The british regulatory system – global mba brazil
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The research shows that the Government's assessment system is failing the EU policy making process. This document was made by Professor Francis Chittenden and is part of the Global MBA offered by......

The research shows that the Government's assessment system is failing the EU policy making process. This document was made by Professor Francis Chittenden and is part of the Global MBA offered by FGV in partnership with Manchester Business School (MBS).

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  • 1. THE BRITISH REGULATORY SYSTEM TIM AMBLER, FRANCIS CHITTENDEN AND STEFANO IANCICH Published by the British Chambers of Commerce March 2008
  • 2. CONTENTS ABOUT US The British Chambers of Commerce is the Foreword p.3 national voice of local businesses, acting on behalf of a network of Accredited Chambers of Commerce across the UK. Executive Summary p.4 Representing over 100,000 businesses and 5 The British Regulatory System p.6 million employees, Chambers of Commerce are the Ultimate Business Network. Lying at the The EU Impact heart of their local community, Chambers serve all businesses with a passion no-one else can Assessment process p.9 match. UK Regulatory Impact Editorial note Assessment in 2006/7 p.17 The opinions expressed in this report are those of the authors and may not necessarily represent Key Findings p.27 those of the British Chambers of Commerce. Acknowledgements Conclusion p.28 Kieran O’Keeffe, Policy Adviser, Regulatory Reform. Sally Low, Director of Policy and External Affairs. Recommendations p.30 The British Chambers of Commerce 65 Petty France St. James’s Park London SW1H 9EU Tel: 0207 654 5800 Fax: 0207 654 5819 Email: info@britishchambers.org.uk Website: http://www.britishchambers.org.uk Designed and printed by EVC Graphic Design and Print, Pangbourne, Berkshire, UK, a registered 14001 environmental printer. Printed on paper from a managed sustainable source, using pulp that is TCF & ECF, and printed with vegetable soya based inks.
  • 3. FOREWORD Welcome to our sixth annual Impact Assessment this year’s research that too often officials are report The British regulatory system published in focused on transposition as the moment at collaboration with the London and Manchester which to conduct an Impact Assessment. To Business Schools. In February we released our have real influence then a partial UK Impact 2008 Burdens Barometer, which shows that the Assessment should emerge immediately after cumulative cost of new regulation to business the Commission makes a legislative proposal. since 1998 is now £66 billion. What is striking about this figure is not just its enormity, but also The Government must be fully engaged with that 71 per cent of it is EU sourced. EU Impact policy making in Brussels and shine a spotlight Assessments still tend to be highly conceptual on new legislation at the formative stage. At and it is questionable whether they influence present the EU and UK Impact Assessment policy. Furthermore, few Directives or systems are totally disconnected. The Regulations have Impact Assessments. Government must establish a coherent linkage However, it would be too easy to lay the blame between the two if they are to make good on at the door of the European Commission for their commitment to provide a lighter regulatory whom Impact Assessment is an important tool, environment for our members. but one with which they will struggle without the support of member states who must be relied upon to conduct their own parallel Impact Assessments. Without this, the Commission has little or no data on which to base their own analysis while member states will miss a key opportunity to influence EU policy. The Government has invested heavily in the UK Impact Assessment. However, their focus has been on the UK end of the legislation by which David Frost time it is too late to influence the Brussels stage Director General which drives the whole process. We know from British Chambers of Commerce 3
  • 4. EXECUTIVE SUMMARY This is the sixth annual report examining how the government. The number has increased UK regulatory system works in practice and progressively to about 350 in the year covered whether it follows the Government’s own by this report, the year to 30th June 2007. The guidelines. In the last decade, regulation has cumulative burden on British business since 1998 become a major UK industry. Tens of thousands is, according to the (R)IAs themselves, £66bn., of are employed not in commerce to grow GDP but which 70 per cent arises from EU sourced to interfere in that process. Each regulation has a regulation (73 per cent last year). In terms of the purpose and many contribute to national well number of regulations, the EU accounts for only being but “better regulation” in practice has about 35 per cent. The financial cost shown by come to mean “more regulation”. The Impact the (R)IAs is only part of the burden; keeping Assessment system designed to control the track of changing legislation through the forest volume may have improved quality at the of legislative paper is a major burden in itself. margins but the original purpose of Regulatory Small wonder so many firms do not bother to do Impact Assessments ((R)IAs), namely so and that those who do bother grumble about challenging the need for the regulation and the the burden of so doing. serious consideration of alternatives, has not At the same time, some reductions are been met. The National Audit Office has reached beginning to arise from reform and we similar conclusions. acknowledge that regulation is not solely a The British regulatory and the solar systems financial matter: social and environmental have something in common: government, benefits can also be enhanced. politicians, Brussels, business people and critics This expansion of regulation may help explain are revolving around the same ideal but are not the worsening overall control of the process and, necessarily on the same planet. Occasionally the one suspects but this is beyond the purview of Government planet passes close to that of the this paper, effectiveness. “Command Papers” are critics and some small reforms take place. In this the official lists of new regulations. As the July report we note them but also continue to draw Paper was issued late, for the second year attention to the areas where further reform is running, it has not been possible to find about 15 needed. We credit government, and the Better per cent of (R)IAs. Since the whole point of Regulation Executive in particular, with greater (R)IAs is to make regulation transparent, this efforts to accommodate British business, such as economy with their availability illustrates the common commencement dates twice yearly. We systemic failure. For over ten years, the also acknowledge that British business is not Government has had no overall control system universally consistent in its demands especially for regulations although a database is planned when regulation protects them from for 2008. It has since transpired that some competition. A new Impact Assessment system (R)IAs listed in the Command Paper are not came into effect after the period of this report (R)IAs at all. In short, the 2007 data are so and we will judge that next time. Meanwhile, the compromised that we are holding over our regulatory system of 2006/7 must be judged by detailed audit until we can obtain clarification in the guidelines with which it was supposed to be time for next year’s analysis. As a postscript, we conforming. have discovered that 79 per cent of the major The weaknesses of the UK and the EU Impact Post Implementation Reviews that should have Assessment systems are compounded by the been published by the end of 2007, have not lack of synchronisation between them which is been. documented in this paper. It is not enough to The comparison of EU and UK Impact publish the first UK Impact Assessments, which Assessments leads to a simple conclusion: the are ostensibly for consultation, after the EU very rarely employs IAs, and even more rarely decisions have been made in the EU. quantifies them thoroughly but, when it does so, Despite expressed concern with the total volume the system works very well. Conversely, the UK of regulation, their pace of introduction, as goes through the motions with all Directives and measured by (R)IAs, has continued to increase. Regulations but so superficially that the system About 130 regulations per annum were does not work. The specific findings from our generated in the first four years of this research are documented in the report. 4
  • 5. EXECUTIVE SUMMARY It is curious, with hindsight, how much attention 3. The BRE should extend the proposed has been given to perfecting the UK domestic Impact Assessment database to system, in theory, with so little regard to the EU ensure that all relevant EU legislation which has been the source of the heaviest that should have UK Impact burdens on business. Assessments are included with the The report documents the progress made on last dates and versions of the EU and UK year’s recommendations and consolidates the Impact Assessments as they are remaining and new recommendations as follows: produced (the “audit trail”). 4. Ministers should insist on due Post RECOMMENDATIONS Implementation Reviews being completed and published for all 1. When, in an area with EU competence, regulations placing significant burdens a Minister signs off a new UK-only on British business, i.e. all those regulation in the IA, in relation to an appearing in the British Chambers of area with EU competence, he or she Commerce’s Burdens Barometer three should explain why it is needed in the years previously. UK but not in the rest of Europe. 5. We will not try readers’ patience by 2. UK government should switch its repeating last year’s recommendations attention from the domestic IA but simply invite all those seriously agenda towards having an effective interested in reforming and improving UK IA system for EU sourced the UK’s regulatory system to provide legislation. Having Regulations (or better alternatives, explain why those “Laws” under the new Treaty) rather recommendations are wrong or than Directives would help but that, unaffordable or even, if all else fails, together with the EU IA system are implement them. This would make a out of UK hands. The UK IA system pleasant change from avoiding needs to be synchronised with the EU uncomfortable truths. Workplan so that EU legislation is effectively challenged in time to have 6. One exception is that parliamentarians any effect. In other words, an early should take responsibility for provisional IA and consultation with legislation. MPs now have the power British business should take place, and to block poor and/or redundant be recorded, as soon as the Directive regulation but they do not use it. To is proposed. That first provisional IA complain of excessive regulation should be preserved for the audit trail. whilst failing to use the powers they have to resolve the matter is not acceptable. 5
  • 6. THE BRITISH REGULATORY SYSTEM This year’s report begins with a brief review of reduce the length of IAs and to focus them previous recommendations and where they now but since all the redundant verbiage can now stand. We then focus on the EU Impact be transferred to the EM, we may be not Assessment process before turning to the UK. better off. We will report on these new IAs next year. This year we have sought to examine the Post Implementation Reviews which should have been 3. The UK bodies monitoring and advising on completed by now. Our experience may not surprise regulation should be consolidated to just seasoned Whitehall watchers. We also tested how one independent unit, either as part of the well the UK Impact Assessment process meshed NAO or an equivalent body, answerable to a with the EU for the Directives of 2005. The remodelled Regulatory Reform Committee weaknesses of the UK and the EU Impact of the House of Commons. Assessment systems are compounded by the lack of Some changes here but nothing so radical as synchronisation between them. It is not enough to our recommendation. The Better Regulation publish the first UK Impact Assessments, which are Task Force (BRTF), briefly then known as the ostensibly for consultation, after the decisions have been made in Brussels. Finally, this report lists the Better Regulation Commission, was a satellite main findings, draws conclusions and summarises in government’s reflected sunshine but not our recommendations. influential enough to make waves, still less tides. It has been replaced by the Risk and PROGRESS SINCE LAST YEAR Regulatory Advisory Committee (R&RAC) We list last year’s recommendations and note where which has a more reflective role in the sense progress, or otherwise, has taken place. of commenting on the whole system after regulations have been enacted rather than 1. EU Regulations and UK Statutory when they are being formulated. Critics talk Instruments should both be divided into two of horses and stable doors but that may be categories: laws and administrative orders. unfair. The regulatory culture of Whitehall and government needs to change and this With the de facto approval of the European may help achieve it. Meanwhile some Union Treaty we can expect that part of the members of the BRTF/BRC have moved to recommendation to come into effect, namely advising HM Opposition. Given their that the word “regulation” will not be used laudatory approval of the status quo, even by Brussels in these two senses. The logic ripples would be surprising. has yet to dawn in Whitehall where Statutory Instruments are similarly confused (less than The thrust of last year’s report was that MPs 20 per cent are regulations). It has been should step up and take responsibility for suggested that regulatory SIs should be regulation which present arrangements allow distinguished by differently coloured paper. them to do. The Regulatory Reform That small step would doubtless require Committee (created 2006) should be the primary legislation. focus of that but early signs are not encouraging. So little has been attempted, 2. Parliamentary challenge should be focused Opposition MPs have not bothered to turn up on proposed new laws informed by for meetings.1 It can only get better. Explanatory Memoranda and Impact Assessments combined into single 4. The other UK Parliamentary committees documents. Explanatory Memoranda should should be rationalised to give clear be replaced by one page summaries of authority to the one with primary (R)IAs prepared by the independent expert responsibility. (see 5 below). The principle of having one effective The justification for retaining both an regulatory review body rather than the Explanatory Memorandum (EM) and an ineffective six Parliamentary committees 1 Jean Eaglesham, “Fresh Impact Assessment (IA) for each regulation noted last year and two external government war on red tape elicits hint is unconvincing. Both explain the regulation committees, has made no progress. We do of déjà vu”, Financial Times, 9 December 2007 and the need for it. Steps have been taken to not challenge the need for an internal 6
  • 7. THE BRITISH REGULATORY SYSTEM management group, namely the Better 6. The EU and member state Impact Regulation Executive, and for the post facto Assessments should be synchronised both as audit function provided by the National Audit to timing, data provision and methodology, Office. It is only the number of e.g. the Standard Cost Model should be supernumerary committees and their limited harmonised across the EU to provide best contribution which is in question. practice and comparative data. (R)IAs on EU legislation should be in good time for 5. Generalised consultation should be partially consultation or independent challenge (see 5 replaced by forensic testing of the (R)IA by above) to influence EU, as well as UK, an independent expert employing targeted legislation. consultation as needed. No progress here either but we modify this Consultation can be a useful means of recommendation in the light of this year’s achieving the goals for Impact Assessment analysis below. or, at the least, improving regulatory 7. Data on costs and benefits in EU Impact effectiveness and/or reducing the burden but Assessments should be based upon national it more often is not. The process is biased (R)IAs. National (R)IAs are prepared to inform both by selective listening by the civil negotiations with the Commission, and these servants and the Regulators being able to figures should be aggregated at the level of focus on the new regulation while consultees the EU economy and included in the EU IAs. have businesses to run. Accordingly, and this is compounded by the volume of regulation, As 6 above. we find increasing scepticism about whether 8. The BRE should have stronger quality consultees’ views significantly change control over (R)IAs sourced both from the proposals. Confirmation bias2 can reduce EU and UK legislation. consultation to a sterile expression of views If anything the BRE has distanced itself from that pass by unheard. this function, pointing out that it is the job of We therefore proposed that the process, departments to quality control their own which is quite wasteful, should be partially (R)IAs. The HMRC does well in this respect. replaced by real challenge by an individual So where should the buck stop? The word with sufficient expertise to propose realistic “Executive” implies a hands-on role; the alternatives. The EU use a similar system. We proposed new database (see below) provides believe this option is better than, in the the opportunity for the BRE to intervene interests of objectivity, removing the Impact when an IA is not up to standard. Assessment process from departments 9. UK civil servants should support the altogether. Proper publicity for IAs should Commission and press for EU Regulations in always encourage representations to be place of Directives wherever possible in made but formal consultation should only be order to simplify legislation and give effect employed when it is efficient and effective to the single market. from the business sector’s perspective. We This recommendation runs into misplaced acknowledge that the UK government is now nationalism. Some believe we should show our giving more time for consultation but this independence by different transposition of does not solve the underlying problem. Directives. The scope for that is increasingly No progress has been made and we regret limited as the EU makes Directives more the conclusion that confirmatory bias and precise and polices them better. In any case, subjectivity continue to undermine Impact those differences run counter to the single Assessment at both EU and UK levels. We market which the UK supports and creates considerable extra complexity, confusion and 2 Vibert F, The Itch to build on this recommendation towards the Regulate: Confirmation Bias paper. Directives were introduced to fudge lack end of this report. and the EC’s New System of of agreement between national politicians. This Impact Assessment (European Policy Forum, fudge is unhelpful. London, 2005) 7
  • 8. THE BRITISH REGULATORY SYSTEM 10. All new regulations should have The reason for this recommendation is that a performance criteria, e.g. extent of number of regulations save costs for implementation, costs and benefits and government at the expense of business, i.e. sunset clauses, or at least fixed review they are quasi taxation. Under the current rules, dates after which the regulation would a minister can legitimately sign off a regulation lapse if the formal review is not laid that is good for the Exchequer but bad for the before parliament. UK as a whole. There is no requirement on the The new Impact Assessment guidance asks minister to explain his or her rationale, still less for more specific performance criteria but justify it. No progress has been made. whether this will result in actual improvement 12. The BRE should maintain a web-based (R)IA remains to be seen. So far as the rest of the database keyed to Bills/Acts, Statutory recommendation is concerned, the IA Instruments, earlier partial (R)IAs as well as guidance notes (p.5) only require “The date EU legislation and IAs. It should be the at which a review would be undertaken to source of Command Papers and be a public establish the actual costs and benefits of the access point for (R)IAs. policy and to see whether it has achieved/is achieving the desired effects. It is often a Whilst it may not go quite so far as here good idea to review a policy change after proposed, BRE at last accepts that it should three years but this will depend on the get a grip on recording IAs and maintain a policy.” central website of summaries with links to 11. The ministerial sign-off on (R)IAs should the actual IAs on departmental websites. The state explicitly the basis for his or her site should be operational in 2008. We would judgement which should also state that the urge that this is backdated to include all costs and benefits are being judged on (R)IAs and would be prepared to provide a behalf of UK citizens as a whole. copy of our database for that purpose. 8
  • 9. THE EU IMPACT ASSESSMENT PROCESS BACKGROUND in June 2005 which highlighted the need to The Commission’s integrated Impact Assessment ensure early coordination within the system was introduced in 2003 based on the Commission, openness to input of external White Paper on European Governance of July stakeholders, commitment to the Lisbon and 20013 and the Better Lawmaking Action Plan of Sustainable Development Strategies and a June 20024. The formalised and integrated Impact general improvement in the quality of policy Assessment process was “to improve the quality proposals. March 2006 saw the Guidelines and coherence of the policy development process further up-dated to include the composition of by focusing on all major policy initiatives Inter-Service Steering Groups and the presented in the annual policy strategy or in the introduction of the assessment of administrative work programme of the Commission”.5 costs. New requirements for executive summaries, providing a recommended length The strategic direction of the Impact Assessment and an obligation to translate these into all EU system was also influenced by the Göteborg languages, were also introduced. Finally, in strategy of 2001, which linked the policy of November 2006, the Commission announced an Sustainable Development (i.e. meeting the needs exhaustive plan to measure and reduce of present generations without jeopardising the administrative costs in the European Union.9 needs of future generations) to the Better Regulation debate. Based on these two principles, We have reviewed the quality of IAs since their the benefits of Impact Assessments are not limited introduction in 2003 but only to a limited extent to moderating the burden on business but also to due to their slow and sporadic introduction in assessing alternative policy options and their likely practice. Last year we concluded that the overall positive and negative impacts in all relevant performance of the Commission’s IA system , “is spheres. patchy, and further substantial improvement is needed before Impact Assessment can genuinely Although the Commission’s IA system was offer the prospect of promoting better regulation”.10 3 See European Governance, developed “after examining established a White Paper, COM(2001) procedures in Member States and other OECD 428 final SAMPLE OF IAs USED FOR ANALYSIS countries,”6 there are a number of important 4 Action plan "Simplifying This year we have screened 55 out of the 85 IAs and improving the regulatory differences between the Commission’s IA system identified for the year to June 2007 of which 20 IAs environment", COM(2002) and those of most countries, concerning in 278 final were randomly chosen for a more in-depth quality particular the scope of application and the 5 Communication on Impact assessment. The largest number (eight) came from focus. While most countries (e.g. UK) apply IAs Assessment, COM(2002) 276 TREN DG, followed by ENTR (seven). 25 IAs were final only to new primary and/or secondary prepared for Communications, 16 for proposed 6 Commission Staff Working legislation, the Commission’s system is broader Paper, Impact Assessment: Directives, 10 for Regulations, four for Decisions and and also extends to other, non-legislative policy Next Steps – In support of one for a Progress Report (Enlargement Strategy competitiveness and proposals. In addition, whereas most countries and Main Challenges 2006 – 2007, DG ELARG). sustainable development. tend to focus their assessments primarily on SEC(2004)1377 As we reported last year,11 the availability of economic impacts (in particular the costs of new 7 See The Evaluation completed and planned IAs and the existence of regulation), the Commission emphasises an Partnership, “Evaluation of the a central EU website that is updated regularly Commission’s Impact approach that is balanced across the economic, Assessment System”, 2007 and contains copies of all IAs, is much more social and environmental dimensions, and 8 European Commission efficient and open than the 2006/7 UK system. responds not only to the demands of Better Impact Assessment Guidelines SEC (2005) 791 Regulation, but also to those of Sustainable Of the 85 IAs listed on the European 9 Action Programme for Development.7 These features make the Commission’s website: I Reducing Administrative Commission’s IA system difficult to compare Burden in the European 38 were published between July and with most national IA systems. Union, COM(2007) 23 final December 2006; I 10 T Ambler, F Chittenden The Commission’s IA system has been subjected and Deming Xiao, “The 45 were published between January and Burden of Regulation: Who is to a number of revisions such as the 2005 June 2007;12 I watching out for us in replacement of “Preliminary Impact Europe?” (British Chambers of Assessments” with “Roadmaps”. A full IA would one was not available online (European Commerce, London, 2007); grouping of territorial co-operation (EGTC), be required for all the items included in the 11 http://ec.europa.eu/govern DG REGIO); ance/impact, 05/12/2007 Commission’s Legislative and Work Programme 12 ibid (CLWP). New IA Guidelines8 were also published I one was only available in French. 9
  • 10. THE EU IMPACT ASSESSMENT PROCESS QUANTIFICATION OF IAS and services and achieve world leadership in Table 1 summarises the costs and benefits embedded technologies. On the policy side, the identified by the 55 IAs in this analysis. Only aims are to create a single, Europe-wide R&D seven out of 15 DGs quantified costs and programme that is industrially driven, to put in benefits in their IAs. Furthermore, closer place a new mechanism able to combine, for the examination shows that such data can only be first time, national, EU and private funding and taken as a broad reference rather than careful to ramp up R&D investment in Europe. The estimates of the anticipated costs and benefits Commission claims in the IA that the proposed of proposed policies. option to implement a “Joint Technology Initiative” will achieve gains of at least €14.7bn DG Environment (ENV) estimated the most per year in reduced system design and significant costs to business, contributing nearly development costs by 2015, equivalent to at 70 per cent of business costs while DG INFSO least 55k person/years of effort compared to the accounted for nearly 40 per cent of EU “business-as-usual” scenario13. The net present government costs. In terms of benefits, DG value of these gains in 2006 is estimated at INFSO contributed nearly 95 per cent of total €109bn. The huge benefits estimated in the benefits to business while DG TREN contributed proposal should be subjected to a rigorous Post nearly 67 per cent of total benefits to EU Implementation Review to validate the government. assumptions on which these numbers are based The benefits to business are heavily influenced (e.g. total worldwide R&D should increase by by Council Regulation on the establishment of around 170 per cent over the next ten years, the “ARTEMIS Joint Undertaking” to implement a expenditure on embedded software R&D is Joint Technology Initiative in Embedded predicted to increase by 225 per cent, from . Computing Systems. On the economic and €58bn in 2002 to €132bn by 2015.) and whether technological side, the aim is to launch an the proposed initiative has a realistic chance of initiative to realise Europe’s potential in the achieving the stated objectives.14 The table future markets for intelligent products, processes omits DGs with no IAs in our sample. Table 1: Costs and Benefits Quantified in IAs Costs to EU Benefits to EU Costs to EU Benefits to EU business (€m) business (€m) government (€m) government (€m) DG One-off Recurring One-off Recurring One-off Recurring One-off Recurring ENTR 160 20 ENV 4678 165 362 930 242 54 INFSO 1600 125 14700 1160 J LS 5 MARKT 790 REGIO 15 SANCO 59 15 13 Source: Summary of the TAXUD 40 Impact Assesssment on the TREN 500 3375 240 969 10 1700 establishment of the “ARTEMIS Joint Total 6778 3540 365 15222 3143 282 2544 40 Undertaking” to implement a joint Technology Initiative in Embedded Computing systems {COM (2007) 243 final}, {SEC (2007) 582}. 14 Software Intensive Systems in the Future, IDATE/TNO, 2005. 10
  • 11. THE EU IMPACT ASSESSMENT PROCESS Table 2. shows the extent to which different DGs sought to quantify costs and benefits. Overall, the process still seems to be dominated by qualitative data with the majority of IAs failing to identify the relevant costs and benefits. Table 2: Quantification of Costs and Benefits Costs to EU business Benefit to EU business Q NQ NS NA Q NQ NS NA 7 38 4 11 4 45 0 11 12% 63% 7% 18% 7% 75% 0% 18% Costs to EU government Benefit to EU government Q NQ NS NA Q NQ NS NA 19 34 0 7 4 43 0 13 32% 57% 0% 11% 7% 72% 0% 21% Q Quantified and figures provided including zero costs/benefits NQ Not Quantified NS Not quantified but stated to be insignificant NA Not available or not discussed Based on this analysis, a random sample of 20 IAs was chosen for an in-depth quality assessment. Table 3 summarises the composition of the sample by DG and legal instrument. Table 3: Composition of the sample by DG and legal instrument DG Legal instrument Total Directive Regulation Communication Decision ENTR 1 3 1 1 6 TREN 1 1 2 SANCO 2 2 RTD 1 1 DEV 2 2 EMPL 1 1 FISH 1 1 INFSO 1 1 JLS 1 1 2 TAXUD 1 1 TRADE 1 1 Total 4 5 8 3 20 11
  • 12. THE EU IMPACT ASSESSMENT PROCESS We are baffled by the Brussels decision process Figure 1: Analysis of economic, social and concerning whether an IA should be produced. environmental impacts Our sample is just under 25 per cent of all IAs 100% and may not be representative but even so, Percentage of IAs 55 per cent apply to administrative orders, i.e. 90% items which are not really Directives or 80% Regulations at all. At the same time, Brussels only rarely applies IAs to Directives or 70% Regulations. In previous years we were advised 60% that this was because the process was just 50% starting up but after four years we would expect more progress. 40% Directives are approved at a rate of about10015 30% and Regulations at a rate of 2,00016 per annum. 20% For example, in 2004 121 Directives were passed 15 EUR Lex: Directives of which 89 (73 per cent) had UK (R)IAs17 and 10% adopted: 141 in 2006 and 76 therefore should have had EU IAs. So assuming in 2007 although the latter 0% may be incomplete. about 75 per cent of Directives are burdensome Economic Social Environmental 16 EUR Lex: 2052 in 2006; for business – because they had UK Impact and 1708 in 2007. Assessments – 75 should have EU Impact 17 Deming Xiao, Regulatory Assessments compared with an estimated 2018 Impact Assessment in the social impact and 10 (50 per cent) identified an EU and UK, MBA that used the process in 2006/7 based on our Dissertation, Manchester sample. In the case of Regulations, about 97.5 environmental impact. Overall, 9 (45 per cent) of Business School, January per cent19 are administrative orders and not the sample of 20 IAs identified impacts in all 2007 three dimensions, 5 (25 per cent) in two “Regulations”, in the UK sense of the word or 18 Our random sample of dimensions, and 5 (25 per cent) in only one. In 20 IAs contained four laws, at all. In other words, about 5020 prepared for Directives, regulations should have had EU IAs but, in our one case the IA did not identify any impacts at leading to a generous pro- sample, only about 21 actually have them. all. This relates to a Communication from the rata estimate (4/20*85=17) Commission to the European Parliament, the of about 20 Directives issued in the year. On this arithmetic, we should expect 75+50 = Council and the Committee of the Regions 19 Chanyeon Hwang, A 125 UK (R)IAs per annum to be drawn up for EU “Towards a general policy on the “Fight against Study of EU Regulations, sourced legislation which ties up reasonably well Cyber crime, COM (2006)2667 final”. Despite the MBA Dissertation, with the 35 per cent21 of (R)IAs in our database non-legislative nature of the instrument and its Manchester Business School, January 2005 which claim to have EU origin. On the other strategic purpose, the document reported that 20 About 2,000 hand, as we will see later, some UK (R)IAs that the general policy options were assessed on the Regulations are issued per should exist for EU legislation do not appear to basis of the following criteria: annum of which 97.5 per do so. In other words, the extent to which the I cent are Administrative Orders- therefore it can be UK system is missing the EU legislation where it Social impacts I estimated that (2.5 per cent should apply, is far from clear. Our third *2000 Regulations) 50 were Economic impacts recommendation will suggest a simple I Regulations that should have been subject to Impact administrative arrangement to close the gap. Costs for public administration I Assessment. Degree of coherence with policy objectives 21 This compares with 23 As the Commission’s approach to the IA system per cent (26 per cent of relies on achieving balance across economic, I Added value and respect for the subsidiarity primary UK legislation and social and environmental issues, our starting principle 17 per cent of secondary, I calculated by # pages) point was to analyse the extent to which these Feasibility according to David Stephen, principles were embedded in the IAs. Figure 1 (Regulation by Brussels? The Myths and The summarises the result. But we could find no evidence of this analysis in Challenges, European the ten page IA, the purpose of which remains Movement Policy Paper 2, The screening of our sample showed that 18 (90 obscure. November 2004) but he per cent) of the IAs identified at least one omits EU Regulations which economic impact (either on businesses or public Table 4 shows the extent to which the impacts in require no UK legislation. Taking those into account administration), 14 (70 per cent) identified a the three different dimensions were quantified. his figures match the 35 per cent quite closely. 12
  • 13. THE EU IMPACT ASSESSMENT PROCESS Table 4: Quantification of impact of IAs stressed the need to make the tax system more Quantification Type of impact consistent by proposing uniform taxation for commercial road transport fuel in order to Environ- complete the internal market. An initial proposal Economic Social mental relating to the harmonisation of the taxation on Number of IAs commercial diesel was presented in 2002.23 This quantifying impacts 7 0 0 proposal was withdrawn following the screening of legislative proposals pending before the Legislator Total IAs identifying at that time. However, the Commission also these impacts 18 14 10 announced its intention of reconsidering the need per cent of IAs quantifying for a legislative solution in the light of the results of the identified impacts 39% 0% 0% a comprehensive Impact Assessment. An IA was therefore prepared to analyse the impact of different options. It was based to a large extent on The quantification of costs and benefits is rarely the quantitative results obtained for 19 EU adopted in a systematic way. Although we could countries with the Tremove models and for 25 EU find a quantification of the economic dimension in countries with the Poles and Transtools models. seven out of 18 IAs (with varying levels in depth of The following aspects were examined: impact on analysis), there was no evidence of quantification in prices, on transport demand and fuel consumption, the social and environmental dimensions. The social on industries (distortions of competition, impacts identified in the different IAs included, for administrative costs…) and the budgetary impacts. example, employment, mobility, improvements in human health, better relationships between During the course of the Impact Assessment, the administrations in different Member States as well as Commission decided to modify the options first between citizens and administrations. examined based on the results of these analyses. Concerning the rates of taxation to be The environmental objectives were still more vague implemented, for instance, the Commission and related especially to noise, air pollution or services did not follow the suggestion made by waste disposal. While the main challenge for a some hauliers to approximate the rate at the proper quantification of the economic dimension lowest level possible. Economic simulations seems related to a lack of data, especially at illustrated that such a change would have Member State level, the lack of adequate contradicted environmental considerations: methodologies and unclear outcomes may also be lowering the rate would encourage consumption responsible for the lack of quantification in IAs and therefore be against the fulfilment of Kyoto relating to social and environmental dimensions. objectives. In addition, this option could have led Also the use of available data varied widely. to significant negative budgetary impacts on Member States which would have to be At one end of the spectrum, quantitative data was compensated by increases in other taxes, and fed into sophisticated modelling and simulation which might possibly create more economic tools, and the uncertainties and sensitivities distortions. This is an example of an EU IA underlying this analysis were described in detail in prepared with the intention of properly an exhaustive technical IA report. This is the case, evaluating the options available to regulators. for example, for the proposal amending Directive 2003/96/EC as regards the “adjustment of special In contrast, at the other end of the spectrum, 22 COM (2001)370, tax arrangements for gas oil used as motor fuel for conclusions were frequently drawn, and solutions 12.09.2001. commercial purposes and the coordination of were often proposed, based on qualitative and/or 23 Proposal for a Council taxation of unleaded petrol and gas oil used as incomplete quantitative evidence. For example in Directive: amending Directive 92/81/EEC and motor fuel, COM (2007)52 final”. The White Paper the Communication from the Commission to the Directive 92/82/EEC to on Transport “European transport policy for 2010: Council and the European Parliament “A policy to introduce special tax time to decide”,22 noted that with the road reduce unwanted by-catches and eliminate arrangements for diesel fuel used for commercial transport sector now fully opened up to discards in European fisheries”, COM(2007) 136 purposes and to align the competition, the absence of harmonised fuel taxes final, where the effects of different options were excise duties on petrol and diesel fuel (COM (2002) 410 seemed increasingly to be an obstacle to the compared using vague qualitative data (e.g. of 24.07.2002). smooth functioning of the internal market. It positive, high, negligible…). 13
  • 14. THE EU IMPACT ASSESSMENT PROCESS The new Action Programme for Reducing Of the four IAs providing quantitative Administrative Burdens in the European Union24 information, two stated that the proposal will states that “… the reduction of the administrative not produce administrative burdens while the burden (AB), sometimes referred to as red tape remaining two quantified administrative costs on or bureaucracy costs, is one crucial component the basis of rough estimations. For instance, in with which a more conducive environment for the proposal for a “Regulation of the European business can be put in place, without lowering Parliament and of the council amending the level of existing or the ambition of new Regulation No 11 concerning the abolition of policies in the area of environmental, consumer discrimination in transport rates and conditions, or health protection“. The same document also COM (2007)90 final”, “… figures from the reports that “… Studies carried out by the measurement of administrative burdens in The Central Planning Bureau (CPB) of the Netherlands have been extrapolated to the EU- Netherlands indicate that the administrative level based on the relative percentage of GDP burden as a proportion of GDP varies from (World Bank data, 2005) and the country 6.8 per cent in Greece, Hungary and the Baltic distribution list developed by Kox (2005) in States to 1.5 per cent in the UK and Sweden. It is order to correct the extrapolated figures by all means not the case that this burden is according to different estimated levels of generally lower in those countries that enjoy administrative burdens in different Member higher GDP levels. Moreover, for a group of States.” This is a very high level analysis based countries with still relatively harmonised upon data that is conveniently available, but it is standards of legislation these differences raise unlikely to produce even reasonable questions about inefficiencies and approximations of the actual ABs incurred implementation”. The Action Plan emphasises across the EU. the centrality of Impact Assessment and the Standard Cost Model to reduce the It seems unlikely that the EU objective for a 25 administrative burden of regulation in the EU by per cent reduction in administrative burden can 25 per cent. even be quantified, still less achieved, given the evidence from this sample of IAs. ADMINISTRATIVE BURDENS We turn now to consider administrative burdens CONSULTATION (Table 5 below). The quantification of The Guidelines require that for public administrative burdens through the adoption of consultations in the context of Impact the Standard Cost Model, has been an EU Assessment work, the minimum standards for requirement since March 2006, when the consultation, as laid down in the relevant updated IA Guidelines were published. The Commission Communication of 2002,25 be Commission’s claim to reduce the administrative applied. This includes that “the Commission burden of regulation in the EU by 25 per cent, is should strive to allow at least 8 weeks for undermined without quantified data and a reception of responses to written public consistent methodology. consultations”, and “when defining the target group(s) in a consultation process, the Commission should ensure that relevant parties Table 5: Quantification of administrative burden in have an opportunity to express their opinions.” IAs Administrative burden Number of IAs Quantified 4 Table 6: Type of consultation Not quantified but figures Type of Consultation Number of IAs % of IAs 24 http://ec.europa.eu/ stated to be insignificant 2 Open 2 10% governance/impact, 05/12/2007 Not quantified 7 Targeted 10 50% 25 "Towards a reinforced culture of consultation and Not discussed 4 Both 5 25% dialogue – General principles and minimum standards for Stated to be Not applicable 3 No Consultation 3 15% consultation of interested parties by the Commission" Total 20 Total 20 100% (COM (2002)704 final. 14
  • 15. THE EU IMPACT ASSESSMENT PROCESS Almost all IAs make reference to some be used only because of tight deadlines consultation, either open to all interested parties associated with a proposal. Finally a transparent 2 (10 per cent), targeted at specific stakeholder consultation process must ensure that groups 10 (50 per cent), or a combination of stakeholders are adequately informed about the both 5 (25 per cent). However, it is also clear use made of their contributions through a clear that not all of these consultations were actually explanation in the revised IA.26 staged for the IA and/or proposal itself; some The final step in this stage of the research was to referred to consultations that were undertaken in consider the extent to which Impact a wider policy context. One such example is the Assessments examined relevant options in a proposal for a directive of the European proportionate manner, including the options of Parliament and of the Council on “The protection ‘no EU policy’, ‘no policy change’ and alternative of the environment through criminal law, COM instruments. A summary of the results is shown (2007)51 final”. Although several studies were in Table 7, below. launched to compare criminal and administrative penalties in Member States’ environmental laws and different public conferences and workshops Table 7: Number of options presented had been held since November 2003, no formal Number of consultation was conducted on the specific options presented Number of IAs % of IAs proposal. For three of the 20 IAs examined we 0 1 5% could not find evidence of any kind of stakeholder consultation and in one case 1 or 2 2 10% extensive consultation was claimed in the IA without mentioning the interest groups involved. 3 or 4 13 65% However, we also found good consultation 5 or more 4 20% practice such as for the regulatory proposal of Total 20 100% the European Parliament and the Council on “Common rules concerning road transport operators, COM (2007) 263 final”, where stakeholder consultation was assisted by an Table 7, shows that overall, most IAs identified independent expert, who contributed by putting between two and five policy options. The IA that all the comments received into an economic did not identify any options at all related to the perspective. Similarly, for the Communication on communication from the Commission to the “Renewed Market Strategy, COM (2007) 183 Council and the European Parliament “Proposal final”, where, after a mix of open and targeted for a EU Code of Conduct on Division of Labour consultations, a revised IA specified how the in Development Policy, COM (2007)72 final” consultation process helped to improve the which presents operational principles that should formulation of the proposal (e.g. a refocused guide EU donors regarding the nationality of section on problem definition, more information employees used in cooperative ventures. Since on the specific needs of Small and Medium-sized this was an advisory code rather than a Directive Enterprises (SMEs) and concrete examples of or Regulation, the absence of options is recent business cases which highlighted reasonable. methodological difficulties inherent in trying to model the precise macro-economic impact of As noted above, it is hard to appreciate why IAs, the proposal). and the scarce resources consumed, should be devoted to Communications and administrative Overall a transparent and effective consultation orders. process requires early involvement with stakeholders. Sufficient time is required for CONCLUSIONS comment and contributions on framing the It would appear that the IA system can work well issues and the selection of relevant options. and does so in a minority of cases. However, the Other important aspects, for example, are that majority of IAs are unlikely to have a positive 26 Action plan "Simplifying and improving the the use of open consultation (in particular online effect on the quality of the proposal. Lack of regulatory environment", surveys using ‘closed’ questions) may lead to relevant data and adequate methodologies and COM(2002) 278 final oversimplification of the issues and should not unclear outcomes are major problems. 15
  • 16. THE EU IMPACT ASSESSMENT PROCESS The new Action Programme for Reducing demonstrates.27 The possibility that a very small Administrative Burdens in the European Union number of firms will be sampled for each emphasises the centrality of Impact Assessment regulation, and the potential use of one broad and the Standard Cost Model (SCM) to reduce category of small firms (1-49 employees) without the administrative burden of regulation in the EU separating out the “0” employee and micro- by 25 per cent. However, the SCM methodology still presents several weaknesses that in part businesses could render the data meaningless explain why a reduction in administrative and make the tracking of the changing level of burdens could be achieved but not perceived by administrative burdens over time a misleading business, as the Dutch experience exercise. 27 See World Bank, “Group Review of the Dutch Administrative Burden Reduction Program”, 2006 16
  • 17. UK REGULATORY IMPACT ASSESSMENT IN 2006/7 OVERVIEW the search engines did not work properly, and in The number of regulations, (R)IAs produced by many cases, the lack of specification of the type government departments has grown steadily of (R)IA on the website (initial, partial, full and from about 130 in the late 1990s to about 360 final) added complexity to our task. for the year to 30th June 2007.28 We cannot be HM Revenue and Customs is, as in previous precise about the last year because it only years, the department with the best designed became apparent from the June 2007 Command website. A clear link to better regulation in the Paper, which lists (R)IAs, which was again home page, and separation of partial and final published late, that some 90 (25 per cent) had (R)IAs, grouped by year simplified our search not been captured by our sweeping of all enormously. A common policy, aimed at departmental websites. We understand that harmonising the relevant information across all some of those in the Command Paper are not departments, would be helpful. The Better (R)IAs at all. Regulation Executive is probably the right body The publication in late January 2008 meant that to implement this innovation. This unit used to we were not aware of the shortfall until after our make all (R)IAs available on its website, but detailed analysis had been completed. subsequently withdrew from that activity. They Accordingly we cannot publish the annual tables now aim a partial return to a central database this year but aim to publish both 2006/7 and but indicate no plans to standardise 2007/8 next year, assuming that the BRE and departmental (R)IA websites which implies that government departments ensure prompt and the difficulties in obtaining (R)IAs will remain. complete publication on their websites. To Of the 245 final (R)IAs found in 2006/7, 89 suggest we did not look hard enough is no arose from EU Directives or Regulations, excuse as the whole point of (R)IAs is that they equivalent to 36 per cent of the total. UK driven are readily and easily accessible to explain and (R)IAs still form the majority. The Food justify the new regulations. Since a Command Standards Agency and DEFRA seem to deal with Paper only has to list what has already been a greater number of EU Directives or published, being unable to do so for nearly Regulations, respectively with 87 per cent and seven months reflects the lack of importance 53 per cent of the share of (R)IAs produced by government gives to the regulatory process. each department. We found 142 out of the 193 (R)IAs listed in the One-off costs and benefits to business Command Paper to end December 2006. A final amounted respectively to £1.3bn and £30.8m RIA was not prepared in 21 cases where the while recurring costs and benefits to business departments stated that such regulation will not £712.1m and, surprisingly, £2.2bn, respectively. have a financial impact on business/government, Almost half of the benefits to business are in which cases we do not understand why they accounted for by “The gambling (operating appeared in the Command paper. We have been licence and single-machine permit fees) unable to find another 29 (R)IAs either because regulations 2006” where DCMS claimed that “A it was stated by the department that no online conservative estimate based on projections from copy is available, or because the web-link was a range of consultancy studies suggested that not functioning, e.g. The Specified Diseases the new regulatory regime could lead to an (Notification and Slaughter) Order 2006 SI increase in net consumer expenditure on 2006/2166 – DEFRA. commercial gambling of £1,000m a year over a The search for the (R)IAs was more difficult this five-year period beginning in 2004/05”. There year than on previous occasions, as the high was no data to support these claims in the final number of unidentified (R)IAs demonstrate. In (R)IA nor any explanation of where this the Command Paper to December 2006 most of additional expenditure would come from. Unless the original links to departmental websites were there is a great increase in consumer earnings 28 T Ambler, F Chittenden not working, mainly because of departmental re- and/or borrowings directly attributed to the new and Deming Xiao, “Who is organisation and/or updating of the web-pages. gambling regulations, the claimed amount seems watching out for us in Another challenge is the lack of common dubious. Net consumer expenditure is, in any Europe?” (British Chambers of Commerce, London, structure in the organisation and display of the case, not an appropriate measure of business 2007); relevant information. Few departments have a benefit, since costs need to be deducted. A well organised website for (R)IAs. In some cases sensitivity analysis should have been used to test 17
  • 18. UK REGULATORY IMPACT ASSESSMENT IN 2006/7 the robustness of the assumptions behind such Prior to this proposal, OREI developers had to numbers. 2006/7 saw no significant change over submit a decommissioning programme to The previous years in terms of the quantification of Crown Estate (effectively the landlord of the costs and benefits. seabed) under the current terms of the lease. However “… As no decommissioning of an OREI QUALITY OF (R)IAs in the UK has taken place yet, it is difficult to To analyse their quality, we reviewed 100 (R)IAs, evaluate how effective the current policy has 50 from each six month period. Table 8 shows been (i.e. to rely on Governmental consent the composition of the sample for in-depth conditions and The Crown Estate lease analysis by department. conditions requiring developers to decommission their offshore installations) in Table 8: (R)IAs by department minimising the risk and consequences of default Department Number on decommissioning. It was however believed to of (R)IAs be likely that it will prove ineffective in minimising this risk because of the inherent DCA Department for weakness of the current private contract Constitutional Affairs 2 between the developer and The Crown Estate”. DCMS Department for Culture, One of the major weaknesses of the private Media and Sport 6 contract relates, according to BERR, to the fact that it could take years before the courts reach a DEFRA Department for Environment, verdict, which may not be favourable, and legal Food and Rural Affairs 26 costs could prove substantial. But, given the DT Department for Transport 8 vagueness of the new regulation, that problem remains. This is a classic example of where the BERR Department for Business legislators, i.e. MPs, should have stepped in to Enterprise & Regulatory Reform 8 insist that the regulation was either properly DWP Department for Work and Pensions 3 justified or rejected. FSA Food Standards Agency 11 ALTERNATIVES Although 87 per cent of the (R)IAs included a HMT HM Treasury 5 “do nothing” option, we found no (R)IA where this was the final decision. The same conclusion HO Home Office 11 was reached by the National Audit Office, HMRC Revenue and Customs 20 although they did find one example but that arose from a Private Member’s Bill where the Total 100 instinct of the department was to thwart it. The NAO report noted that “It is possible that the case for ‘do nothing’ was considered and General outcomes are usually defined in (R)IAs, discounted earlier in the policy development but not always expressed, as required, in terms process, although we were not able to identify of clear objectives and/or SMART29 (Specific; any Partial (R)IAs in the Department of Health or Measurable; Achievable; Relevant and Time- the Department for Communities and Local bound) targets. This means that Post Government which had reached this conclusion.” Implementation Reviews will be compromised. Other alternatives, such as self or co-regulation, The “Statutory decommissioning scheme for rules of conduct, economic instruments, offshore renewable energy installations under information and education, guidelines and the Energy Act 2004” has as its objective “to voluntary approaches are rarely given any reduce, to an acceptable level, the risk that serious consideration. developers default on the decommissioning of 29 The Green Book, their OREIs30 … without hindering the “Delivering Housing and Regeneration: “Appraisal and Evaluation in development of the offshore renewable energy Communities England and the future of social Central Government”, HM Treasury, 2003. sector.” What does acceptable level of risk housing regulation” aims to improve the mean? Can this level of risk be measured and regulation of social housing (social rented and 30 Offshore renewable energy installations monitored to evaluate the intended outcomes? low cost home ownership) in England, focusing 18
  • 19. UK REGULATORY IMPACT ASSESSMENT IN 2006/7 on empowering and protecting tenants, ensuring certify that the benefits of the proposal justify continued provision of high quality social the costs associated with implementation. As housing, and expanding the availability of choice Table 9 illustrates, the evidence base in our between suppliers, with the intention to reduce sample was often poor. the level of unnecessary regulation and (R)IAs were analysed according to the following bureaucracy. Positive aspects include the need criteria: for a common set of rules across the regulatory domain and the establishment of an I Figures quantified, including where costs and independent regulator. However, it is not clear / or benefits are found to be small or zero. what the regulatory goals are, or how they will I Not quantified but claimed to be insignificant. I be achieved. The result is a poor range of policy Not quantified although it looks as if they options with self-regulation and co-regulation should have been. being inadequately considered. I Quantification not even discussed. Since Social Housing cannot be left to the market (by definition) the case for an economic I Not applicable. In these cases we cannot see why (R)IAs were compiled at all. Regulator is good. Social Housing is subsidised directly or indirectly by the taxpayers in two Departments quantified cost and benefits with ways: differing intensity. In particular, HMRC ranked I very highly in terms of quantification of costs to by funding the gap between market and affordable rents; business with only 5 per cent of (R)IAs without a quantification of identified costs. On the other I by paying the reduced rents for those on hand, the Department for Work and Pensions benefit. ranked the lowest with two out of the three The Regulator could assess the former needs (R)IAs lacking quantification of identified costs and ensure fair rental agreements and practices to business. on a quasi market basis whilst leaving other For benefits to business, DEFRA scored highest responsibilities like social, consumer issues and but still with 31 per cent lacking quantification, audit to the existing auditors. The Regulator i.e. significant benefits were claimed in the should also answer to Parliament, not (R)IAs but these were not quantified. At the Government, reporting measured progress other end of the spectrum, HMT claimed, in five toward pre-agreed goals.31 (R)IAs, significant benefits but they were not quantified. THE EVIDENCE BASE The fundamental objective of (R)IAs is to ensure The Home Office and HMRC ranked highly in policy formulation is based on tangible, and terms of quantification of costs to Government preferably quantified, evidence. A professional with respectively only two (18 per cent) and analysis of costs and benefits is at the heart of three (15 per cent) without quantification of Impact Assessment. Ministers are required to identified costs. Table 9: Evidence based assessment NUMBER OF (R)IAs Costs to Benefits to Costs to Benefits to Benefits to Business Business Government Government Consumers Quantified 39 18 35 23 5 Not quantified but figures stated to be insignificant 37 10 32 5 2 Not quantified 19 52 19 62 60 31 Tim Ambler, Housing Not discussed 0 6 3 4 2 Regulation Conference (National Housing Not applicable 5 14 11 6 31 Federation, 5 September Totals 100 100 100 100 100 2007) 19
  • 20. UK REGULATORY IMPACT ASSESSMENT IN 2006/7 Considering the benefits to Government, DCMS THE IMPACT ON SMEs scored highest with only one third of their six The extent to which burdens impact without quantification. At the other end of the disproportionately on smaller businesses should spectrum, HMT did not quantify any potential be a key concern for Government, as the benefit to Government for four out of five (R)IAs creation and continuance of smaller businesses considered. For example, the “Independence for is acknowledged to be essential for productivity Statistics” (R)IA sets out the options for reform growth.33 The Institute of Chartered Accountants following the Government’s review of the (non- in England and Wales has estimated that 69 per statutory) Framework for National Statistics,32 cent of the burden of regulation falls on small which currently underpins the statistical system businesses.34 NatWest’s quarterly Small Business in the UK. The preferred option proposes the Survey claimed, in September 2003, that: creation of a new, independent board, with a “Where a business proprietor works on their statutory responsibility for ensuring the quality own, they spend on average 8.9 hours per and comprehensiveness of official statistics. month dealing with government regulations and Several benefits to Government were identified paperwork, whereas a firm with 50-250 but only qualitatively (e.g. “special funding employees, staff and advisers spend an average 79.7 person hours per month on compliance. arrangements outside the normal Spending This clearly indicates that the burden of red tape Review process would have the benefit of falls disproportionately on the smallest reinforcing independence from Ministers, while at businesses, as they spend 8.9 hours per person the same time ensuring adequate safeguards to compared with only 1.2 hours per person in the encourage efficiency, secure value for money largest firms dealing with paperwork.”35 and control public spending”). The higher costs in respect of both the Very few (R)IAs quantified costs and benefits for administration and policy consequences of all the proposed options. A particularly bad regulation is not well understood by civil example is Tackling Managed Service Companies servants or Ministers36. Evidence of this lack of in the 2006 Pre-Budget Report. The policy understanding may be seen from the fact that, in objective of the Government was to prevent 2005/6 only 8 per cent of (R)IAs identify Managed Service Company schemes being used additional costs of regulation for small firms. to disguise employment income, so avoiding paying the appropriate level of Income Tax and Some of the reasons why small firms incur National Insurance contributions. higher policy costs of regulation, as well as 32 Framework for National Statistics, Office for National higher administrative costs are as follows: Statistics, 2000, available The decision of how to achieve this policy from www.statistics.gov.uk/ objective was restricted to two options. The first 1. There are fixed costs associated with most about/national_statistics/do referred to investing more resources in enforcing regulatory change e.g. searching for and cumentation.asp the Intermediaries legislation without placing assessing the appropriateness of new 33 Philip Hampton, equipment to comply with a regulation (such “Reducing administrative new compliance costs on business. The second burdens: effective consisted of defining MSCs and taxing as as the ‘Work at Height’ rules). Small inspection and employees those using them. The latter was businesses have fewer economies of scale enforcement”, 2005 over which to spread these costs. chosen as the preferred option with expected 34 Enterprise Survey 2004, Institute of Chartered one-off and recurring costs to business 2. For similar reasons, new equipment and Accountants in England and respectively of £9.2m and £11.05m. The (R)IA assets tend to be more expensive for small Wales, November 2004. has no evidence to justify this choice. operators per unit of output. Small firms also 35 SBRC/Natwest survey of tend to have to acquire multi-purpose small businesses, 2004 The Home Office “Corporate Manslaughter and equipment as they have to compete on the 36 Chittenden F and Corporate Homicide: a Regulatory Impact basis of flexibility and service. Ambler T, 2007, Assessment of the Government’s Bill” provides Government Regulation and no quantification. The media has well rehearsed 3. Small firms incur higher costs of capital than Small Firms: a role for the Comprehensive Spending the failings of current regulation but the Home larger businesses. Thus all forms of Review?, in Talbot C and Office admits in this (R)IA that it is not a reliable investment expenditure are more expensive Baker M (eds), The Alternative Comprehensive solution, and no alternative is fully considered. for smaller firms. Spending Review, Manchester University Press. 20
  • 21. UK REGULATORY IMPACT ASSESSMENT IN 2006/7 4. Small firms do not have in house regulatory Table 10: Quantification of the impact of regulation expertise such as a health and safety officer. on small business Consequently new regulations require the Additional Cost to SMEs Number attention of the owners to understand and of (R)IAs make decisions about the appropriate Quantified 1 response. Thus regulatory change constrains or exhausts the supply of general Not quantified but figures stated management talent more quickly in small to be insignificant 64 firms than in larger businesses. Not quantified 24 5. If the owners feel unable to cope with the Not discussed 2 additional volume or complexity of Not applicable 9 regulatory work they will have to recruit external advisers, often consultants, who will Total 100 probably be relatively expensive. Consultants may also exhibit a tendency to advise clients to over-comply, at the margin, in order to For example, the “Voluntary front of pack reduce the professional indemnity risks that signposting scheme for certain pre-packed foods sold through retail outlets in the UK” is intended consultants face. to encourage consumers to make healthier 6. Because small firms’ profits are smaller and choices; and to encourage industry to expand more volatile than large firms, small the range of healthier foods available in the UK. businesses are less likely to be able to offset The Food Standards Agency states that “… costs the costs of regulation against tax. Even in arising from changes in product choices are years when the costs can be used to reduce likely, based on current market trends, to be tax charges, the applicable tax rate will tend directly offset by opportunities for businesses to to be lower than for large firms. Thus small meet emerging demand elsewhere for healthier business owners incur a higher proportion of products. However it is acknowledged that in the net costs of regulation than do larger certain food sectors some smaller businesses may find this more of a challenge.” Potential companies. costs of introducing a signpost labelling scheme 7. Finally, small scale of operations means that are associated with changes to product labelling. human and physical assets are less easily Responses from the Consultation carried out by divisible than in larger firms. For example, the FSA indicated that “… a small number of where a small business with two machines small firms which do not routinely provide that are utilised 24 hours per day faces a 10 nutrition labelling on their products may find the per cent reduction in output, because additional costs associated with nutritional regulations require that certain potentially analysis an issue.” However, the FSA claimed it toxic substances have to be removed from was not possible to be clear about these the manufacturing process, it will have to additional costs and the consequent effect on the competitive landscape. Since the new purchase a new machine that can only be regulations are aimed at large brands and large operated at 20 per cent capacity in the companies, it would have been simpler and more short-term. A company with 20 machines will effective to have exempted SMEs. This does not simply purchase two new items of plant both seem to have been considered. of which can immediately operate at full capacity. UK (R)IA CONCLUSIONS (R)IAs continue to be ineffective in challenging Table 10 (below) shows that only one in 100 regulatory intervention mainly because the (R)IAs quantified the additional burden of political decision to regulate had already been 37 Evaluation of Regulatory Impact Assessments 2006- regulation on small businesses. This is in defiance taken before the process began.37 It would be 07, Report by the of the Government’s own guidelines. As many as better if ministers confined themselves to Comptroller and Auditor 64 per cent claimed no additional burden which identifying the problems to be solved and General, HC 606 Session 2006-2007, 11 July 2007. is anomalous, given published research. desisted from providing solutions. Whitehall has 21
  • 22. UK REGULATORY IMPACT ASSESSMENT IN 2006/7 developed an increasing urge to regulate years to determine if the regulations were everything even though regulation without achieving their objectives and whether there implementation achieves nothing. Under-age were any opportunities to reduce the costs drinking is a case in point. Ministers respond to incurred by businesses. public concern by proposing new regulations An email with the appropriate list of their (R)IAs without recognising that the existing regulations was sent to each department at the beginning of provide the necessary legal framework if only November 2007. By the end of December 2007, they were implemented. New regulations provide the illusion of action. just six out of the 16 departments had replied despite two follow up emails and phone calls. The choice of policy instrument tends to be Three other departments acknowledged our based more on habit and institutional culture request for information, but did not provide than on a rational analysis of the suitability of details of any PIRs conducted. different tools to addressing the identified policy problem38. One suggestion promotes an early Post Implementation Reviews are not being involvement of all key internal and external conducted and some of the reasons given stakeholders including not only Ministers but include: also, for example, policy makers, the Better I Monitoring the situation informally/ we have Regulation Executive, departmental experts and had an unpublished internal review. I parliamentarians as a catalyst for radical change The EU is reviewing the situation of habit and institutional culture39. I “… there was no requirement to complete The new IA guidance from 2007, including the such reviews at that time” (Not true) summary front sheet may improve the quantification of costs and benefits and the I “… the implementation period is a lengthy Enterprise Directorate’s Small Firms Impact Test one and is not yet complete” guidance is a useful guide. However, as our I “… minor administrative corrections were review of (R)IAs has shown, few departments made by amending regulation” I have a sufficient understanding of the economic impact of regulation on Small Firms. Unless the “… because that (R)IA was superseded by a more recent one” (in which case was the Enterprise Directorate is given sufficient earlier one either right or necessary?) resources to educate departments in this respect (a role for which the NAO have praised the I “… any Impact Assessment on the Enterprise Directorate), a task that will take effectiveness/impacts of those measures many years, government will continue to fail should be carried out on a European wide small firms in the area of regulation. basis and as such by the European Commission”. POST IMPLEMENTATION REVIEWS Post Implementation Reviews were I Review in hand and will be published later. recommended by the Better Regulation Task So far as we can determine from the very limited Force40 and are now required by the (R)IA information made available it would appear that guidelines and the Treasury Green Book (2003) at least 79 per cent of Post Implementation 38 M.Radaelli, F. in order to monitor performance of regulation Reviews that should have been completed have DeFrancesco, “Regulatory against initial assumptions. To assess the extent either not been conducted or published. quality in Europe”, 2007 to which government departments have 39 Haythornthwaite R., The tendency to pass the buck for Post conducted Post Implementation Reviews we Keynote speech to CBR conference, September selected all (R)IAs up to 2004 with estimated Implementation Review to the European 2007 recurring costs to business greater then £10m Commission when the source of legislation 40 Better Regulation Task and/or one-off costs to business greater than originates in the EU41, has some justification but, Force, Less is more – Reducing Burdens, £20m. (R)IAs were also included if claimed however well it may be working for the EU as a Improving Outcomes, March benefits to business were greater than £250m. whole, we should be told how well it is working 2005 for the UK. One cannot expect the Commission 41 The Green Book, Given that these (R)IAs identified the greatest to provide that information. “Appraisal and Evaluation in costs and benefits to business, it might have Central Government”, HM Treasury, 2003 been expected that Post Implementation The rapid increases in the quantity and Reviews would have been conducted after three complexity of regulation in most OECD countries 22
  • 23. UK REGULATORY IMPACT ASSESSMENT IN 2006/7 since the 1970s have produced impressive gains not have been prepared. In one case (Directive in some areas of economic and social well-being, 2005/33) only an informal costs and benefits but too often the results of regulation have been summary was prepared, while for another two disappointing. As noted by other researchers (Directives 2005/16, 2005/77) the (R)IAs were dramatic regulatory failures tend to produce not prepared as the departments claimed that calls for more regulation, with little assessment the resulting costs would be insignificant. In of the underlying reason for failures.42 addition, we analysed Directive (2005/66) which was due to be enforced in the UK on the 15th Some countries like Australia are routinely using December 2007 but no evidence of consultation complementary strategies to better manage or a partial (R)IA were found. For the remaining Post Implementation Reviews.43 Tools like six Directives (2005/39, 2005/40, 2005/41, sunsetting (a process in which new laws or 2005/43, 2005/81, 2005/91), we could not find subordinate regulations are given automatic the associated (R)IAs. expiry dates upon adoption) and staged repeal (existing regulations are given “sunset” dates via We considered a sample of 28 Directives ex-post policy action) tend to reduce radically randomly chosen from the 43 in the BCC the average age of regulatory structure and, at database. The sample covers 6 departments least theoretically, ensure regular review and including the three larger producers of reform of the stock of regulations. A recent regulation (DEFRA, DfT and BERR). OECD study44 reviewed the use of sunsetting in several Australian states and concluded that it As mentioned, it usually takes two years for a has substantially reduced the overall number of proposal to become a Directive. As the Directives regulations in force, removed much redundant are dated 2005, most of the proposals were regulation from the statute book and originated in 2003. The Commission committed encouraged the updating and rewriting of much itself only gradually to carrying out Impact that remained. The encouragement of Assessment for all major legislative and policy sunsetting has long been part of UK (R)IA initiatives since 2003 and, see above, the great guidance but only five examples (less than 0.5 majority of Directives still do not have IAs. We per cent) can be found from 2000 to 2003. considered two more Directives where IAs were available to analyse how the EU Impact SYNCHRONISING EU AND UK IA SYSTEMS Assessment influenced the regulatory process thus To examine how well the UK (R)IA system making a 34 per cent sample of 30 Directives. meshed with that of the EU we needed to give time for EU Directives to be transposed into UK We could find no evidence that partial Impact law. Accordingly we chose 2005 as the base Assessments were prepared during the year during which 87 Directives were adopted. 45 negotiation stage and could not find any partial UK Departments are required to carry out (R)IAs for 28 of the 30 Directives analysed in our Impact Assessment on EU proposals that would study. In addition it is hard to be sure how much have force in the UK or require implementation consultation is conducted by the EU as they are in the UK, similarly to the UK Government’s own different types, formal and informal, and the 42 See OECD, “Regulatory Policies in OECD Countries”, proposals.46 consultations are not fully recorded. The co- 2002 decision procedure guidelines 2005 43 Ibid. The screening of all 2005 Directives suggests recommends the use of (R)IAs and formal 44 Report by the Public that 55 out of 87 (63 per cent) Directives could consultation to inform the UK negotiation line Management Service of the potentially impose costs and/or benefits on OECD on Regulatory Impact before the first reading of the proposal in the businesses despite the fact that the text of the Assessment in New South European Parliament and examination in the Wales, Report No 18/51, Directives usually does not explicitly mention the Council of Ministers. January 1999 financial consequences of their adoption. This 45 Website: http://eur- compares with the 73 per cent mentioned earlier. The BRE recommends that when the lex.europa.eu/, 15/09/2007 Our UK sources were the BCC database, UK Commission issues formal proposals for new 46 Website: http://bre.berr.gov.uk/regula department websites and the OPSI website.47 legislation or for amendments to existing tion/ria/toolkit/eu_negotiati For 43 of these 55 Directives, we found a full or legislation, a clear set of priorities and issues ons.asp, 15/12/2007 final (R)IA. For two of the remaining Directives that may cause most difficulty should be 47 Website: (2005/44 and 2005/47) the enforcement date is identified, and the development of robust http://www.opsi.gov.uk/stat. htm, 15/09/2007 2008, but that is no reason why an (R)IA should arguments should be incorporated into a partial 23
  • 24. UK REGULATORY IMPACT ASSESSMENT IN 2006/7 (R)IA based on consultation. As this partial (R)IA final Commission proposal. Directives 2005/59 is mainly dependent on formal consultation and 2005/69 are good examples. carried out by the departments at an early stage These Directives amended Council Directive of the proposal, we sought to identify when the 76/769/EC relating to the restrictions on the first consultation took place. For 11 of the 30 marketing and use of certain dangerous Directives considered, we could not find any substances and preparations (TCB and PAHs). evidence of consultation. For a further 9 On the proposals relating to TCB the UK Directives no specific date was found although, lobbied for derogation for an essential UK for 5 of these, early stage consultations were manufacturing use from the restrictions claimed in the final (R)IA but without evidence permitting the use of TCB in the manufacture of that early involvement. For the remaining 10 of TATB, a substance used in the manufacture Directives, departments were involved at an of sensitive munitions. This was successful. As a early stage of development of the EU proposal result it was concluded that EU wide marketing although in one case (Directive 2005/64) the and use restrictions of these substances with consultation referred to the amending derogations would provide the most Directive. appropriate means for controlling the risk Screening of the 11 Directives without associated with the substances. This took the th th consultation suggests that when a Directive form of the 27 and 28 amendments introduces amendments to existing legislation, (2005/69/EC and 2005/59/EC) to Council the engagement of stakeholders through a Directive 76/769/EEC. consultation process is rare. This may be During the negotiation stage for these justified by the modest impact of the proposals several meetings were held with the amendments such as the Commission Directive UK industry that uses TCB. This helped inform 2005/79/EC relating to plastic materials and the UK negotiating position. A twelve week articles intended to come into contact with public consultation was also run in the UK on food which was implemented in the UK via the both draft Directives. The European Scientific Plastic Materials and Articles in Contact with Committee on Toxicity, Ecotoxicity and the Food (England) (No.2) Regulations 2006. The Environment (CSTEE) was consulted and EU legislation aims to update restrictions on considered the Risk Assessment Reports. In the use of certain substances in the their opinions of June and July 2001 they manufacture of food contact plastics according confirmed the conclusions of the Assessments to the latest research. A Directive would not of the need to reduce risks to health. In-depth seem to be an appropriate vehicle for this risk reduction strategies for both toluene and purpose. TCB were prepared by the Danish We need to distinguish consultation between Environmental Protection Agency. During the Commission and UK departments, which development of the partial regulatory Impact presumably is almost always the case, and Assessments, two extensive public consultation with British business interests consultations were undertaken with industry, either directly by the Commission or via downstream users, trade associations and other departments. For six of the 30 Directives, UK key stakeholders with an interest in these departments explicitly mentioned that their substances. An early refocused partial (R)IA negotiating position was successfully was prepared for the UK implementation of the considered during the draft of the proposal but Directives and this allowed the revocation and in only two of those six cases was a partial consolidation of 17 statutory instruments into a (R)IA prepared (Directive 2005/59 and single SI as result of a review of the previous Directive 2005/69). In other cases, partial arrangements, which were considered (R)IAs may have been prepared but later cumbersome and impractical for businesses. removed when the final (R)IAs were prepared. Our main concern lies less with whether partial This is a weakness in the UK audit trail. Impact Assessments are prepared (they Early consultation at the negotiation stage probably are) but when and whether together, with a robust UK partial Impact consultation with business takes place soon Assessment, can be effective in shaping the enough. Table 11 illustrates this concern. 24
  • 25. UK REGULATORY IMPACT ASSESSMENT IN 2006/7 Table 11: Progress dates for EU Directives Directive Issued EU enforcement UK Consultation Final (R)IA UK enforcement 2004/101 27/10/2004 13/11/2005 Jun-05 16/10/2005 13/11/2005 2005/04 19/01/2005 08/02/2006 Jul-05 23/11/2005 06/02/2007 2005/06 26/01/2005 16/02/2006 Sep-05 23/01/2006 16/02/2006 2005/07 27/01/2005 17/02/2006 Sep-05 23/01/2006 16/02/2006 2005/08 27/01/2005 17/02/2006 Sep-05 23/01/2006 16/02/2006 2005/9 28/01/2005 28/07/2005 Jun-05 04/07/2005 28/07/2005 2005/10 04/02/2005 08/02/2006 Jul-05 23/11/2005 01/01/2006 2005/20 09/03/2005 09/09/2006 Mar-05 22/11/2005 01/01/2006 2005/26 21/03/2005 21/09/2005 May-05 14/07/2005 21/09/2005 2005/31 29/04/2005 20/05/2006 Dec-05 24/04/2006 20/05/2006 2005/37 03/06/2005 04/12/2005 No formal 29/11/2005 22/12/2005 2005/46 08/07/2005 09/01/2006 No formal 29/11/2005 22/12/2005 2005/48 23/08/2005 24/02/2006 No formal 29/11/2005 22/12/2005 2005/55 28/09/2005 09/11/2006 Aug-06 21/09/2006 09/11/2006 2005/61 30/09/2005 31/08/2006 Apr-06 18/07/2006 31/08/2006 2005/62 30/09/2005 31/08/2006 Apr-06 18/07/2006 31/08/2006 2005/59 26/10/2005 15/12/2006 Jul-06 Nov-06 16/01/2007 2005/66 26/10/2005 25/08/2006 No formal 05/09/2006 26/11/2006 2005/64 26/10/2005 15/12/2006 Jan-07 Not available 26/04/2007 2005/78 14/11/2005 08/11/2006 Aug-06 21/09/2006 09/11/2006 2005/69 16/11/2005 29/12/2006 Jul-06 11/12/2006 01/01/2007 2005/68 16/11/2005 10/12/2007 Jul-07 2005/79 18/11/2005 19/11/2006 Feb-06 23/05/2006 17/11/2006 2005/80 22/11/2005 May 2006 Jan-06 27/04/2006 22/05/2006 2005/86 05/12/2005 31/12/2006 Jun-06 22/11/2006 31/12/2006 2005/87 05/12/2005 31/12/2006 Jun-06 22/11/2006 31/12/2006 2005/94 20/12/2005 01/07/2007 Feb-06 11/10/2006 20/12/2006 2005/88 27/12/2005 03/01/2006 Nov-06 29/12/2005 03/01/2006 25
  • 26. UK REGULATORY IMPACT ASSESSMENT IN 2006/7 Whilst the UK mostly complies with EU requested that the implementation of Directive enforcement dates, some are sooner and some 2005/6/EC be deferred, so that its are later. That is not an issue. The (R)IAs, requirements could be phased in alongside the however, are mostly late since they should be accreditation and validation associated with out with, or shortly before the Directive is another measure (EC Regulation 882/2004, issued. Bear in mind it will have been two years which came into force on 1st January 2006). since it was proposed and consultations take However, the Association had been advised place long after this. The late issue of final that deferment was not a realistic option, as (R)IAs confirms that the UK (R)IA system is failure to meet the deadline for implementation focused on the transposition of Directives into could attract infraction proceedings from the UK regulation, a relatively mechanical process European Commission. The (R)IA linked to the where consultation can have only a marginal implementation of this Directive did not include effect. any quantification of costs and benefits to During the negotiation stage of Directive business. Earlier consultation could have 2005/6/EC, the Association of Public Analysts addressed the issue. 26
  • 27. KEY FINDINGS Only about 27 per cent of EU Directives and 50 Reviews that should have been completed have per cent of Regulations that should have IAs either not been conducted or published. seem to have them even though the system is Despite expressed concern with the total volume supposed to have been in force for four years. of regulation, their pace of introduction, as On the other hand, we cannot understand why measured by (R)IAs, has continued to increase. the EU uses IAs for non-legislative About 130 regulations per annum were announcements. Some UK (R)IAs that should generated in the first four years of this exist for EU legislation do not appear to do so government. The number has increased but the extent to which the UK system is missing progressively to about 350 in 2006/7.48 The the EU legislation where it should apply, is far cumulative burden on British business since 1998 from clear. 85 per cent of EU IAs appeared to is, according to the (R)IAs themselves, £66bn., of comply with the requirement for consultation which 70 per cent arises from EU sourced although, as indicated elsewhere in this report, regulation (73 per cent last year). In terms of the we are sceptical about the efficacy of that number of regulations, the EU accounts for only process. about 35 per cent. The financial cost shown by Although 87 per cent of the UK (R)IAs included the (R)IAs is only part of the burden; keeping a “do nothing” option, we found no (R)IA where track of changing legislation through the forest this was the final decision. The same conclusion of legislative paper is a major burden in itself. was reached by the National Audit Office, Small wonder so many firms do not bother to do although they did find one example, but that so and that those who do bother grumble about arose from a Private Member’s Bill where the the burden of so doing. instinct of the department was to thwart it. The At the same time, some reductions are requirement to give special consideration to beginning to arise from reform and we SMEs is largely ignored. acknowledge that regulation is not solely a So far as we can determine from the very limited financial matter: social and environmental information made available it would appear that benefits can also be enhanced. at least 79 per cent of Post Implementation 48 We acknowledge that some of the increase may have arisen from the RIA system being now applied more widely but the rule for (R)IAs since 1997 has been the same, namely that all regulations financially affecting business, charities or the voluntary sector should have (R)IAs. Since it would be foolish to produce unnecessary (R)IAs, we hold that business-affecting regulations can be counted by the number of (R)IAs. 27
  • 28. CONCLUSIONS Neither the UK nor the EU Impact Assessment facilitation rather than challenge. We here repeat systems are working effectively to challenge, our previous recommendation that forensic inform and shape new regulations. Other examination is required from an independent research draws much the same conclusions,49 expert (as in Europe) who should prepare a one although expressed in more encouraging terms. page summary for legislators, e.g. Parliament. To Vibert suggests that the net result of policy- ensure independence, it would be preferable for making in the Parliament and Council of this expert not to be employed by, nor even paid Ministers, combined with a politicised by, government. We have previously Commission is that the institutional setting is not recommended that the myriad but toothless one within which IAs are likely to be effective in regulatory committees are replaced by one that 49 F Vibert, The EU’s New stemming the flow of regulation that may have is both independent and effective, i.e. the NAO System of Regulatory the potential to damage market competitiveness. or, like the NAO, answerable directly to Impact Assessment – A Scorecard, (European Policy Indeed the IA guidance acknowledges that the Parliament. We still believe that to be the right Forum, London, 2004) rationale for Impact Assessment is to ensure that answer and similarly the independent experts F. Vibert, The Itch to legislation is fit for purpose. Only as a last resort should be paid by Parliament or the NAO. Regulate: Confirmation Bias should the necessity for the proposed legislation and the EC’s New System of The BRE has now adopted our earlier Impact Assessment be questioned. At both EU and UK levels, the recommendation that there be a one page (European Policy Forum, systems are under active review and it would be London, 2005) summary, which is progress, but we go further. good to believe that challenge will become more F. Vibert, ‘The limits of The summary proposed here would be from an effective. Our recommendations below are in Regulatory Reform in EU’, independent perspective and provide legislators 26 Journal of Institute of that direction. Economic Affairs 3, at 17–21. with both sides of the picture. Explanatory Risk, Responsibility and The elephant in the room is the absence of Memoranda, precursors of IAs, would thereby Regulation: Whose risk is it synchronisation between the EU and member become redundant. Eliminating them would be a anyway? Better Regulation state Impact Assessment systems. This has been small contribution to simplification. Commission, October 2006. acknowledged, at least informally. For example, 50 EU Comm 535, 25 Where does this leave us? Clearly both the EU October 2005: “From the time lines for the production of Impact and Whitehall law factories are beavering about Directives to Regulations: Assessments at EU and member state levels As the Commission made their businesses with the best of intentions. The should be consistent, and sufficiently early to clear in its Communication Impact Assessment systems are fine examples of on Better Regulation for allow full consultation and review not just by Growth and Jobs, the that. The boxes are being ticked but their government officials but by business and other choice of the appropriate fundamental rationale of challenging the need legal approach must be parties affected by the proposed legislation. It is for new legislation and, if so, finding the most based on a careful analysis. not enough to publish the first Impact Replacing directives with cost effective alternative is being missed at both Assessments after the decisions have effectively regulations can under levels. Meanwhile, the UK Parliament which does certain circumstances be been made. have the power to intervene effectively, through conducive to simplification as regulations enable Part of the problem arises from the complexity the SI process, is asleep at the wheel. immediate application, of the paperwork and the bodies who are guarantee that all actors are In terms of overall number, only about 35 per subject to the same rules at involved in the process. Impact assessments cent of new regulations are triggered by EU the same time, and focus overlap with explanatory memoranda at both EU attention on the concrete legislation. This immediately questions whether and national levels. Directives require two layers enforcement of EU rules. the other 65 per cent are necessary. The UK This contribution to of legislation and transposition notes between presses for the EU being a single market and a simplification was widely the two. As the European Commission itself has recognised in the single market requires just a single set of suggested, it would be simpler to use consultations underlining regulations. If a business regulation is not the view that it would Regulations in place of Directives.50 EU prevent divergent national required by the EU, then it is not required in Regulations and UK Statutory Instruments are implementation. In Britain. Alternatively, if it is required in Britain, it conformity with Treaty mostly administrative orders and thus obscure is required for the rest of the EU. Every extra provisions and taking into the minority which are legislative in nature. account the Protocol to the business regulation for the UK not shared with Treaty on subsidiarity and As this report has shown, the complexity drives its European trading partners, is a further burden proportionality, the out effective consultation particularly for EU business should not carry. Our first Commission intends to further exploit, on a case by legislation. As we have pointed out in our recommendation is that, when Ministers sign off case basis, the potential for previous reports, even for purely UK regulation, a new UK-only regulation in the IA, they should simplification through substituting directives with consultation is conducted by the “Counsel for explain why it is needed in the UK but not in the regulations.” the Prosecution”, i.e. the department promoting rest of Europe. the new regulation, and contributes to 28
  • 29. CONCLUSIONS The expansion of regulation may help explain the No evidence of partial UK (R)IAs being used to worsening overall control of the process and, one inform EU Directives was found in our sample. suspects but this is beyond the purview of this By the end of the transposition process, Final paper, effectiveness. “Command Papers” are the (R)IAs were in place but those appear to be official lists of new regulations. As the July Paper after-the-event, tick box papers. Partial (R)IAs was issued late, for the second year in succession, may have been replaced by later versions but it and it has not been possible to find about 15 per seems that they are not being produced soon cent of (R)IAs at all. Since the whole point of enough, if at all, and that consultation with UK (R)IAs is to make regulation transparent, this business is taking place some years after it economy with their availability illustrates the should. And by that time consultation can have systemic failure. For over ten years, the only a marginal impact. We accept that Government has had no overall control system for departments are involved sooner but the extent regulations although a database is planned for to which they represent British business interests 2008. It has since transpired that some (R)IAs is unclear and is second hand at best. listed in the Command Paper are not (R)IAs at all. The production of Directives, and therefore In short, the 2007 data are so compromised that presumably Regulations, and Impact we are holding over our detailed audit until we Assessments at EU level is seldom informed by a can obtain clarification in time for next year’s detailed UK assessment of options, risks, costs analysis. As a postscript, we have discovered that and benefits, developed by business. It is 79 per cent of the major Post Implementation curious, with hindsight, how much attention has Reviews that should have been published by the been given to perfecting the UK domestic end of 2007, have not been. system, in theory, with so little regard to the EU The comparison of EU and UK Impact which is the source of the heaviest burdens on Assessments leads to a simple conclusion: the business and should be the priority. EU very rarely employs IAs, and even more rarely Our recommendations have been revised since quantifies them thoroughly but, when it does so, last year, taking into account the slight progress the system works very well. Conversely, the UK that has been made. goes through the motions with all Directives and Regulations but so superficially that the system does not work at all. 29
  • 30. RECOMMENDATIONS 1. When, in an area with EU competence, a Assessments as they are produced (the Minister signs off a new UK-only regulation in “audit trail”). the IA, in relation to an area with EU 4. Ministers should insist on due Post competence, he or she should explain why it Implementation Reviews being completed is needed in the UK but not in the rest of and published for all regulations placing Europe. significant burdens on British business, i.e. all 2. UK government should switch its attention those appearing in the British Chambers of from the domestic IA agenda towards having Commerce’s Burdens Barometer three years an effective UK IA system for EU sourced previously. legislation. Having Regulations (or “Laws” under the new Treaty) rather than Directives 5. We will not try readers’ patience by would help but that, together with the EU IA repeating last year’s recommendations but system, are out of UK hands. The UK IA simply invite all those seriously interested in system is synchronised with the EU Workplan reforming and improving the UK’s regulatory so that EU legislation is effectively system to provide better alternatives, explain challenged in time to have any effect. In why those recommendations are wrong or other words, an early provisional IA and unaffordable or even, if all else fails, consultation with British business should take implement them. This would make a pleasant place, and be recorded, as soon as the change from avoiding uncomfortable truths. Directive is proposed. The first provisional IA 6. One exception is that parliamentarians should be preserved for the audit trail. should take responsibility for legislation. MPs 3. The BRE should extend the proposed Impact now have the power to block poor and/or Assessment database to ensure that all redundant regulation but they do not use it. relevant EU legislation that should have UK To complain of excessive regulation whilst Impact Assessments are included with the failing to use the powers they have to resolve dates and versions of the EU and UK Impact the matter is not acceptable. 30
  • 31. BRITISH CHAMBERS OF COMMERCE T +44 (0)20 7654 5800 65 PETTY FRANCE F +44 (0)20 7654 5819 LONDON SW1H 9EU info@britishchambers.org.uk UNITED KINGDOM www.britishchambers.org.uk