Sir David Davis calls for tougher regulators in the Sunday Times


Hospitals with high mortality rates declared safe. NHS safety assessments tailored to fit political rhetoric. Health inspectors who kept quiet about life-threatening flaws in care. Serious concerns dismissed as “historic” issues. Last week one of its most senior figures exposed the awful record and shocking complacency of the Care Quality Commission (CQC), the healthcare regulator that couldn’t care less.

This is a tragedy for victims and their families, but it also highlights the inherent dangers of relying on regulators. Socialists like to talk about market failure, but what we have seen in recent years is systematic regulatory failure.

Conventional wisdom says past problems — needless deaths at Mid Staffordshire, the financial crisis or the horsemeat scandal — were the result of “light touch” regulation. Hence capitalism and society in general need more regulation.

But what we need is not more regulation, but organisations that deliver rather than dissemble, real performance measures presented with clarity, and simpler and more effective regulation with less bureaucracy and more teeth.

In recent years we have seen what happens when industry regulators fail. The Financial Services Authority was asleep as big banks borrowed colossal sums against depositors’ savings, defrauded customers by mis-selling insurance, and grew so large that their collapse was averted only with hundreds of billions of pounds of taxpayers’ money. We can only guess how many NHS patients died because the CQC missed danger signs, or how long horsemeat has been in our food chain while the Food Standards Agency remained oblivious.

Regulators do not just fail to identify problems; they are often part of the problem. When the Mid Staffordshire scandal broke, the CQC bent over backwards to confirm the then government’s line that it was a “one-off”. According to Kay Sheldon, a CQC non-executive director, the regulator thought finding another Mid Staffordshire had to be avoided at all costs. This cover-up culture meant problems at other hospitals never emerged; substandard trusts were declared safe. Five years later, another 14 hospital trusts are being investigated. That will not be the end.

Similarly, the Financial Services Authority was complicit in the crisis that the financial sector created. It encouraged institutions to circumvent unfavourable foreign regulation, and signed off the RBS takeover of ABN Amro that saw the bank collapse. Given that the authority at that time was dominated by people from the banks, it is no wonder the industry’s policeman became its accomplice.

Those who see more regulation as the solution to every scandal must also explain why so many past scandals have not been revealed by regulators. The Food Standards Agency is a case in point. Established in 2001 after the BSE scare, it was another example of more regulation being wheeled out in response to a scandal. Yet it failed to realise that some “beef” products sold in supermarkets contained 100% horsemeat.

The terrible events at Mid Staffordshire may have hit the headlines because of an investigation by the Healthcare Commission (the CQC’s predecessor) but that investigation came only after pressure from the relatives of the hundreds of patients who died needlessly. Similarly, the energy regulator Ofgem seemed to be the last to know that unscrupulous traders and energy suppliers fixed gas prices to meet their own ends. Ofgem is now investigating, but it knows there is something to investigate only because a whistleblower went public. Yet for some, the solution to these problems is more of the regulation that missed them in the first place.

In banking, we will achieve nothing with more and more increasingly complex rules. We need a return to the basic principles that once gave Britain a healthy financial services sector: strong competition between banks, lower barriers to entry for new banks, more lending from deposits rather than leveraging the balance sheet and the breaking up of nationalised banks that have become too big to fail.

There is room in the British marketplace for up to 30 efficient banks. That would deliver more competition, better service and less financial instability than we have with the Big Four.

Our regulators should be smaller and tougher. As institutions, they should be ferociously independent both of government and the industry they are supposed to police. How can we expect our financial regulator to protect consumers if it is dominated by senior bankers? How can we trust our hospital regulator to expose substandard care if its main concern is to protect the Department of Health?

Some ministers like setting up new regulators, or announcing bigger budgets for existing ones, because it looks like they are getting a grip on the problem in hand. Without the right regulation, though, it becomes little more than an expensive PR exercise. When Labour set up the Food Standards Agency, one minister admitted the decision had more to do with putting “clear blue water” between the government and BSE fears than with improving food safety.

We do not need more regulation; we need a revolution in our approach to regulation. First we need to get the structures and environment right, with competition, honesty and openness our weapons. Then we need more intelligent and independent regulators who are relentless in their drive to expose failings and to put the consumer first. If we fail, then the regulators will remain watchdogs that do not bark.