This is the third of five notes which:
Concerns about the burden of regulation are hardly new. Ministers generally ignore them for some years, and then respond by announcing a flurry of initiatives, which seldom achieve much more than a temporary reduction in the flow of regulation, given the separate pressure that Ministers are always under to "do something".
President of the Board of Trade (and later Prime Minister) Harold Wilson announced a "further bonfire of controls" as long ago as 29 October 1947 and this sort of phrase has been repeated by many more recent politicians, including Michael (later Lord) Heseltine who promised a "bonfire of red tape" whilst he was Wilson's successor in the early 1990s. There was another upheaval in the late 1990s when the then Better Regulation Unit (which had previously been called the Deregulation Unit) was re-named the Regulatory Impact Unit, and work was begun on what became the Regulatory Reform Act 2001 - see further below.
Nevertheless, and despite the fact that the UK economy is probably less regulated than many others, the issue again received a good deal of attention from early 2005, partly driven, no doubt, by the Government's need to be seen to be business-friendly around the time of the May 2005 general election. There were several strands to the activity, including a yet further renaming of the unit - this time to become the Better Regulation Executive - "the BRE", which in turn became more deregulatory than its immediate predecessors. Each of the main strands of the activity is summarised below.
Incoming Prime Minister Gordon Brown announced in June 2007 that the increasingly pro-business BRE, previously part of the Cabinet Office, was to join what had been the Department of Trade and Industry in order to form "BERR" - the Department for Business, Enterprise and Regulatory Reform. It remains to be seen whether this marriage will be successful. BERR Ministers had for many years been responsible for employment law and had successfully balanced the needs of business against the needs of employees, especially those represented by the unions, which fund a large part of the Labour Party's expenditure. BERR Ministers may find it helpful to have an in-house deregulatory lobby group - but they may also find it rather irritating.
1. Improving [Regulatory] Impact Assessments
Building on their March 2004 Report, the National Audit Office reported in March 2005 that there was "scope for significant improvement" in the quality of Government Departments' Regulatory Impact Assessments. There were said to be two principal problems. First, RIAs were often drafted too late, and after the policy had in practice become irreversible. Second, they had become complex, including all sorts of impacts such as on the legal aid bill! It was therefore difficult to see the wood for the trees and, because some of the many impacts were inevitably hard to assess, it had become acceptable to be quite vague about all the impacts, including very important ones.
In response, the Better Regulation Executive are currently consulting on various improvements, including requiring the (renamed) Impact Assessments to be shorter and more transparent, and to increase the accountability of those signing them off. But it seems unlikely, even so, that the new assessments will overcome the two fundamental problems with such documents:
- Impact assessments must be drafted so as to be acceptable to Ministers who are often determined - for what seem to them good and strong reasons - to introduce the new burden, whatever it costs. (It is doubtful, for instance, whether Ministers will resile from their current (and understandable) determination to force all employers to require their employees to save for their retirement, despite the huge administrative burden this will place on smaller firms.)
- The costs and benefits are hard (or impossible) to quantify. (Departments' estimates of costs are bound to be optimistic, and by definition do not include unintended consequences, whilst it is very difficult to put a cost on a wide range of benefits, such as those associated with greater employment rights.)
2. Measuring Administrative Burdens & Simplification Plans
Regulatory costs may in principle divided into policy costs, one-off costs, financial costs and administrative costs:
- Policy costs are those costs directly attributable to the policy goal. For instance, if a new regulation requires employers to reduce their employees’ exposure to a particular chemical in the workplace, the policy cost might include buying new equipment such as local exhaust ventilation or personal protective equipment, and regular checking that the equipment is in good working order.
- One-off costs are those costs only sustained once (such as in taking professional advice and initial staff training) when a business is adapting to a new or amended regulation.
- Financial costs include paying tax and license fees.
- Administrative costs are all those costs associated with familiarisation, record keeping and reporting, including inspection and enforcement. Such costs would include ongoing staff training, keeping records of exposure levels and equipment checks, and supplying that information to the authorities.
In March 2005, the Better Regulation Task Force put forward a range of recommendations aimed at reducing the regulatory burden on business:- Regulation - Less is More: Reducing Burdens, Improving Outcomes. The main thrust of the Task Force report was that the Government should for the first time (a) measure and then (b) reduce the stock of regulation, beginning with the adminstrative burden, and then move on to a sizeable programme of regulatory simplification and reform, in part driven by suggestions from business. This was a fundamental change of approach as most previous deregulation initiatives had focussed on reducing the flow of new regulation, rather than attacking the existing stock. The Government published its response to the report in July 2005, accepting all the recommendations. This led to the the Administrative Burdens Measuring Project in which consultants asked the business community to estimate the administrative cost of the existing stock of regulations. The NAO (see further below) later reported that the total was just under £20bn, not including around £11m "business as usual" costs - such as the cost of preparing accounts which would anyway be needed by managers and shareholders, even if they did not also need to be submitted to Companies House and/or the tax authorities. About one quarter of this £20bn was represented by burdens imposed by the tax authorities. The balance was in December 2006 said to be £13.7bn pa but the NAO subsequently estimated it a little higher.
The Government simultaneously published a number of departmental Simplification Plans which supposedly identified 500 "red tape busting actions" which would save businesses etc. over £2bn in administrative costs. Examples included (already enacted) changes to company law, improvements to the planning system and less intrusive health and safety, and retail premises, inspection regimes. The aim was to save 25% of the £13.7bn total administrative cost burden by 2010, together with a smaller proportion of the cost of complying with tax legislation etc.
It was easy to be cynical about this programme. Those close to it believed that businesses wildly over-estimated the administrative cost of certain of the regulations, thus making it very easy for officials to target reductions in those costs. But the programme was nevertheless very welcome and there is little doubt that it will do real good, even if it achieves much less than the Government's headlines would have us believe. This conclusion was echoed in the NAO's July 2007 report Reducing the Cost of Complying with Regulations: The Delivery of the Administrative Burdens Reduction programme, 2007. The NAO particularly noted that:
- The Government's targets were for a net reduction in administrative burdens. Departments therefore need to deduct any new administrative burdens from the savings achieved in the delivery of older regulations.
- The results of similar programmes in Denmark and the Netherlands had either "not been noticed in full" or "not been noticeable" at all. This was presumably because the relative importance of administrative burdens is not known, and may in practice be only a small part of the four-fold cost of regulation (see above), and also, as the NAO pointed out:
- Business find it particularly irritating and burdensome to keep up-to-date with changes in existing regulations, to comply with regulations, and to find appropriate information and guidance. These "irritation factors" are not necessarily the most burdensome in monetary terms, and hence are less likely to be targeted as part of the burdens reduction programme.
- A regulation can appear to impose large administrative burdens because it applies to a large number of businesses, even if the burden is not particulalry high for individual firms. Equally, a regulation may not appear to impose significant burdens because it affects only a small number of firms, but the burdens may still be significant for individual affected firms.
3. The Hampton Report
The third development in March 2005 was the publication, by the Treasury, of the Hampton Report: "Reducing Administrative Burdens: Effective Inspection and Enforcement". The report was principally aimed at increasing the efficiency of, and reducing the burden on "honest businesses" of, inspection and enforcement. In other words, it targetted the third of the problem areas listed towards the beginning of the separate note on burden of regulation. But a good deal of Treasury-inspired politics lay behind the creation of the Hampton Review. It was not aimed at reducing the overall burden of regulation - which would have brought it up against a number of Treasury-created burdens, including tax credits - and in particular was not allowed to look at the inspection and enforcement activities of HM Revenue and Customs - surely the department with which almost every business comes into most frequent contact. In practice, therefore, the review team concentrated on inspection and enforcement in the areas of environmental protection and health and safety, and sensibly looked at the interaction of national and local government in these areas.
Hampton recommended that:
- comprehensive risk assessment should be the foundation of all regulators’
enforcement programmes;
- there should be no inspections without a reason, and data requirements for less
risky businesses should be lower than for riskier businesses;
- resources released from unnecessary inspections should be redirected towards
advice to improve compliance;
- there should be fewer, simpler forms;
- data requirements, including the design of forms, should be coordinated across
regulators;
- when new regulations are being devised, Departments should plan to ensure
enforcement can be as efficient as possible, and follows the principles of this
report; and
- thirty-one national regulators should be reduced to seven more thematic bodies.
He also recommended that:
- a Better Regulation Executive should be created to take over the responsibilities of the Better Regulation Task Force and the Cabinet Office's Regulatory Impact Unit,
- penalty regimes should be reviewed - and generally made tougher (He noted that it often takes regulators ages to impose penalties which are then often less than what it would have cost the business to comply with the legislation if the first place.), and that
- the Government should adopt the following principles of inspection and enforcement:
- regulators, and the regulatory system as a whole, should use comprehensive risk assessment to concentrate
resources on the areas that need them most;
- regulators should be accountable for the efficiency and effectiveness of their activities, while remaining
independent in the decisions they take;
- all regulations should be written so that they are easily understood, easily implemented, and easily
enforced, and all interested parties should be consulted when they are being drafted;
- no inspection should take place without a reason;
- businesses should not have to give unnecessary information, nor give the same piece of information twice;
- the few businesses that persistently break regulations should be identified quickly, and face proportionate
and meaningful sanctions;
- regulators should provide authoritative, accessible advice easily and cheaply;
- when new policies are being developed, explicit consideration should be given to how they can be
enforced using existing systems and data to minimise the administrative burden imposed;
- regulators should be of the right size and scope, and no new regulator should be created where an existing
one can do the work; and
- regulators should recognise that a key element of their activity will be to allow, or even encourage,
economic progress and only to intervene when there is a clear case for protection.
The Government accepted all Hampton's recommendations. Chancellor of the Exchequer Gordon Brown accordingly announced a Better Regulation Action Plan in May 2005. This involved "a new risk-based approach to regulation", a one-third cut in inspections, a reduction in the number of regulators from 29 to 7, a 25% reduction in form-filling and the creation of the Better Regulation Executive reporting to a Better Regulation Commission. Where legislation was to be necessary, this would take the form of legislation to be introduced in early 2007 as well as separate legislation (see further below) to make it easier to amend outdated legislation etc.
However, many of Hampton's recommendations are less straightforward than they first appear:
- It is easy to write regulations that are easily understood, easily implemented, and easily
enforced - as long as you leave plenty of discretion to the regulator. Unfortunately UK businesses and their representatives like certainty - and that means detailed regulations covering every conceivable circumstance. (See my separate note on the transposition of EC Directives.)
- It is not difficult or expensive to employ staff who either have in depth knowledge of complex regulations, or have basic knowledge of a wide range of regulations. But it is expensive to train and employ staff who are truly able to "provide authoritative, accessible advice". The private sector do employ such people. They are called solicitors and accountants - and they do not come cheap!
- If businesses do not have to "give the same information twice", then does this mean that regulators must be free to swap information amongst themselves? But this is generally frowned upon as breaching rights to privacy - and the right to tell one regulator one thing, and another another!
- It is not clear how regulators will identify businesses that break regulations, if "no inspection should take place without a reason" - unless random inspections are still to be allowed - which is hardly what the principle seems to imply.
Put another way, it will be interesting to see how long it is before the new "super-regulators" are accused of being over-bearing and out of touch, and/or over-expensive and/or employing front-line staff who are unfamiliar with the full breadth of the organisation's regulatory remit.
An update document "Implementing Hampton: from enforcement to compliance" was published in November 2006.
4. The Legislative and Regulatory Reform Act 2006
This legislation, enacted in November 2006, introduced new powers to reform outdated, unnecessary or over-complicated legislation, to be used in particular to implement government departments' simplification plans (see above) and uncontroversial Law Commission proposals. It also gave Ministers the power to implement the structural reform of regulatory bodies, as recommended by Hampton (other than the major changes being implemented in the separate Bill - see above), and the power to encourage a risk-based and proportionate approach to regulation and inspection. This is to be achieved by requiring certain regulators to follow a Code of Practice (see item 8 below) which will require regulatory activities to be carried out in a way which is "transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed"..
Much of the Act was uncontroversial, although the regulators themsleves are concerned that it will offer rogues yet another opportunity to challenge actions which might thwart their roguery. But the first part of the Act gave Ministers sweeping new powers, excersiable via secondary legislation. They can now create new criminal offences for which people can be imprisoned for up to two years, and they can remove "administratve inconveniences" - a pretty wide definition in the wrong hands.
Ministers argued that the Act merely removed technical obstacles to the operation of the Regulatory Reform Act 2001 (which itself went further than the previous Deregulation and Contracting Out Act 1994). All three pieces of legislation were, or are, intended to allow the Government to use secondary legislation ("orders") to amend primary legislation. However, as the Government's consultation document said :- "The powers in the [2001] RRA, building on those in the DCOA, are constitutionally ground-breaking. They allow wide ranging reforms across a number of Acts without the mechanisms for formal debate on the floor of the House, which would normally be afforded to any amendment to primary legislation. They were designed to deliver better regulation measures that were technical and consensus-driven. Effective consultation and detailed scrutiny in Parliamentary Committees guarantee appropriate use of the powers."
Because of its constitutional sensitivity, the early drafts of the 2006 legislation were said by the Government to make sensible improvements to the old legislation, without going way beyond its purpose. But not all consultees agreed that it met this test, and many MPs shared their concerns. (One academic called it the "abolition of Parliament Bill"! Others claimed that it could be used to introduce house arrest, re-write the rules on immigration and make other dramatic changes. Marcel Berlins, writing in the Guardian in February 2006, accepted that there were safeguards to prevent this sort of dictatorial behaviour, but pointed out, quite rightly, that such safeguards can "look better on the page than they perform in practice".)
It was therefore perhaps no surprise that the Government announced, in April 2006, that the Bill's proposed powers were to be curtailed. "At the moment ... the Bill deliberately seeks to take a wide power. We're going to focus that power more on regulatory outcomes, such things as productivity, competititiveness and reducing bureacracy, rather than replacing legislation". House of Commons and Lords committees were also given the power to block any proposals.
