Better regulation for a post-Brexit Britain November 2018 76 Vincent Square, London, SW1P 2PD Overview of the work of the Red Tape Initiative Executive Summary The Red Tape Initiative is a wholly non-partisan project, bringing together remainers and leavers in all three major UK-wide political parties to develop a consensus on a range of specific regulatory adjustments that could benefit both businesses and their employees in a post-Brexit Britain. The purpose of the organisation has been to get a head start on understanding the post- Brexit regulatory world; and the research we have undertaken has been driven by the concerns of those who work in the relevant sectors covered on a day to day basis. The RTI began with no preconceptions as to what those concerns might or might not be; we have, instead, elicited them through numerous meetings and roundtables the RTI has conducted between April 2017 and October 2018. Leading Conservative, Labour and Liberal Democrat politicians form our Advisory Board, alongside other distinguished people entirely independent from any political party. The full list of the Advisory Board is as follows: Rt Hon Lord Butler, Rt Hon Liam Byrne MP, Rt Hon Frank Field MP, Rt Hon David Laws, Charles Moore, Archie Norman, Jo Swinson MP, Rt Hon Stephen Timms MP, Sir Paul Tucker and Rt Hon Theresa Villiers MP. The RTI has examined the impact of current EU regulations on nine (largely non-traded) sectors of the economy. We have spoken to over 300 businesses, large and small, both in sector panels and in one-to-one conversations, as well as to NGOs and trade bodies who have directly informed our work. Using information gathered from these meetings, we have – with the help of our legal advisers and legal panel – proposed draft recommendations to members of our sector panels before putting revised draft recommendations to our Advisory Board. The resulting recommendations are, intentionally, low-key and (we hope and believe) capable of attracting cross-party support. We have, throughout, benefitted hugely from the help of our legal advisors, Squire Patton Boggs, and from the advice of our legal panel: Jonathan Gaisman QC, Oliver Sells QC, Martin Howe QC, Rt Hon Dominic Grieve QC MP, Rt Hon Baron Garnier of Harborough QC, Jonathan Fisher QC, James Dallas and Jeremy Cape. We have depended also upon the efforts of the members of our Management Board, Baroness Rock of Stratton and Lord Marland of Odstock, as well as our donors, who are in full: Lord Marland of Odstock, The Ana Leaf Foundation, Dr Geoffrey Guy, the Public Interest Foundation, Michael Spencer, Baron Fink of Northwood, and Ian Taylor. The Red Tape Initiative also owes a great deal to its Deputy Director, Thomas Fieldhouse, who worked on the project from beginning to end. What follows are the RTI’s current recommendations grouped by sector, in the order that our investigations were undertaken: 1. Housing 2. Infrastructure 3. Training and Apprenticeships 4. Retail 5. Research and Technology 6. Health and Social Care 7. Energy 8. Tourism and Hospitality 9. Media and Culture Across all nine sectors examined, the RTI has made a total of 37 recommendations. We hope that, after scrutiny and full consultation with businesses, trade unions, NGOs and other interested parties, these recommendations will now be adopted by HMG, and will receive cross- party support in parliament. Rt Hon. Sir Oliver Letwin MP Nick Tyrone Chairman, RTI Director-General, RTI 2 Sector 1 Housing 3 1A). Mortgage Credit Directive Issue: The EU Mortgage Credit Directive (MCD) was intended to provide the EU-wide mortgage credit market with a greater and more uniform degree of consumer protection and was designed to foster a sin- gle market for mortgages. It applies to all loans made to consumers and businesses for the purpose of buying residential property and includes the following provisions: An obligation for lenders to provide clear and detailed information on loan conditions to consumers An obligation for lenders to assess the creditworthiness of consumers according to common EU standards Common quality standards and business conduct principles for all EU lenders The right for consumers to repay credit earlier than determined in a contract An EU passport scheme that allows credit intermediaries authorised to operate in any EU country to deliver services across the EU The UK implementation of the MCD as carried through by the FCA in the Mortgage Credit Directive Order 2015 (a statutory instrument derived from the Financial Services and Markets Act 2000 which amended the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001) causes those in the build- ing trade who are essentially builders and not bankers, but who seek to make it possible for people to buy their houses under shared equity schemes, to be regulated by the FCA. Opinions: The MCD’s implementation in the United Kingdom was intended to provide a high level of con- sumer protection but failed to foresee the unintended consequence of stultifying this part of the housing market and diminishing the affordability of housing in the UK by dissuading, for example, small building companies from entering into the somewhat specialised sector of shared equity because of the bureau- cratic burden of FCA regulation. Chapter XV of the 2001 Order deals with and defines Regulated Mortgage Contracts. Entering into such a contract is a specified kind of activity. This Order pre-dates the MCD and this particular provision refers in Article 61(2)(ii) to a regulated mortgage contract as meaning a contract where a lender provides credit to another and the obligation of the borrower is secured by a first mortgage. Article 4 (21) (a)(i) of Part 2 of the MCD Order 2015 (page 32 of the Order) appears by amendment to have delimited the lending securi- ty from only a first mortgage to include any mortgage, thus bringing into the regime of regulated mortgage contracts under the remit of the FCA any shared equity provided by a builder in addition to the buy-to-let purchaser’s “ordinary” or first mortgage, by defining the shared equity contract as a form of “second charge” mortgage. The main concern here is that the Government’s intention to cut and paste EU law, directives and regula- tions into UK law, loosely put, via the European Union (Withdrawal) Act will perpetuate the need for build- ers who provide shared equity to be regulated by the FCA – thereby effectively stifling the growth of this market and continuing the damaging effects that this has on the availability and affordability of housing in the UK. Recommendation: In order to deal with the MCD/FCA problem and to ensure that shared equity provided by the builder to a purchaser does not continue to be governed by the FCA, it will be necessary expressly to exclude this type of arrangement in the new UK version. The idea is that although the MCD will live on as an English and Welsh, or UK, provision it should be shorn of any provisions that make this type 4 of arrangement by a builder susceptible to the FCA’s jurisdiction. To do this, the 2001 Order should be restored to its original wording prior to its being amended by the 2015 Order; but it might be safer to ensure that the new, post-Brexit version of Article 61 also has a “for the avoidance of doubt” provision which makes it clear that shared equity provided by the builder of a house is expressly excluded from the definition of a regulated mortgage agreement. That can be achieved by restoring Article 61 to its 2001 wording and adding shared equity arrangements, carefully defined, to the provision headed “Mortgage contracts which are not regulated mortgage con- tracts. 61A…” to be found on page 32 of the 2015 Order (or, perhaps less satisfactorily, by expressly ex- cluding shared equity in an extra “for the avoidance of doubt” provision). 1B). Energy efficiency requirements for listed buildings Issue: The 2010 Energy Performance of Buildings Directive (Directive 2010/31/EU) and the 2012 Energy Efficiency Directive (Directive 2012/27/EU) are the EU's main legislation covering the reduction of the en- ergy consumption of buildings. Both of these Directives make allowances for listed buildings – although, given that ‘Listed Building’ is a specifically British term, the wording of both Directives is as follows: ‘Member States may decide not to set or apply the requirements … to the following categories of build- ings: (a) buildings officially protected as part of a designated environment, or because of their special ar- chitectural or historical merit, in so far as compliance with certain minimum energy performance require- ments would unacceptably alter their character or appearance’ (Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012 Article 5 (2)). Essentially the same reference to exemp- tion “in so far as” compliance with certain minimum energy performance requirements would “unacceptably alter their character or appearance” appears in The Energy Performance of Buildings (England and Wales) Regulations 2012 (Regulation 5 (1)(a)), which transposes the Directive into UK law. Opinions: It would therefore appear clear-cut that a listed building is exempted from energy performance standards in a case where compliance with such standards would unacceptably alter the appearance of the building. In line with this, the current guidance on selling one’s home on the government website says that listed buildings are exempt from acquiring EPCs - with no mention of altering a building’s character or otherwise. However, in practice, neither planning consultants nor officials working for English Heritage nor conservation officers in Local Authorities have been willing to guarantee that the legal grounds for exemp- tion have been satisfied except when the owner of the building has gone to the trouble of (a) obtaining an EPC and (b) applying for Listed Building Consent to make the changes recommended by the EPC as be- ing necessary for the achievement of the current energy performance standards and (c) being refused Listed Building Consent on the grounds that the changes would “unacceptably alter [the] character or ap- pearance” of the building.