THE BRITISH
REGULATORY SYSTEM
TIM AMBLER, FRANCIS CHITTENDEN
AND STEFANO IANCICH


Published by the
British Chambers of Co...
CONTENTS
ABOUT US




The British Chambers of Commerce is the               Foreword                         p.3
national ...
FOREWORD




           Welcome to our sixth annual Impact Assessment          this year’s research that too often officia...
EXECUTIVE SUMMARY




                    This is the sixth annual report examining how the     government. The number has...
EXECUTIVE SUMMARY




                    It is curious, with hindsight, how much attention    3.   The BRE should extend ...
THE BRITISH
REGULATORY SYSTEM




                                This year’s report begins with a brief review of        ...
THE BRITISH
REGULATORY SYSTEM




                                   management group, namely the Better              6. T...
THE BRITISH
REGULATORY SYSTEM




                     10. All new regulations should have                      The reason...
THE EU IMPACT
ASSESSMENT PROCESS




                                  BACKGROUND                                         ...
THE EU IMPACT
ASSESSMENT PROCESS




                                QUANTIFICATION OF IAS                                ...
THE EU IMPACT
ASSESSMENT PROCESS




                      Table 2. shows the extent to which different DGs
              ...
THE EU IMPACT
ASSESSMENT PROCESS




                               We are baffled by the Brussels decision process     Fi...
THE EU IMPACT
ASSESSMENT PROCESS




                               Table 4: Quantification of impact of IAs              ...
THE EU IMPACT
ASSESSMENT PROCESS




                                The new Action Programme for Reducing                ...
THE EU IMPACT
ASSESSMENT PROCESS




                              Almost all IAs make reference to some                 b...
THE EU IMPACT
ASSESSMENT PROCESS




                            The new Action Programme for Reducing               demon...
UK REGULATORY IMPACT
 ASSESSMENT IN 2006/7




                             OVERVIEW                                      ...
The british regulatory system – global mba brazil
The british regulatory system – global mba brazil
The british regulatory system – global mba brazil
The british regulatory system – global mba brazil
The british regulatory system – global mba brazil
The british regulatory system – global mba brazil
The british regulatory system – global mba brazil
The british regulatory system – global mba brazil
The british regulatory system – global mba brazil
The british regulatory system – global mba brazil
The british regulatory system – global mba brazil
The british regulatory system – global mba brazil
The british regulatory system – global mba brazil
The british regulatory system – global mba brazil
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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 FGV in partnership with Manchester Business School (MBS).

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  1. 1. THE BRITISH REGULATORY SYSTEM TIM AMBLER, FRANCIS CHITTENDEN AND STEFANO IANCICH Published by the British Chambers of Commerce March 2008
  2. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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

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