Regulating for growth – a new approach to an old idea?

“We’ve got to look at regulation across the piece, and where it is needlessly holding back investment… mark my words, we will get rid of it”.

This was Prime Minister Kier Starmer’s bold commitment at the International Investment Summit in October 2024.

Two months later, on Christmas eve 2024, the PM wrote to 17 regulators, asking them to propose five measurable commitments or changes that their organisation could implement in the next year to prioritise growth. The letter made clear that regulators are expected to unlock innovation and investment and support businesses to thrive.  Regulators’ responses to the PM’s festive request varied in enthusiasm: whilst the FCA committed to support the growth mission and alluded to the need for deep reforms and taking greater risks, Ofcom’s response tended towards a continuing focus on consumer protection. Understandably, some regulators (e.g. the Environment Agency) referred to the need for legislative change if they are to change the way they operate to encourage growth.  The response of the Competition and Markets Authority (“CMA”) was followed shortly afterwards by dismissal of the CMA Chair and publication of a strategic steer to the CMA stating how the CMA is expected to contribute to economic growth. 

On 17 March, following recent announcements of the abolition of some regulators (including Payment Systems Regulator and NHS England) and slimming down of others, eight regulators were summoned to Downing Street to further discuss how they could help speed up growth; and HM Treasury published a policy paper – “New approach to ensure regulators and regulation support growth”.

Are regulators already under a duty to promote growth?

Successive governments have sought to ensure that regulators do not act in a manner likely unnecessarily to hinder growth – for example the Legislative and Regulatory Reform Act 2006 includes a power allowing the Secretary of State to modify the way in which regulatory powers are exercised, requiring that “(a) regulatory activities should be carried out in a way which is transparent, accountable, proportionate and consistent; (b) regulatory activities should be targeted only at cases in which action is needed”. It also provides for a code to which any regulator determining general policy or principles or setting standards or giving guidance must “have regard”.  The regulators (including local authorities) and regulatory functions to which the code applies are set out in the Legislative and Regulatory Reform (Regulatory Functions) Order 2007.  The first principle in the Regulators Code is that “Regulators should carry out their activities in a way that supports those they regulate to comply and grow”.

This clearly was not enough, and Section 108 of the Deregulation Act 2015 went further by imposing a duty on certain regulators exercising specific regulatory functions to “have regard to the desirability of promoting economic growth”; in particular by exercising the regulatory function in a way which ensures that regulatory action is taken only when it is needed and any action taken is proportionate. Regulatory function is defined as meaning, broadly (a) functions granted by statute of imposing requirements, restrictions, conditions or setting standards or giving guidance and (b) functions that relate to securing compliance with or enforcement of those requirements etc. Conducting criminal or civil proceedings does not fall within the scope of regulatory functions.

The Economic Growth (Regulatory Functions) Order 2017 (as amended in 2024) lists the regulators whose functions are subject to the growth duty, including the Care Quality Commission, Charity Commission (curiously), Civil Aviation Authority (“CAA”), Environment Agency, Financial Reporting Council, Food Standards Agency, Gambling Commission, Groceries Code Adjudicator, Health and Safety Executive, Land Registry, Information Commissioner (other than in relation to the Freedom of Information Act 2000), Natural England, Ofcom (not online safety functions), Ofqual, Ofgem and Ofwat (The CMA, FCA and local authorities are not included).

These regulators must have regard to the Guidance re-issued under s110 of the Act in May 2024.  This identifies seven drivers of economic growth (e.g. innovation, competition) and seven behaviours of smarter regulation (e.g. business aware, proportionate, efficient and responsive, and internationally aware). It is intended to encourage a regulator to choose a more innovative or trade-friendly option which would otherwise have been discounted. However, the Guidance cautions that the purpose of the duty “is not to achieve or pursue economic growth at the expense of necessary protections.”

How effective has the growth duty been?

Only the CAA appears hitherto to have reported regularly on steps to encourage growth.  There is little jurisprudence on the duty, and in the only significant reported case (Inclusion Housing Community Interest Company v Regulator of Social Housing [2020] EWHC 346), the High Court held that it “was not intended to preclude regulatory action where the regulator considered it necessary in the public interest”. In that case, “If the failure specifically to mention the duty imposed by s.108 was an error of law, it was not the kind of error which could be regarded as material … in the light of all the evidence before me it is not only highly likely but practically certain that, even if the duty had been specifically drawn to the regulator’s attention, the result would have been the same”. The duty has not obtained even the modest weight given for example to the (slightly higher) duty to have “due regard”, in the exercise of public functions, to the need to eliminate discrimination etc under the public sector equality duty (Equality Act 2010 s.149).  Providing that a regulator gives at least some consideration to the duty and records the fact, a court is unlikely to quash a regulatory decision on judicial review on growth duty grounds unless the regulator has acted in a wholly disproportionate manner.     

What next?

Bolstering the duty would require amendment to primary legislation to make an obligation to consider growth trump a regulator’s other statutory obligations. To force regulators to reduce regulatory costs and encourage innovation and investment, the Government appears now to be relying on political pressure and scrutiny; placing senior personnel in the spotlight to deliver upon commitments relating to growth, plus some legislative tinkering – see the policy paper published on 17 March 2025.  And perhaps ducking regulation altogether – see the current approach to AI.

If your organisation is subject to the growth duty, or you are interacting with a regulator subject to it, our Regulatory team at Bates Wells would be pleased to discuss this with you – please contact Louise Sivey, senior associate, or partners Rupert Earle and Matthew Smith.