Posted on May 25, 2021 by Peter Langham
Regulation impacts all our lives in many ways. Where we live and work, how we travel and communicate, the food we eat, the gadgets we buy, the banks we use, the water and energy we run our homes with. All of these places, goods and services, and more, are regulated.
We don’t generally notice the business of regulation happening in our daily lives. But when regulation fails, it can have serious consequences for our finances or safety, the economy as a whole, or the environment. Some high-profile disasters in recent years are often described as regulatory failures: the explosion at the Buncefield oil terminal in 2005, the financial and banking crisis in 2008, the Deepwater Horizon pollution disaster in 2010, the Grenfell fire in 2017, and the list goes on.
As well as minimising the risk of failures like these, good regulation can be used to achieve a range of different aims and opportunities. It can support innovation, make workplaces safer, or help to keep essential services affordable. In a modern, mixed economy, like the UK, regulation is used in most areas of public policy, from education, healthcare and charities to transport, food, communications, utilities and employment.
What does good regulation involve?
It’s one thing to say what regulation is supposed to achieve, and quite another to make it work in practice. Being in the NAO’s Regulation team, we’re quite often asked: “what does good regulation actually look like?”. This question comes from regulators and policymakers, but it also comes from other people and organisations interested in making regulation work well, such as charities and trade bodies. And it’s not a simple question to answer, as much as we’d like it to be, because regulation can take different forms and exist for different purposes. Regulatory interventions vary, and most regulators and government departments will use a variety of approaches.
At one end of the spectrum are essentially unregulated, free markets where primarily the courts are the arbiter of any disputes. At the other end are areas with particular risks, such as the nuclear and pharmaceutical sectors, that have more prescriptive, rules-based systems of regulation. Between these lies a rich landscape of more principles-based approaches, varying from providing guidance and reputational incentives (for example, performance league tables), through various forms of self-regulation and codes of practice, to licensing regimes and the regulation of prices.
Despite this variety our work on regulation in the past decade has identified common themes and challenges that come up time and time again, such as the use of data to identify problems, how regulation is funded, or how regulators know whether they’re actually doing a good job or not. Based on this experience, we’ve published a good practice guide setting out broad principles of effective regulation, illustrated by case studies or further guidance for each principle. Our aim is to support policymakers, regulators and other stakeholders to design and implement regulation in a way that is effective at achieving what it is supposed to, whether this is protecting people and businesses, supporting economic growth, adapting to changes from EU Exit and technological developments, or safeguarding the environment and pursuing the priorities and challenges of the government’s net zero agenda.
The learning cycle
At the heart of our guide is a ‘learning cycle’ for assessing how well regulators and policymakers are applying the principles. Regulation is rarely a single programme of work with a simple beginning, middle and end, but tends to be an ongoing process of designing a regulatory framework, analysing what is needed, intervening, and then learning from experience in order to do things better in the future. If any one of these elements is overlooked there’s a risk that it can undermine the purpose and effectiveness of the regulatory framework.
When creating or making changes to a regulatory system, all aspects should be considered upfront – for example, if you don’t plan how you will measure the impact of changes, you probably won’t be collecting the data you’ll need later on. But each of the four stages has its own focus:
- The Design stage principles – such as objectives, powers, funding and accountability – are the most crucial to get right from the start. They help translate the policy intent into the design of a regulatory regime, and can be costly or disruptive to change later if they require new legislation.
- The Analyse stage is about identifying areas that present risks or opportunities, engaging with stakeholders to understand needs and priorities, and establishing what capacity is needed to respond appropriately. For example, the way data and intelligence are analysed is essential in assessing risks, identifying problems and targeting activities and resources.
- The Intervene stage principles are intended to help regulators intervene effectively by understanding what impact their actions might have, prioritising issues, and considering how best to respond in a proportionate, consistent and timely way.
- Finally, the Learn stage is about regulators, policymakers and others working collaboratively to measure progress, understand the real-world impact of interventions, and learn from experience to maximise effectiveness in the future.
We’ll continue to use our work across government to share principles, lessons and good practice, and we welcome any comments you may have.
About the authors:
Rich Sullivan-Jones manages our work on regulation, consumers and competition. His recent work has included reports on gambling regulation, problem debt, vulnerable consumers, regulatory performance measurement, and public service markets in higher and further education.
Peter Langham is a senior member of our regulation, consumer and competition team. He leads our work on public service markets, and has extensive experience of assessing the effectiveness of regulators and the UK competition regime.
Posted on May 20, 2021 by Chris Coyne
Good reporting in the public sector should allow the public and Parliament to understand to easily understand an organisation’s strategy and the risks it faces, how much taxpayers’ money has been spent and on what, and what has been achieved as a result. Following the challenges of the last year, most notably COVID-19, clear and transparent reporting is hugely important.
Transparency and accountability in central to strong financial and risk management in government, and how this is supported by clear and understandable reporting. With that in mind, we’re delighted to share a recent National Audit Office report which cuts to the heart of this: the Good Practice in Annual Reporting Guide. Our guide sets out good-practice principles around a number of key areas to help public sector organisations to compile their Annual Reports. Those principles are:
Building on these principles, our guide provides some excellent examples from public sector organisations that we think are leading the way. Below we have picked out a few key takeaways for organisations to consider as part of their preparations for 2020-21 Annual Reports.
Risk and Governance: There should be an increased focus on the risks and challenges of recent events and how these are managed, including:
- Frank and honest analysis of how COVID-19 (and other risks) have impacted operations and how the taxpayer’s money has been spent and managed.
- Clear depiction of the governance and risk management framework to demonstrate an organisation’s processes to identify, monitor and mitigate risk.
- Transparent reporting of complex technical judgements and decisions. We anticipate, given the challenges brought about by the pandemic, spending reviews and EU Exit, that organisations may enter complex transactions or arrangements. These transactions should be disclosed transparently and in a way that is understandable to the users.
Strategy and Operations: There should be a clear articulation of purpose and objectives, and how an organisation’s operations support their objectives. In particular:
- Clarity around an organisation’s purpose, strategic objectives and values and how these feed into the performance of the organisation and any related risks, with reference to its external environment.
- Celebration of Diversity and Inclusion within annual reports. Employee costs make up most of the central government expenditure and people are undoubtedly an organisation’s most precious asset. Organisations should consider what their employee data says about them and whether reporting could be improved in this area.
Measures of Success and Financial Performance: There should be a balanced assessment of goals achieved and performance against targets, and financial performance should be understandable and consistent with the underlying financial statements. For instance:
- Better trend reporting. Trend analysis over time is a strong indicator of performance and achievements and a good way for the reader to hold organisations to account. Organisations should consider what trend data is being published and what story they are trying to tell.
- Better, more accessible information on non-financial metrics affecting organisations, such as sustainability reporting. Organisations should seek to portray non-financial data in simple terms to help tell a story and show clearly how it is linked to their operations.
Lastly, the NAO co-sponsor the annual Building Public Trust Awards, Public Sector reporting category with PwC, to give credit to organisations who are demonstrating excellence in government financial reporting. If you believe your organisation’s 2020-21 annual report and accounts is an example of excellent reporting, you can nominate it for the Building Public Trust Awards – Public Sector Reporting Award by emailing Building.Public.Trust@nao.org.uk by 30 June 2021.
Authors: Chris Coyne, Rachel Nugent, Catriona Sheil and Courtnay Ip Tat Kuen.
Chris manages our work on financial and risk management. He has been with the NAO since he joined as a graduate trainee in 2008, and has significant experience managing financial audits across a variety of government organisations.
This article was first published on OneFinance (login required)
Tagged: Good practice principles