PUBLIC LAW II 2010/11 Part I: Contemporary techniques of governance A. Regulation and Governance (continued) 3.

The UK: A Regulatory Laboratory For the last thirty years or so, the UK has been a world leader in regulatory reform; characterized, according to the OECD (Organisation for Economic Co-operation and Development), by a constant up-grading of instruments [and] the establishment of an array of regulatory policies, institutions and tools many of them innovative and unprecedented .1 While many continuities naturally exist, not least the seeming death of wide-scale public ownership and overarching EU connection, future historians will duly record two linked phases in the development taking place against the backdrop of changing fashion in regulatory theory and associated with the long years of Conservative (1979 97) and New Labour (1997 2010) government respectively. (And today, we can begin to think in terms of a new phase ..) We can identify 2 phases (Started with the conservatives and shifted with NL) The question is whetherthere is sort of a pendulum here? Did we start in the middle; go one way, then the other, now back? There is an element of the pendulumswinging; more promarket under C and under NL, much more pro-regulation in many spheres. So is it about to swing back? If so how and to what extent? (a) Regulation and the Conservatives As well as privatisation, which led in turn to a great emphasis in the public discussion on utility regulation, the chief mantra in this first phase is the deregulatory one of lifting the burden . Flanking themes are increased interest by government in the techniques of selfregulation and a distinct preference for regulation (by agency) at arm s length from ministers. Viewed in historical perspective, this amounted to change in, and challenge to, an old regulatory culture, not least because, in paradoxical fashion, privatisation led to a more legalistic juridified - relationship between the state and the private sector as more explicit regulatory structures were established. Let s think about the key themes of regulatory development under the conservatives. We can identify 4 big things: 1. 2. 3. 4. Privatisation (of the utilities) Agencification, particularly with agencies operating at Arm s length from ministers Deregulatory theme of lifting the burden Reduction in SR

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OECD, Government capacity to assure high quality regulation: regulatory reform in the United Kingdom (2002) 6.

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Privatisation (of the utilities) Things like gas, water, telephones etc were all nationalised industries as they were key sectors of the economy, and it was said to be a way of controlling national monopolies. Privatisation in turn inevitably meant regulation as the private entities invariably become dominant firms which leads to the fear of abuse of the dominant position. So paradoxically, privatisation in this country gave a big push to models of regulation. Agencification Not just next step agencies but also regulatory agencies. With regulation of the utilities in particular, a choice had to be made between regulation by the civil service operated by ministers or independent arm s length agencies? Thatcher government was quite clear it was the latter as the market needed to know regulation was not in the hand of politicians (possibly socialist politicians). So there is a big argument about market confidence and concerns particularly about the need to distance the regulators from the government so as to attract foreign investment. lifting the burden The regulatory agencies had to make big decisions. Not just about privatisation, but also about lifting the burden of regulation more generally. There was a push to reduce red tape and have greater efficiency. This did not apply just to utilities but rather all sorts of regulation. Interest by government in the techniques of self-regulation The C s were actually interested to do a bit more by way of government regulation in the field of self- regulation particularly in the area of professionals. (Thatcher had a personal dislike for SR seeing it as anti-competitive in character) So what we see is a development of lots of forms of hybrid regulation.E.g. legislation requiring lay persons on the bar council or the medical board to ensure that consumer interest is factored into the decision making process. Operationalising Note how the approach was operationalised in: (1) statute: Deregulation and Contracting Out Act 1994 (2) methodology: Compliance Cost Assessment (3) Internal Whitehall guidance ( bureaucratic law ) on the making of regulatory schemes:

Deregulation and contracting out Act 1994 2 A flagship piece of conservative legislation.

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Gives ministers striking henry 8th powers to amend or repeal legislation which imposes burdens on businesses. So rather than spend time repealing particular sections of act (health and safety, environment etc ) ministers now take mass henry 8th powers to do it themselves.

Real shift in law-making powers from parliament to the executive. But note it s all about deregulation and contracting out. They haven t taken powers to impose more regulation but to reduce it Methodology: Compliance Cost Assessment

What you need to see is that it s all put in terms of cost, not benefit again showing the prevailing ideology. Internal Whitehall guidance ( bureaucratic law ) on the making of regulatory schemes: These are introduced to influence the thinking of the various agencies. It s so-called soft law ; stuff they should think about when making regulatory schemes.

Good regulation ten points to think about 1. 2. 3. Identify the issue Keep it simple Keep the regulation in proportion to the problem.

Go for goal-based regulation.

Provide flexibility for the future Set the objective rather than the detailed way of making sure the regulation is kept to. Keep it short. Try to anticipate the effects on competition or trade regulating which cause the least market disruption Minimise costs of compliance Think small first. Try to find ways of

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Integrate with previous regulations. Make sure the regulation can be effectively managed and enforced cannot be enforced fairly at a reasonable cost, think again. If [it]

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Make sure that the regulation will work and that you will know if it does not Consider how you will monitor the results, costs and any side-effects or changes in behaviour Allow enough time government. for consulting people inside and outside

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So we clearly see market ideology infusing itself in the way the entire approach was operationalized. The question here is how much of this will repeat itself under the coalition government? The Ofdog model Note too how privatisation fed regulation in the guise of the Ofdog model : Privatisation fed regulation and the C model was highly sector specific.Not really surprising as it reflects the step by step approach the C s took; they passed a statute to privatise the gas industry and part of that was we d have a system to regulate the new privatised thing and here s the new agency for that Then a few years later, onefor water etc... So we ended up with sort of a jungle of these regulatory agencies which collectively became known as the OFDOGS (office of something with the idea of regulator as watchdog)
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A single, independent regulatory agency, headed by a Director-General, for each industry Within a general regulatory framework provided by the privatisation statute, practical operations predicated on a system of licensing Control of the dominant firm via a price-cap formula, intended to incentivise greater efficiency [RPI-X] The DGs as part of a regulatory network, the competition authorities included Latterly, emphasis on quality regulation as part of the economic regulation

(Ofdogs: such bodies as OFTEL (the Office of Telecommunications (1984)), OFGAS (the Office of Gas Supply (1986)) and OFWAT (the Office of Water Services, 1989)). SROs In line with private interest theories, the Conservatives were also concerned to probe the workings of many self-regulatory organisations (SROs), a chief target being the professions. AlthoughSROs would continue to play a vital role in these and other sectors, such arrangementsbecame increasingly institutionalized, codified and juridified with a view toensuring they encompassed the interests of users as well as practitioners.2Highly developed forms of meta- and co-regulation were being signalled here. (b) Regulation and New Labour Now let s think about NL. Blair was elected in 1997 and almost immediately the government said they wanted to change things in terms of regulation.They were not going back to nationalism (hence NL vs Old L) so they were happy to assume privatisation and also to

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I. Bartle and P. Vass, Self-regulation within the Regulatory State: Towards a New Regulatory

Paradigm? (2007) 85 Public Administration 885.

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accept the agency model. But within the framework they wanted to do some tweaking. They thought the idea of many individual agencies had gone too far. So what we see here is a rebalancing. A greater acceptance of state intervention in the market and in particular an emphasis on regulating for social purposes. E.g. better protection for poorer sections for the community e.g. stopping the water companies disconnecting you if you haven t paid your water bill. And also, a greater emphasis on regulation for environmental objectives. So if we look at water regulation under C for eg its verypure market in character. Essentially about price. How much can they charge to make a good profit and have a certain sum for infrastructure. Now regulation is tasked to consider much more closely environmental concerns. Might be water quality or even how to conserve water. Regulatory objectives are now broadening out beyond purely economic into broader social and environmental objectives. It s a more rounded approach to regulation. The moment you go down that route, more objectives, more balancing, means the more agency discretion there has to because the regulatory agency has to start making real calls now; not just about price but also in terms of longer objectives; climate change and all that. That in turn raises bigger issues in terms of legal accountability and JR. Some regulation is necessary for public and consumer protection, for example to ensure food safety, and to carry out the functions of Government. Deregulation implies that regulation is not needed. In fact good regulation can benefit us all it is only bad regulation that is a burden. That is why the Government s new regulatory policy will concentrate on ensuring that regulations are necessary, fair to all parties, properly costed, practical to enforce and straightforward to comply with.[Cabinet Office News release CBA 46/97, Better Regulation Not Deregulation, 3 July 1997]. Main points about the shift Continuity NL in 97 did not revert to being OL in the sense of nationalised industries, They accepted that many industries were to be privately owned and subject to regulation. working w/in that conservative party framework Both parties are working of course w/in the framework of the EU. Let s remember that w/the development of the single market in the 80s and 90s that a lot of regulation goes with that. Established an elaborate single market then you get into a lot of issues into regulating quality of foodstuff, dangerous chemicals etc... Remember that throughout the conservative, NL and now the coalition, the great motor of regulation, the EU, is also churning the way

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Some significant changes going on under NL

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An ideological change; the default position is no longer that regulation is a bad thing, a necessary evil. A much greater acceptance of the role of regulation in society. It s only bad regulation that s a burden, good reg...) So the basic ideological starting point is different than under the conservatives especially with the aggressive promarket ideology associated with thatcher. The more rounded approach to regulation. Putting in matters of not just economic and price regulation but interesting developments in social regulation and regulation to protect the environment. You see that as early as the utilities act 2000 which attempted to reform the regulatory framework relating to things like water, electricity, phones etc... so you now have in the statute a recognition of social objectives (protecting supply of utilities to poorerpeople) and environment (in relation to eg water supply) Another eg is the regulatory reform act 2006 which shows the ideology shift very well. Under conservatives, the landmark act was the Contract out Act 1994 that henry 8th powers to reduce regulatory burden. Under NL they take similar powers to either diminish or extend the imposition of regulation Finally in statute, the regulatory enforcement and sanctions act 2008 which really steps up the sanctions available to regulators; a greater emphasis on enforcement sanctions

Note how the approach was operationalised in: (1) Statute: Utilities Act 2000 and Regulatory Reform Act 2001; Legislative and Regulatory Reform Act 2006 and Regulatory Enforcement and Sanctions Act 2008 (2) Methodology: Regulatory Impact Assessment. (3) Principles: from internal Whitehall guidance to constitutionalisation in statute: Statute Utilities Act 2000 Unities Act 2000 immediately imposes on regulators environmental and social objectives. Regulatory Reform Act 2001 Regulatory reform act follows in footsteps of the Contracting out Act 94 giving minister s Henry 8 powers. Whereas C gave powers simply to remove regulation,NL ministers take power to remove regulation using H8 but also to impose them. Legislative and Regulatory Reform Act 2006 The 2006 Act gives NL ministers powers to impose on the so called independent regulatory agencies so called regulatory requirements. The 06 act so called strengthens ministerial power to steer what the regulatory agencies do. And that s very interesting if you think about how this might be used by the coalition. 6

Regulatory Enforcement and Sanctions Act 2008 Finally the 2008 act gives the regulatory agencies more powers of enforcement. Methodology Regulatory Impact Assessment Recall, that under C s, the methodology was compliance cost assessment. Essentially, what Civil servants were being asked to do there when imposing new regulations were to very carefully and assess the costs of regulatees in complying with regulation. Implication was either don t regulate at all if costs seem very high or regulate if you must in a way in which costs of compliance are the lowest. Very much a light touch approach to regulation. What we see in NL is a significant shift in terms of the methodology. So now when C s or lawyers assisting Civil Servants (in developing new or amending existing regulation) look at regulation, it is no longer about cost compliance but rather, regulatory impact assessment. It s worth nothing that this methodology developed inthe context with which we re working (regulatory governments) But the government became so wedded to it that over the years they generalised it that it became part of a wider movement to impact assessment. It s worth noting that because if you look at any new bill introduced to Parliament, there will now be an impact assessment on it. So this methodology has developed outside regulatory governments to all legislative developments. So whatever area of law you re interested in you ll find IA s. What a full regulatory impact assessment is expected to cover3 Purpose and intended effect Identifies the objectives of the regulatory proposal Assesses the risks that proposed regulations are addressing Identifies the benefits of each option including the do nothing option Looks at all costs including indirect costs

Risks

Benefits

Costs

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National Audit Office, Better Regulation: making good use of regulatory impact assessments (2002), p 16.

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Securing compliance Impact on small business

Identifies options for action Using advice from the [DTI] Small Business Service Takes the views of those affected, and is clear about assumptions and options for discussion Establishes criteria for monitoring and evaluation Summarises and makes recommendations to Ministers, having regard to the views expressed in public consultation.

Public consultation

Monitoring and evaluation

Recommendation

Notes: Note the rebalancing. Yes C s and policy makers are to look at all costs, even indirect costs; but, they re also to balance that against the benefits (relates to shift in default position not all regulation is bad) Notice too the emphasis on public consultation; under the C s compliance cost assessment, you went to talk to those in the industry who d be subject to the regulation. Part and parcel or NL s more rounded approach was more open forms of public consultation. Not only those regulated but those who might have an interest inthe groupsbeing regulated; consumer groups, environmental activists etc.... In practice, just look at the list. It s very heavy, time consuming and can be administratively expensive to do. It s costly. One of the litmus test under the development of the coalition is whether they (sticking with some form of IA) move to some more streamlined form and if they do, which bits will be jettisoned and which bits emphasised. There s a debate as to what difference the impact assessment actually makes.Is it actually a tool of law-making or merely a legitimising tool where they ve decided anyway and produce an Impact Assessment to justify. There s a report done and the evidence is somewhat conflicting. Principles: from internal Whitehall guidance to constitutionalisation in statute: Recall that even the C s found it necessary to produce some soft law in terms of guidance to civil service officials with the 10 points to consider when drawing up regulation. NL wished to amend that guidance and did so very quickly (first year in government). What they did was come up with a set of principles which they said should govern the design and operation of regulatory schemes. 8

So these are the principles of good or what became known as better regulation. Their point being that they aren t anti-regulation and really, who could object to better regulation? But what is better regulation? According to NL ministers, there were 5 key principles which made up the cannon, the list, of better regulation : Principles of Good or what now became known as Better Regulation (a) In guidance:
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Proportionality o Policy solutions should be appropriate for the perceived problem or risk: you don t need a sledgehammer to crack a nut! o We ve come across this in particular with the HRA so we re reminded that it may be an administrative concept in addition to a legal one. Accountability o Regulators/policy officials must be able to justify the decisions they make and should expect to be open to public scrutiny Consistency o Government rules and standards must be joined up and implemented fairly and consistently. (So there shouldn't be too much institutional fragmentation) o This points towards the development of so-called super agencies. (E.g. FSA, OFCOM) Transparency o Regulations should be open, simple and user friendly. Policy objectives, including the need for regulation, should be clearly defined and effectively communicated to all stakeholders. Targeting o Regulation should be focused on the problem. You should aim to minimise side effects and ensure that no unintended consequences will result from the regulation being implemented. 4 o We can see how targeting and proportionality are linked.

What s interesting is the fact that these 5 are pushed for better regulation but also, how this became hard hall. For C s, we were talking about internal Whitehall guidance and this is how principles of better regulation started but in time, they re constitutionalised in statute and actually became part of our formal legal world. It happened in 2006 withthe Legislative and Regulatory Reform Act 2006.

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Cabinet Office, Principes of Good Regulation(1998), p 1.

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(b) In statute: Legislative and Regulatory Reform Act 2006, s. 21: (So is it still a case of steering not rowing?) So before this, taking utilities as an example, we d have the utility run by a private company doing the rowing with whatever independent agency that was created under the C s doing the steering according to a certain mandate. Under s21 2006 act, ministers are doing some enhanced steering of the steerers. Essentially sending instructions to the regulatory agencies about how they should be operating themselves when they are steering the regulated. S21 Principles (1) Any person exercising a regulatory function to which this section applies must have regard to the principles in subsection (2) in the exercise of the function. (2) Those principles are 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. (3) The duty in subsection (1) is subject to any other requirement affecting the exercise of the regulatory function. So it is in s21 that we find the principles in statute and thus given hard legal form. This in turn means there is some potential for JR as once those principles are written instatute; it becomes possible to challenge a regulatory agency for example, in respect of those principles. Note of course the content of the duty. The duty is to have regard to the principles which means you have a limited scope for challenge. Have regard means they must consider and think and in practice show they have considered and thought about these principles. It doesn t bind them to apply it. There are a number of other shifts we need to be aware of: So comparing c to nl; shift in methodology. Shift in terms of the governing principles of regulation (both in terms of content and status of those principles) Agencification: the rise of the mega or super agency Risk-based regulation Greater emphasis under NL of using calculations of risk as a way of ordering regulatory activity. This is bound up with the extraordinary developments in terms of IT and computing power. Enforcement and Sanctions 10

We talked about the idea of full blown regulation and the regulatory cycle; NL took a particular interest with the second and third aspects of the cycle (inspection and enforcement) and set up 2 big independent reviews to consider these aspects; The Hampton and Macrory reviews. The Hampton Review Hampton Principles of Regulatory Enforcement
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Regulators, and the regulatory system as a whole, should use comprehensive risk assessment to concentrate resources on the areas that need them most; Regulators should be accountable for the efficiency and effectiveness of their activities, while remaining independent in the decisions they take; All regulations should be written so that they are easily understood, easily implemented, and easily enforced, and all interested parties should be consulted when they are being drafted; No inspection should take place without a reason; Businesses should not have to give unnecessary information, nor give the same piece of information twice. The few businesses that persistently break regulations should be identified quickly, and face proportionate and meaningful sanctions; Regulators should provide authoritative, accessible advice easily and cheaply; When new policies are being developed, explicit consideration should be given to how they can be enforced using existing systems and data to minimise the administrative burden imposed; Regulators should be of the right size and scope, and no new regulator should be created where an existing one can do the work; and Regulators should recognise that a key element of their activity will be to allow, or even encourage, economic progress and only to intervene when there is a clear case for protection.

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This was a more general review which really emphasised the central role of RBR It argued that in thinking about how agencies should use their resources when inspecting and monitoring and enforcing these sanctions, it should be based on risk assessment (Big statement in favour of RBR the regulatory system as a whole, should use comprehensive risk assessment to concentrate resources on the areas that need them most ) Indeed, this almost became a religious mantra under NL and we can see how certain spheres, e.g. banking, shifted to a light touch regulation. No inspection should take place without a reason sort of the high point of RBR. o This may have its merits but perhaps there is something to be said for the fear of unannounced inspections with regards to keeping industries on their toes

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So that s the sort of general emphases in the Hampton Review ( Regulators should recognise that a key element of their activity will be to allow, or even encourage, economic progress and only to intervene when there is a clear case for protection ); the regulator is to think of themselves not as a watchdog but trying to work with economic operators for maximum efficiency. Also, note the bit where it says no new regulator should be created where an existing one can do the work ; so this ties up with the idea of superagencies. There is a real sense in the Hampton report that our system had grown up in a piecemeal ad hoc fashion. Where we had too many regulators with overlapping areas of responsibility and therefore we needed consolidation.

Macrory Review, Regulatory Justice: Making Sanctions Effective (November 2006). This is the last major development under NL. Richard McRory was charged with looking more closely at the issue of sanctions and determining what sort of toolkit was approporiate for regulatory agencies. It is perhaps significant that McRory is an environmental lawyer and ideas that developedin the environmental law sphere were clearly influential in his report. Extracts from Macrory consultation paper: Businesses are concerned that the current regulatory sanctioning system prevents effective action from being taken against rogue businesses which undercut honest operators When cases do reach the courts, sentences imposed are not considered by industry to be a sufficient deterrent or punishment for the offences in question A heavy reliance on formal criminal sanctions makes the resolution of cases a costly and time-consuming exercise for both businesses and regulators. In many instances, given the limited resources within regulators, although regulatory noncompliance has occurred, the cost or expense of bringing criminal proceedings deter the regulator from taking any action, creating what has come to be known as a compliance deficit. Criminal convictions have lost the stigma that they once had, as criminal convictions in some industries are often regarded as part of the business cycle. This may be because criminal sanctions are applied to legitimate businesses that may be prosecuted for a strict liability offence, where no fault or intent was present, as well as rogues who are deliberately flouting the law. The current system does not differentiate between these two types of offenders other than through sentencing In instances where there has been no intent of unlawfulness relating to regulatory non-compliance, a criminal prosecution may be a disproportionate response Since the focus in criminal proceedings is on the offence and the offender, the wider impact of the offence on the victim may not be fully explored. There has been

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limited evolution in the rights and needs of victims in the area of regulatory noncompliance. Sanctions should
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aim to change the behaviour of the offender (perhaps involving culture change within an organisation or a change in the production or manufacturing process ) aim to eliminate any financial gain or benefit from non-compliance be responsive and take into account what is appropriate for the particular offender and the particular regulatory issue ( the regulator seeking out the best route to get the firm to comply with its legal obligations ) be proportionate to the nature of the offence and the harm caused include an element of restoration (such that corporate offenders take responsibility for their actions and any consequences of these actions ) aim to deter future non-compliance ( firms should never think that non-compliance will be ignored or that they will get away with it )

This was operationalised in Part 3 of the Regulatory Enforcement and Sanctions Act 2008. So essentially: He basically said that traditionally we still had an emphasis on the use of criminal law. That the classic instrument for over a 100 years for regulation still hadan element of what we call command and control. The idea that if you are in breach, the classic sanction was to take you to the criminal courts. Richards view was that this instrument (criminal law) was essentially a blunt device. It often wasn t used because once u go down the cl route, it s very formalistic. Costly for agencies to do this. Second, because the magistrates courts often if they did get a case wouldn t impose a very significant penalty. Also third because Richard was concerned about the lack of what we call restorative justice in the system. A focus on fining the enterprise for non-compliance but there wasn t an emphasis inthe system for repairing damage to the victims.

What Richard proposed was there should be a shift away from using the criminal law. That the use of the criminal law should be reserved for the most serious cases. So for example say health and safety, construction sites and all of that. But outside that area, he argued that agencies should have a discretion. Agencies should have the choice of taking you to court. But they should also have their own power to impose civil penalties upon you.

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Suppose for eg you ve polluted the river as part of an industrial enterprise. Yes the agency might think about bringing a criminal charge should also have the discretion to impose a substantive civil penalty, monetary penalty, upon you.

It then went on to specify a no of principles which should structure the exercise of that discretion. (set out on page 6) Sanction should be deterent, eliminate financial gain, proportionate and also include an element of restoration. Very radical set of proposals. NL government \ accepted them and operationalised them in part 3 of the regulatory Enforcement and Sanctions Act 2008.

Part 3 allows regulatory agencies to opt in to that system. Choice of whether they want to move from heavy reliance on the criminal law to a broader toolkit of sanctions power. Not surprisingly the first to do so were those like the environmental agency

Notes: There s now clearly the possibility of a mix of criminal and civil sanctions Implies or shows a very significant discretion in the agencies Question is how will that discretion be exercised. Note that the discretion is whether to go down the criminal or civil route; and with the civil route, there is a further discretion based on the pyramid of enforcement. Notice that all those decisions must be subject to an appeal (requirement of art. 6 ECHR when your civil rights are affected), and are in fact made the subject of an appeal to a tribunal, under a new tribunal system set up under the 2007 tribunal etc act Nonetheless, we see here a significant constitutional shift in a way away from the courts to tribunals as under previous system it was magistrates court who decided whether to impose sanctions and what it d be Here it s a statutory agency which decide whether matter goes to court and subject to appeal (if not court) what sanction it itself is going to impose. Another big litmus test; will this approach survive and prosper under the new coalition? V strong pro-regulation development.

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