Over-zealous interpretation of regulations is a hidden menace that is costing British businesses more than £100bn a year, according to the government's own Better Regulation Task Force (BRTF).
In a new report, “Avoiding Regulatory Creep,” the BRTF accused politicians of failing to control the level of bureaucracy imposed on business once legislation had been passed by parliament and accused civil servants of "enforcement activity that can lead to a fear factor that induces over compliance in those being regulated."
"Over-zealous interpretation of regulation by Government regulators and industry bodies is one of the factors leading to layers of red tape winding their way around businesses and the public," said BRTF head David Arculus. "This regulatory creep is the ‘hidden menace’ of red tape."
Arculus, who is also chairman of mobile phone company O2, said that the cost of regulation amounted to ten per cent on the UK's gross domestic product and estimated that £25bn a year was spent simply enforcing rules.
Earlier this week, the British Chambers of Commerce (BCC) said that UK businesses had to find an extra £1.5 million a day as a result of the statutory dispute resolution procedures, implementing the Disability Discrimination Act and the increased cost of the minimum wage.
The BRTF report identifies examples of regulatory creep in a number of areas including, health and safety, food regulation and anti-money laundering regulation. Its recommendations call for greater clarity, consistency and better communication to make regulation less burdensome.
"Regulatory creep can skew the focus of those being regulated away from the key objective of the regulation and encourage them to concentrate on the process for demonstrating compliance rather than on the outcome, delivering little, if any, additional benefit," the report says
Arculus was particularly scathing about financial services regulations, pointing to attempts by the FSA to clamp down on money laundering as one example of bad regulatory practice.
"It's ridiculous the number of times people are asked to prove their identity by banks and other financial firms that they have been doing business with for years," he said.
"They are told it's because of money laundering regulations. Well it's not. These do require financial firms to check the identity of new customers but it shouldn't be the norm for established customers."
Speaking at a CBI conference in Birmingham last Monday, Prime Minister Tony Blair admitted that the civil service suffered from "cultural problems" when it came to regulation and tended to assume that "everyone is a criminal who needs to be inspected to see if they are breaking the law."
"For decades civil servants and politicians have prided themselves in dotting every i and crossing every t when legislating administrative rules," he said
"We need to simplify inspection and enforcement, reducing the amount of duplication and overlap ..."
The Prime Minister said that he had asked the BRTF to look at the introduction of a "one in, one out" rule, where any new regulations have to be matched by a deregulatory measure.
Ian Peters, who led the study for the BRTF, said: "Businesses tell us that what’s important to them is knowing what is necessary to comply with the law..
"Compliance should not be a guessing game. We have learnt: if it’s not clear you‘ll get creep; so above all we are calling for greater clarity for the end-user throughout the process."