WHAT are the chances that a pensioner who has used the same bank for 20 years is a criminal, or that a seven-year- old is wilfully committing ID fraud? As any parent who has tried to open a savings account for their child might recognise, dealing with the unexpected side-effects of money-laundering laws can be frustrating.
While created with the best of intentions, these one-size-fits-all rules are smothering product development as banks and building societies respond by moving towards a standardised customer proposition. Nobody dares innovate because, perversely, it has become too risky.
Today the Better Regulation Commission launches a report calling for a rethink on our national approach to risk. It finds that Britain has become overdefensive and disproportionate in managing uncertainty. A real or perceived threat gets hammered with regulation. The report concludes that Britain’s inability to accept more personal responsibility for risk is endangering its enterprise, competitive edge and “sense of adventure”. We no longer manage risk; we try to eradicate it.
For business, which seeks to combine risk and responsibility, this is alarming. Companies are finding that a growing culture of risk aversion is being appeased with lopsided laws that, however well-intended, can never cover all eventualities. Poor regulation stifles innovation, creativity and investment, distorts markets and leads to weaker performance and a shrinkage of choice. Take the Working Time Directive, which seeks to cap the working week at 48 hours. While the law controls unacceptable dangers, such as airline pilots or lorry drivers working too many hours, it hampers flexibility in situations where there is little risk. It is simply ridiculous to deny an office worker the choice of putting in extra hours to meet a big order or simply to boost his wages.
It is no surprise that employment tribunals have quadrupled in number since 1989, with only a third of employers believing that they are effective and the remainder worried they are too adversarial, costly and damaging to good relations. The consequence of trying to legislate against every conceivable risk has been a generation of employers too fearful of litigation to give their line managers the freedom to innovate. For many, centralisation, form- filling and stagnation have become the norm. Instead of understanding the risk so that it can be recognised and properly managed, removing it through legislation simply removes personal responsibility and robs individuals of the creativity and motivation you need to get the best out of people.
This climate of fear is pervading many areas. The head-start that Britain’s nanotechnology industry enjoyed has been eroded as overly cautious regulations by the Department for Environment, Food and Rural Affairs have tied hands and limited options. Companies looking to develop the commercial uses of unmanned air vehicles have been struggling with rules that mean that prototypes can be tested only within “line of sight”— not much use to engineers trying to check their capability at 60,000ft. Testing of these machines, tipped by some as the future of aviation, is now largely based overseas.
There is a growing sense that sensible and necessary regulation has been replaced by an expensive and ineffective regulatory sledgehammer. We need a lighter touch, an understanding that risk is part of life and that some risk is positive. Government must revisit areas where creativity, investment and common sense are being constrained. Businesses must not be cast as the villain to be regulated against, but as organisations that thrive on well-managed risk, trust and responsibility. Otherwise Britain will be left behind by those that take a more adventurous approach. Surely that is a greater risk.
The author is Deputy Director-General of the CBI
