13 January 2022

Gove and Grenfell

Placing the liability.

By Robert Kilconner

It was the Victorians what done it. No, they didn’t actually set light to Grenfell Tower but it was their Limited Liability Act of 1855 which, by separating profit and responsibility, meant that those responsible for disasters can often escape the consequences. If everyone was individually responsible for works from which they profit, there would be no temptation to cut corners, to fudge tests or to ignore warning signs. There would have been no Grenfell Tower, no problem with diesel emissions and no overgeared CDOs. In fact there wouldn’t be very much of anything because the ability of the economy to absorb risk would not have been sufficient to accommodate the progress which underlies the living standards we take for granted today.

In the end, that is the rub. Limitation of liability enables risks to be taken without personal exposure for investors and executives – but that exposure does not simply go away. It is simply shifted to the customer or consumer who often cannot pursue those responsible either because of corporate structures or because of contractual limitations. 

That is why Michael Gove’s commitment to recovering cladding costs from the developers will be hard to fulfil. It might be possible to do something about future issues either by toughening regulation (the regulatory regime designed to prevent just the sort of disaster we saw at Grenfell, having failed miserably to do so) or by providing that individual executives are personally responsible for damage resulting from regulatory failures of which they should have been aware; but one could hardly impose that retrospectively. Instead Mr Gove and his accountants will be thrashing through complex legal issues to try to fix liability where money can be found to meet them. Good luck, chaps, but it sounds unlikely that more than a fraction of the government expenditure on recladding costs will be recovered. The question then is where to find the rest.

There are only two answers to that. The first is to bear it out of central funds, unattractive at a time when Government is already stretched by the borrowings undertaken to meet the cost of the furlough scheme. The other is a specific tax on the building sector. That too is fraught with difficulty. We are currently looking to that sector to solve the housing problem and, quite apart from that, such a tax would be intrinsically unfair. Builders who had used safe cladding would end up being penalised while those who had ignored doubts about the status of the materials would retain their profits.

That isn’t of course to say that it won’t be done. When money is needed badly, fairness often goes to the wall and that may be inevitable here. What is important is that the measures should include a new look at the way in which regulations are enforced to prevent it all happening again. For all his ranting and “we are coming for you” rhetoric, Gove is a thoughtful minister and should regard the whole question of how to ensure that personal liability follows regulatory manipulation as falling within his brief.

Cover page image: Richard Townsend / Wikimedia / Creative Commons