Lorne Neudorf: Scrutinising Legislative Reform Orders: The Case of the Horserace Betting Levy

On Wednesday, 21 November, the House of Lords Delegated Powers and Regulatory Reform Committee (the ‘Lords Committee’) held a unique concurrent meeting with the House of Commons Regulatory Reform Committee (the ‘Commons Committee’) to take evidence as part of its scrutiny of a draft Legislative Reform Order (‘LRO’) entitled the Legislative Reform (Horserace Betting Levy) Order 2018 (the ‘Levy Order’).

The Levy Order proposes to change the horserace betting levy scheme by amending the Gambling Act 2005 and repealing statutes relating to the levy. It would abolish the Horserace Betting Levy Board and transfer some of its functions to the Gambling Commission while allowing the minister to designate an authority to apply levy funds (the newly established Racing Authority). The government’s rationale for the reforms is to streamline the administration of the levy. During initial scrutiny by the Lords Committee concerns were raised about whether the Levy Order was an appropriate use of the LRO process and whether it met the relevant statutory tests.

LRO framework

Pursuant to the Legislative and Regulatory Reform Act 2006 (the ‘LRRA’), an LRO is a special kind of statutory instrument that can be made by a minister to directly amend primary legislation and therefore bypass the ordinary parliamentary process. The power to amend primary legislation by subordinate legislation is referred to as a Henry VIII clause, recently characterised as a “departure from constitutional principle” in a report of the House of Lords Constitution Committee (discussed in a post by Mark Elliott and Stephen Tierney).

The LRRA is designed to assist deregulation. It permits an LRO to be made when it would reduce a burden that results from legislation, which is defined broadly to mean a financial cost, an administrative inconvenience, an obstacle to efficiency, productivity or profitability, or a sanction (criminal or otherwise) that affects the carrying out of a lawful activity. The government’s guidance advises that LROs can be “a useful tool for routine and urgent deregulatory changes that are unable to find a bill”.

The LRRA imposes preconditions to an LRO including that its policy objective could not be secured by non-legislative means, that it is proportionate, that it strikes a fair balance between the public interest and persons adversely affected, that it does not remove any necessary protection, that it does not prevent anyone from continuing to exercise a right or freedom which they might reasonably expect to continue to exercise, and that it is not of constitutional significance. LROs are also subject to restrictions on their ability to sub-delegate legislative powers.  In addition, an LRO cannot create a serious criminal offence or significantly increase criminal penalties, impose, abolish or vary a tax, authorise forcible entry, search or seizure, or compel the giving of evidence.

Before making a draft LRO, the minister must consult with persons substantially affected by the changes. Following consultation, the minister is required to lay the draft LRO and an explanatory document before Parliament. The minister must also recommend the negative, affirmative or super-affirmative resolution procedure, each of which involves a different level of parliamentary scrutiny of the draft LRO before it can become law.

In the case of the Levy Order, the minister originally recommended the affirmative procedure, which was later upgraded by the Lords Committee to the super-affirmative procedure in light of concerns raised. The super-affirmative procedure is the most stringent as it subjects the draft LRO to two periods of committee scrutiny and requires an affirmative resolution of each House before it can become legally effective.

Committee scrutiny of draft LROs

In examining a draft LRO under the super-affirmative procedure, both the Commons and Lords Committees consider whether it meets the statutory requirements described above and, according to the LRO guidance, “whether the consultation [in relation to the reform] was adequate, meaningful and genuinely enabled consultees to understand, judge and comment” on the proposal within a reasonable period of time.  The LRRA provides that either Committee may recommend that the LRO should not proceed, in which case the minister is prevented from making the LRO except where the Committee’s recommendation is overruled by the House.

The LRRA does not refer to an appropriateness test in the LRO scrutiny process. The Lords Committee takes the view that it should consider whether a draft LRO is appropriate in addition to the statutory tests, while acknowledging that it should not examine policy questions relating to the draft LRO in depth.  This additional layer of scrutiny is undoubtedly useful although it is not clearly expressed in the Committee’s remit, which provides for the Committee to assess the appropriateness of delegation provisions in bills. By contrast, the Commons Committee’s remit under the Commons Standing Orders provides for it to review the appropriateness of draft LROs. It would appear that the Lords Committee has simply extended its usual approach from the scrutiny of bills to the LRO process.  For both Committees, an appropriateness review of a draft LRO carries an increased risk of politicisation.  In working out whether a concrete exercise of legislative power like a draft LRO is appropriate provides a tempting opportunity to critically reflect on government policy as compared to, for example, the more conceptual enquiry of examining a provision in a bill.  Fortunately, the skilful leadership of both Committees appears to have mitigated this risk.

How is appropriateness defined?  Past Committee reports make clear that a detailed explanation from the minister justifying the use of the draft LRO will be required, particularly in relation to the decision to select the vehicle of an LRO as opposed to that of primary legislation.  The Committees are likely to question draft LROs that deal with the public revenue, those that create criminal offences or impose significant penalties, those that interfere with the exercise of existing rights, those that seek to sub-delegate wide powers, and those that involve matters of political controversy or that would make significant reforms which are more appropriately dealt with through the bill process and a full debate in Parliament.  Some of these grounds are covered by the statutory tests and there is inevitably overlap between the specific LRRA requirements and the more general appropriateness assessment.  The usefulness of the appropriateness assessment lies in its gatekeeping function: in circumstances where either Committee concludes that its scrutiny process is not up to the job and further debate and judgement is required, the draft LRO will be deemed inappropriate.  The yardstick for measuring what is appropriate can be expected to continue to develop over time as the Committees scrutinise new draft LROs and report on their findings.  It is conceivable that the Commons and Lords may develop somewhat different approaches to appropriateness given their different compositions.  The potential for divergence should not be problematic provided clear principles guide the appropriateness assessment for each Committee.

The Levy Order hearing

The Levy Order hearing is believed to be the first time that both the Commons and Lords Committees sat concurrently.  The purpose was to take evidence on the appropriateness of the government’s decision to bring in the Levy Order reforms through an LRO as opposed to primary legislation.

The first witness, Lord Lipsey, former chairman of the Greyhound Board, gave evidence opposing the Levy Order.  His main ground of attack was that the Levy Order was a “wholly inappropriate” use of the LRO procedure although he believed that it also failed the LRRA tests.  The real purpose of the Levy Order was not to reduce a legislative burden but to reform the way in which the levy was collected and to abolish the Horserace Betting Levy Board. Lord Lipsey argued that the Levy Order was too substantial for an LRO and did not fall within the expected use of the LRO power under the LRRA.  The attenuated debate of the LRO process was inadequate for an LRO of the magnitude and importance of the Levy Order, which required primary legislation.  Lord Lipsey noted the “grave risk” of delegated powers that could be exercised in the absence of robust parliamentary scrutiny and argued that government officials would be quick to see the Levy Order as an important precedent on the available scope of the LRO procedure.  If the Levy Order was approved, it would open the floodgates and pave the way for more substantial LROs in the future.

The second witness, Minister Mims Davies (accompanied by a number of departmental officials) defended the Levy Order.  On its appropriateness, members of the Committees questioned whether the Minister (or her predecessor) had considered primary legislation.  The Minister argued that the LRO process was “absolutely” the correct way to bring in the reforms.  An official noted that the government had taken legal advice when it formulated the policy, which identified an LRO as the appropriate vehicle.  Members questioned the transfer of the levy application function from an existing statutory body to a non-statutory body which would be exempt from ordinary transparency regulations (e.g., those related to freedom of information).  Members also questioned why the racing authority was not identified on the face of the Levy Order.  The Minister argued that a power to designate the authority would “future proof” the legislation in case a change needed to be made.  Members were critical of this power on the basis that it was too broad and lacked parliamentary oversight. Members questioned whether the real reason for bringing in the reforms through an LRO might have been simply that the government ran out of room in its legislative agenda.  At one point, the Minister reiterated that the reforms were supported by the industry, prompting a sharp interjection from a member that the role of the Committees was not to promote an industry but to protect the broader public interest. Members reiterated that they were supportive of the racing industry but the question for the Committees was not whether the reforms were sensible but whether an LRO was the appropriate way in which to bring them in. One member noted that it would have been preferable to have a full debate about the reforms in Parliament.  While the Minister reiterated her confidence in the Levy Order, she acknowledged that she was “not feeling it” in relation to having made her case.

Final observations

The scrutiny period for the Levy Order expires 12 December.  The hearing suggests that the Committees are prepared to knock back the Levy Order as an inappropriate use of the LRO procedure (and possibly also on the grounds that it fails one or more of the statutory tests) – or at a minimum, recommend significant amendments in relation to the concerns raised.  While rare, a recommendation against a draft LRO is not without precedent.

The forthcoming Committee reports stand to be highly valuable to better understand how the Committees see their role in relation to the LRO scrutiny process and their interpretation of the statutory tests and the appropriateness assessment.  Greater clarity of the LRO scrutiny process will be useful both for the Committees and for the government in relation to future cases.

It also worth noting the increasing attention being paid by parliamentarians to delegated legislation, no doubt driven by the need to scrutinise numerous regulations in light of Brexit.  This is a welcome development, particularly in context of the increasing reliance on broad delegated powers and Henry VIII provisions that should be tightly restricted.  The scrutiny of delegated powers must achieve a balance that gives the government the legislative flexibility intended by Parliament while providing accountability and transparency in the exercise of those powers.  While the scrutiny of regulations will always be a contextual exercise, a principled approach can provide an efficient and effective check on executive power that serves the public interest.

Lorne Neudorf is a Visiting Fellow at the Bingham Centre for the Rule of Law and Deputy Dean of Law and Associate Professor at the University of Adelaide. His research compares formal and informal parliamentary scrutiny of delegated legislation in Australia, Canada, New Zealand and the United Kingdom to learn from best practices and develop more efficient and effective scrutiny mechanisms.  The support of the Social Sciences and Humanities Research Council of Canada is acknowledged.

(Suggested citation: L. Neudorf, ‘Scrutinising Legislative Reform Orders: The Case of the Horserace Betting Levy’, U.K. Const. L. Blog (5th Dec. 2018) (available at https://ukconstitutionallaw.org/))