 25. Obstacles to competition, innovation, investment, skills or enterprise can constitute obstacles to productivity. Where a Minister is satisfied, on the basis of relevant evidence that such an obstacle is an obstacle to productivity, then this limb of the definition of burden would cover it. For instance, if legislation currently limits the patenting of goods to certain classes of product, and if the Minister were satisfied that extending those classes to include a new class of goods would remove an obstacle to innovation which was an obstacle to productivity, extending those limits would be possible under this section. 26. "Obstacle to profitability": this limb of the definition could cover the opportunity costs of complying with legislation, for example, where compliance with the legislation means the loss of a financial benefit that could otherwise have been obtained. Restrictions on selling alcohol, or on Sunday trading might in principle be examples of obstacles to profitability. So for example an order could remove or reduce restrictions on the sale of methylated spirits on a Sunday. There are no actual costs imposed upon a business when it is prohibited from trading such spirits on a Sunday, only a loss of profit as a result of the ban. 27. A sanction which affects the carrying on of any lawful activity: this limb of the definition covers sanctions, criminal or otherwise, which affect the carrying on of a lawful activity. This could include a criminal sanction which affects the carrying on of an activity which is itself lawful, such as supplying financial services. It could not include sanctions for activities which are themselves unlawful, such as dealing in class A drugs, or people trafficking. So an order could remove or reduce criminal sanctions which relate to the carrying on of a particular lawful activity, but not sanctions relating to offences under the general criminal law. It is therefore possible by order to reduce the sanction for a particular criminal offence where it is no longer considered to be targeted or appropriate, for example by replacing the sanction of a term of imprisonment with a fine. 28. The reference in subsection (2) to "removing or reducing the overall burdens" is intended to allow for one statutory regime to be replaced by another which is less burdensome overall for a person. This means that existing burdens can be increased, or a new burden could be imposed, where this is for the purpose of reducing the overall burdens resulting from legislation to which a person is subject. 29. The power enables a Minister to make an order which he considers would serve the purpose of removing or reducing a burden for a person. The Minister must therefore consider that there is a person for whom, comparing the position before and after the order has been made, a burden, or the overall burdens, will have been removed or reduced. 30. The burden must result from legislation. So an order cannot make provision to reduce costs, unless those costs result from legislation (as defined in subsection (6)). The power in section 1 can therefore only be used to reform an area where there is already a legislative framework. It could be used to replace one statutory regime with another where this removes or reduces burdens, but it cannot be used to introduce an entirely new regulatory regime. So, for example, it would not be possible to create an entirely new legislative framework relating to a new area of consumer protection, employment rights or environmental protection simply because there are considered to be good policy reasons for doing so. 31. The burden may, however, be the direct or indirect result of legislation. An example of a direct burden resulting from legislation would be the costs incurred directly by a regulated business as a result of complying with legislation. An example of an indirect cost would be the costs such a business were to pass on in the form of higher prices to its customers as a result. 32. It is possible under section 1 to remove or reduce a burden for one person and in so doing impose or increase a burden for another, but only if the increase is the result of the removal or reduction of a burden on a person. So for instance it would be possible by order under section 1 to remove from those being regulated costly requirements to provide information to the regulator, even though this would have the effect of increasing the cost for the regulator of monitoring the sector for which it is responsible. 33. It is also possible to impose or increase a burden for a person where this serves the purpose of a wider change which removes or reduces burdens on them. An order could for example remove obligations in legislation to supply fifty items of information and replace this requirement with an obligation to supply ten others. An order could also remove a custodial sentence from an offence but increase the maximum fine for it, where this is for the purpose of removing or reducing burdens. However, it would not be possible for an order to remove one burden but to impose an entirely unrelated burden. 34. Subsection (4) has the effect that it will not be possible to remove or reduce burdens which only affect a Minister of the Crown or government department, except where the burden affects the Minister or department in the exercise of a regulatory function. 'Regulatory function' is defined in section 32. 35. Subsection (5) provides that for the purposes of subsection (2), financial cost or administrative inconvenience may result from the form of legislation, for example where the legislation is hard to understand. This would cover a case in which the meaning of the legislation can in the end be determined, but only as a result of a disproportionate amount of effort. For example, where provisions governing an area are contained in many different pieces of legislation, the order-making power in section 1 could be used to restate and bring together the relevant provisions so that it is less costly or inconvenient to understand them. Similarly, for example, where a provision was obscurely drafted the order-making power in section 1 could be used to restate the provision more clearly so that it is less costly or inconvenient to understand it. 36. This subsection would also cover a case in which the meaning of legislation is unclear, for example because it is ambiguous. If the ambiguity resulted in costs or administrative inconvenience, the order-making power in section 1 could be used to remove it. 37. 'Legislation' is defined in subsection (6) and includes local as well as public general Acts, and subordinate legislation as well as primary legislation. Local Acts cover limited areas or particular bodies or institutions, such as particular charities or port authorities: their chapter numbers are small roman numerals. The definition of 'legislation' does not include any instrument which is Northern Ireland legislation within the meaning of section 24 of the 1978 Act (such as Acts of the Parliament of Northern Ireland, or Orders in Council made under section 1(3) of the Northern Ireland (Temporary Provisions) Act 1972). 38. Subsection (7) provides that the provision that can be made by order under this section includes provision which:
39. An order under this section could transfer regulatory functions from one regulator to another where this was, for example, for the purpose of reducing burdens upon those being regulated by reducing the number of separate inspections or requirements to provide information to which they were subject. 40. Subsection (8) confers power for an order made under this section to make such consequential, supplementary, incidental or transitional provision as the Minister considers appropriate, including provision amending or repealing any enactment or other provision. Although "enactment" does not include an enactment comprised in, or an instrument made under, an Act of the Scottish Parliament (as a result of Schedule 1 to the 1978 Act), subsection (8) enables the amendment or repeal of other provision for consequential, supplementary, incidental or transitional purposes, and this extends to the amendment or repeal of Acts of the Scottish Parliament and instruments made under them. Whilst an order under this section cannot remove or reduce burdens arising from Northern Ireland legislation, provision can be made under this subsection amending or repealing Northern Ireland legislation for consequential, supplementary, incidental or transitional purposes. 41. The effect of this power (and the equivalent power in section 2(7)), taken with the restrictions in sections 9 and 10, is that the only type of provision an order can make amending or repealing legislation which would be within the legislative competence of the Scottish Parliament, or which is Northern Ireland legislation, is provision which is consequential, supplementary, incidental or transitional. Section 2: Power to promote regulatory principles 42. Section 2 provides a power for a Minister of the Crown to make provision by order which he considers would serve the purpose of ensuring that regulatory functions are exercised so as to comply with the Better Regulation Commission's five Principles of Good Regulation. ("Regulatory function" is defined in section 32.) These Principles of Good Regulation (subsection (3)) are that regulatory activities should be carried out in a way that is transparent, accountable, proportionate, consistent, and should be targeted only at cases in which action is needed. 43. Subsection (4) provides that orders made under this section can include provision which:
44. One example of modifying the way in which regulatory functions are exercised by a person would be to use the power under this section to impose a requirement on a regulator, when carrying out regulatory functions, to have regard to views of a body representing consumers in that area, so that the regulator's regulatory activities are carried out in a way that is more accountable to consumers. Section 2 could also enable provision to be made requiring a regulator to exercise its functions on the basis of risk-assessment, so that its activities were proportionate to risk, with the result that the burden of enforcement on the highest-risk is increased, but falls least upon those with the best record of compliance. 45. An example of amending by order the constitution of a body exercising regulatory functions set up by or under an enactment, would be amending the statute governing a regulator so as to provide that it has a Board structure, with at least half of the Board comprised of non-executive directors, for the purpose of securing that its regulatory activities are carried out in a way which is accountable and transparent. 46. An example of transferring functions from one person to another would be where two regulators are operating in separate but closely related areas, and where it is considered appropriate to transfer the regulatory functions so that they are exercised by a single regulator (whether one of the existing regulators, or a new one). This could be for the purpose of securing that regulatory activities are more proportionate across the range of activities being regulated. It may also be for the purpose of securing that regulatory activities are carried out in a more consistent way across the two separate but related areas of activity. 47. Subsection (5) further provides that provision transferring or providing for the delegation of regulatory functions can include provision which:
48. So in the context of transferring regulatory functions, it would be possible to create a new body to carry out the functions of an existing regulator, and to abolish a body carrying out regulatory functions which becomes obsolete once its functions have all been removed. 49. Subsection (6) provides that the provision that can be made under this section does not include provision conferring any new regulatory function or abolishing any regulatory function. So the provision that can be made under this section does not include provision changing existing regulatory functions conferred on any person by an enactment, and it is only possible to abolish a body carrying out regulatory functions if those functions continue to be exercised, having been transferred to another person. 50. Subsection (7) confers power for an order made under this section to make such consequential, supplementary, incidental or transitional provision as the Minister considers appropriate. This power includes power to make provision amending or repealing any enactment or other provision, including Acts of the Scottish Parliament, Scottish statutory instruments, and Northern Ireland legislation. Restrictions Section 3: Preconditions 51. Section 3 imposes conditions which the Minister must consider to be satisfied before he can make an order containing provision under section 1(1) or 2(1). 52. The conditions set out in subsection (2) apply (where relevant) to provision made under sections 1(1) or 2(2) which is not merely restating an enactment (as defined in subsection (5)). 53. There are six conditions set out in subsection (2).
54. The Minister is also required to set out in the explanatory document which he must lay before Parliament (section 14) why he considers that these conditions are met. 55. Where provision made under section 1(1) or 2(1) is merely restating an enactment, the six conditions listed in subsection (2) do not apply. However subsections (3) and (4) have the effect that a Minister may only make provision of this type in an order if he is satisfied that the provision would make the law more accessible or more easily understood (for example, by consolidating disparate pieces of legislation or restating existing provisions in accordance with modern drafting practices). 56. The meaning of the term "to restate" is given in subsection (5). This also applies in relation to sections 4 to 7. | |
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