Brown condemned as ‘cavalier’ for dropping OFR bombshell
Gordon Brown has added to the growing rift between environmentalists and New Labour by ditching plans which would force companies to report actions that might impact on communities and the environment.
At the Confederation of British Industry (CBI) annual conference on Monday the Chancellor announced the Government would be scrapping the proposed requirement for businesses to publish an annual operating and financial review (OFR), a document which would look at a company’s social and environmental performance.
The OFR was the only piece of Government legislation to date that sought to regulate socially and environmentally responsible corporate behaviour.
In what will be interpreted by many as an effort to cosy up to a corporate world increasingly disillusioned with his policies, Brown gave the concession to show his commitment to reducing the burden of regulation and removing Whitehall’s unnecessary ‘gold plating’ of European directives.
The Chancellor also alluded to plans for further deregulation of business and a future assumption that business would by and large behave responsibly if allowed to police itself.
“We all agree that at the heart of the modern enterprise challenge is minimising regulatory concerns,” he told the business leaders at the conference.
“Whenever I go to the USA and talk to businessmen and women there, they express exactly the same frustrations about regulation and the same hopes about reducing burdens.
“In the old regulatory model – and for more than one hundred years – the implicit principle from health and safety to the administration of tax and financial services has been, irrespective of known risks or past results, 100 per cent inspection whether it be premises, procedures or practices.
“So regulation came to mean that government routinely and continuously inspected everyone and everything, demanded information from all of us on a blanket basis, required forms to be filled in for all issues subject to regulation and inspection – the only barrier to complete coverage usually being a lack of resources.
“This approach, followed for more than a century of regulation by governments of all parties is outdated.
“The better, and in my opinion the correct, modern model of regulation – the risk based approach – is based on trust in the responsible company, the engaged employee and the educated consumer, leading government to focus its attention where it should: no inspection without justification, no form filling without justification, and no information requirements without justification, not just a light touch but a limited touch.
“The new model of regulation can be applied not just to regulation of environment, health and safety and social standards but is being applied to other areas vital to the success of British business: to the regulation of financial services and indeed to the administration of tax.
“And more than that, we should not only apply the concept of risk to the enforcement of regulation, but also to the design and indeed to the decision as to whether to regulate at all.”
He said there would be a full audit of Government departments where gold plating of European regulation had led to additional and unnecessary burdens and these would be addressed and, where possible, removed.
Future guidelines would prohibit gold plating, said Brown.
“To emphasise our commitment to this new approach the Government is today abolishing a specific example of gold plating,” he said.
“Best practice is of course for companies to report on social and environmental strategies relevant to their business.
“But I understand the concerns about the extra administrative cost of the gold plated regulatory requirement that from April next year all quoted companies must publish an operating and financial review.
“So we will abolish this requirement and reduce the burdens placed upon you – the first of a series of regulatory requirements which by working together we can abolish in the interests of the British economy.”
Friends of the Earth is among the groups that have expressed shock at the announcement.
The pressure group said the OFR had contained only modest measures to promote more responsible green behaviour from companies in the first place and claimed dumping it was ‘a clear signal that the Chancellor is willing to
allow communities and the environment to suffer at the hands of British
FoE’s corpoarte accountability campaigner, Sarah Jayne Clifton, said:
“The OFR, flawed though it was, contained the only concrete action this Government has taken to require at least some modest moves toward corporate responsibility.
“Now Brown has said that the benefits of the OFR would not have been worth the extra cost to business.
“What about the costs to people and communities around the world whose
health and livelihoods are destroyed by irresponsible British businesses?
“Now UK companies operating overseas won’t even have to report on any environmentally and socially damaging activities they are involved with.
“It is about time the Government stopped bowing down to CBI scaremongering and recognised that regulation is essential to tackle
market failure and protect people and the environment from the negative
impacts of corporate activity.
“Skimping on measures now to improve business impacts will mean much greater costs in the long-term.”
While the CBI itself welcomed the U-turn, many business groups gave it a luke-warm reception with some openly condemning it.
The Insitute of Directors was critical of the timing of the announcement, saying that while the lifting of regulatory burden was welcome it was irresponsible to do so at such a late stage when industry had invested heavily to ensure it met requirements.
Patricia Peter, head of corporate governance for the IoD said: “Making the u-turn now – however welcome – when affected companies will have spent a large amount of time, effort and money – in some cases many millions of pounds – to enable them to meet the requirements of the OFR, demonstrates a cavalier and ill-thought through approach to regulation and its impact.”
By Sam Bond
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