Will the Government's drive to reduce the regulatory burden allow less-principled businesses to slip through the net? Bond Pearce's Nicky Loadsman discusses the implications of earned recognition

The Government's focus on the 'red tape challenge' and its Response to the Consultation on Transforming Regulatory Enforcement, published in December 2011, made strong recommendations that enforcement agencies in all business sectors make greater use of co-regulation and earned recognition.

This has led to a hive of activity as departments including the Department for Environment, Food and Rural Affairs (Defra) and the Food Standards Agency (FSA) actively engage with stakeholders to reduce the burden placed on businesses by the current regulatory regime, turning this into a lighter touch system of inspections and regulation. In practice, will this mean the ability for less-principled businesses to slip through the regulatory net, putting sector specific industries back in the spotlight?

The recent instruction by Defra to the Gangmasters Licensing Authority (GLA) to minimise disruption when undertaking spot checks or planned visits is just one example which has led to a mixed reaction from unions, MPs and the public, who are concerned that the efforts of the GLA will be diluted. This article looks at what earned recognition actually means in practice, what steps companies will need to take and what element of risk might arise from taking this approach.

Definition

In the report of the Task Force on Farming Regulation, earned recognition is described as: "Giving official recognition to the effective efforts made by individuals and business in understanding legal requirements and getting things right. Adopting and applying this principle should reduce the burden on business and help regulators to make risk-based decisions and to make better use of their expertise." The Government's response to this was not only to accept it but to go further, stating: "We are committed to establishing earned recognition as a principle that should be applied more widely than just farm regulation."

Why the focus on earned recognition?

The driver behind the planned extension of earned recognition is contained within the government response in that creating "the conditions for business-led economic recovery means we need to do everything possible to remove all unnecessary burdens on business while ensuring that the important protections provided by regulators continue". Clearly, the focus on reducing the regulatory burden to business is also a reflection of the cost reduction measures required within the Government.

nicky-loadsman-bond-pearceWhat became clear from the consultation process was that regulation was viewed as being heavy handed, inefficient and too process-driven and risk averse, with geographical inconsistency in how regulations are applied. The whole regulatory landscape required streamlining by industry and regulators working together to produce a far more cost-effective and business-driven system. Regulators should pay less attention to those businesses already demonstrating compliance and focus efforts on the non-compliant.

Key elements of how this transformation will happen include a partnership between Government regulators and businesses with the Local Better Regulation Office (now the Better Regulation Delivery Office) becoming part of the Department for Business Innovation and Skills (BIS). The primary authority scheme is to be extended to ensure a co-ordinated, accountable and transparent system of local regulation.

A primary authority is a specific local authority that is designated as a business' first point of call. Any other local authority must consult with the primary authority before taking enforcement action.

More organisations will be able to designate a primary authority, including franchises, trade associations and company groups. Inspection plans will be modified to ensure that earned recognition is taken into account.

One of the consequences of the December 2011 response is that the BIS is reviewing all regulators not just to see whether they should continue to exist, but also to ensure a significant reduction in state-led enforcement activity. More effective use of the private sector will be considered when looking at how earned recognition, accreditation, professional standards and other co-regulatory models can work in practice. This is designed to ensure better quality, targeted and fewer inspections, so that scarce resources can be concentrated on higher risk businesses.

The work of the Defra, the FSA and the industry

Both the Defra and the FSA's updated response to the Farming Regulation Task Force's Report, published in February 2012, include examples of existing risk-based inspection regimes. The Integrated Pollution Prevention and Control Pig and Poultry Assurance Scheme, launched in March 2011, provides one example. Under this, pig and poultry producers with high compliance standards are inspected only once a year by a nominated farm assurance certification body, rather than having two Environment Agency (EA) inspections.

The certification bodies collate data for the EA as a control mechanism. That inspection will also deal with the Red Tractor Assurance Scheme requirements, cutting out duplication. Red Tractor Assurance has been running since 2007 and is a quality food assurance mark, guaranteeing food safety, traceability and quality. It is backed by farmers, growers, food producers, processors and packers. Certification to Red Tractor Assurance standards is evidence that producers are meeting or exceeding nationally agreed levels of food safety and hygiene, animal welfare and environmental protection. Certification bodies are accredited by the UK Accreditation Service to EN standards as a further means of control while reducing the number of and overlap between inspections.

In July 2011, the FSA announced a change to the frequency of hygiene inspections on dairy farms, reducing the number and costs of inspections for members of the Red Tractor Assured Dairy Farm Scheme, which are now officially inspected every 10 years, rather than every two years. Around 11,800 dairy farms are Red Tractor assured, producing approximately 95% of British milk. The Red Tractor Farm Assurance Dairy Scheme operates within Assured Farm Standards, an independent organisation that manages and develops Red Tractor.

An independent study commissioned by Defra and published in December 2010 showed that assured farms had significantly higher levels of compliance with regulations, demonstrating that earned recognition, when properly implemented, is effective in reducing costs to business, making more cost-effective use of resources while not compromising public health protection.

The clear intention is to apply earned recognition far more widely while ensuring that standards in the food safety environment and animal welfare industries are not compromised. This is critical to the success or failure of earned recognition as a concept.

Both Defra and the FSA are working with the National Farmers Union, the Assured Food Standards and Linking Environment and Farming and the farming industry to put forward proposals for further use of earned recognition. The agencies are also piloting compliance and enforcement plans for new regulations, considering how compliance can be monitored, how non-compliance should be targeted, incentivising compliance and opportunities for co-regulation and earned recognition. A more detailed implementation plan is to be issued later in 2012.

As part of the FSA approach, a citizens forum was launched on earned recognition and a report published in September 2011. This explored consumer views on changes to food business regulation under the proposed earned recognition scheme. While there was general support for the principle of earned recognition, perceived to be sensible in improving regulatory efficiency, there was concern about how this will be managed in practice.

Ensuring the continuation of regulatory enforcement by Government was seen as vital in reassuring consumers that food businesses would not be left to self-police by using earned recognition. Providing that there was regulatory oversight, ongoing communication on food safety and how earned recognition was working in practice, there was overall support for the growth of the concept.

What the public will not tolerate is for lighter touch regulation to lead to lower standards of protection. The GLA was set up following the loss of 23 cockle pickers at Morecambe Bay in Lancashire in 2004. Its aim is to protect seasonal and temporary workers by licensing of gangmasters, ensuring that working and living standards are acceptable. The concerns surrounding the Defra announcement that the GLA should minimise disruption when undertaking inspections and consider lighter touch regulation shows what the effect of moving towards such a regime can be if not handled and planned correctly.

Conclusion

The spotlight is on regulators to recognise and acknowledge the time, money and effort spent by businesses to put transparent compliance processes which their customers are highly aware of into place. This, coupled with business ownership of regulatory responsibility, will move compliance from being seen as risk management to a positive way of gaining competitive advantage.

A business' reputation is a key driver of consumer spending and, by proactively investing in compliance processes, companies can achieve clear economic benefits. The use of earned recognition is one way in which this can be delivered. However, the shift from enforcement to upfront proactive compliance must be properly designed and supported to ensure that the public continues to be protected from unsafe food and other products, unfair trading and financial disadvantage.

Professional organisations, including law firms, will play an increasing role in assisting business to engage in co-regulation, including the design and implementation of new schemes similar to the Red Tractor model which will enable the use of earned recognition to become systemic rather than being viewed as a novel approach.

Nicky Loadsman (pictured above) is a consultant at Bond Pearce.