Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 20 - 39)



  20. There are certain delays which you would anticipate and obviously delays are made in the implementation of a proposal before it gets through to legislation on the basis of an RIA. What I am concerned about is not just the delays which come from the considerations which are being put into it, but actually pulling something back for a re-think. What you have indicated is that you have not actually withdrawn any proposal. Has there been a case where you can say that because the RIA itself has not yet been prepared you have held things up until it has been?
  (Mavis McDonald) It is perfectly possible to say that there is no RIA with this policy proposal and there should be because it is a significant piece of legislation with a significant impact on business. Not only ourselves but the Treasury who also scrutinise new policy proposals would want to say in that case, "Please go back and re-think what you are doing before final policy clearance is given".

  21. You stated my question in a much better way than I did. You have given me the answer to the first part and that is that nothing has been pulled on the basis of it. What I am asking in effect now is whether there has been a case where what you have just said has happened. I know it can happen, but has it? Has there ever been an occasion where you have said, "Look. I don't want you to go any further with this policy proposal because you have not prepared the RIA. By all means take it forward after you have prepared the RIA"?
  (Mavis McDonald) If I said there are exchanges which shade around that going on quite frequently during the process of the development of the policy, then that is as clear as I can be because it is an iterative process and that does happen and sometimes there is a significant gap, sometimes it is a marginal change, but internally that becomes part of the process of getting policy clearance and developing the policy and working it up between partners through the process through which collective agreement is sought.

  22. I do not want to delay the Committee by pursuing this one too much further. What I think I am trying to get a feel for is just how strong and with how much force you are prepared to press it with departments who naturally want to get their policies into law.
  (Mavis McDonald) We do not own the policy, the department and the Secretary of State would own the policy proposal they are developing. We and the Treasury are able to ask our Ministers to make a case pretty strongly if they think that this part of the process is weak and needs to be stronger before the final policy clearance can be given. We are not in the decision-taking process, we are contributing to the debate which goes on in the process of seeking policy approval.

  23. Paragraph 2.6. Have all the RIAs prepared since 1999 which relate to European legislation been prepared in time to influence the form of the European legislation?
  (Mavis McDonald) Since 1999 I would have to assume that the answer is no, but we can check that for you. I am pretty sure the answer is no. Our own guidance which gave more help on this was not available until last year.

  24. Let me just check whether my dates are wrong here. In paragraph 2.6 it says, "About 40 per cent of the RIAs prepared in the last two years related to the implementation in the UK of legislation originating in the European Union. Since 1999, Cabinet Office guidance has indicated that producing a RIA should be considered while negotiations on the form of the European legislation are still in hand". It is not the 2000 guidelines to which I am referring here. It is actually your own Cabinet Office guidance.
  (Mavis McDonald) Yes, but the time lag between publishing the guidance . . . I am sorry, as I understood you, you were asking me whether I could tell you whether all the directives passed since the publication of the guidance had benefited from the advice and the answer is probably not, but I can give you more chapter and verse on that later.[3]

  25. If you could perhaps give us a note on that. Thank you. In paragraph 2.8, how many proposals from the European Commission have passed into law without a fiche d'impact?
  (Mavis McDonald) I am sorry, I do not know the answer to that. I shall get it for you.[4]

  26. With reference to paragraph 1.16, why are RIAs not undertaken universally by non-departmental regulators?
  (Mavis McDonald) Most of the statutory regulators work within the framework of their own legislation. The Better Regulation Task Force has recently reported on the extent to which they should think about the impact of their regulation on business with the same approach that is adopted in the RIAs. It is fair to say that the Treasury have also had some work done separately on three or four of the independent regulators. The Government is preparing its response to that report at the moment. The Better Regulation Task Force very clearly went for the principle that the approach should be the same.

Mr Gibb

  27. May I start with paragraph 2.6 where the NAO report that the quality of costing was variable? I am an avid reader of regulatory impact assessments, having read probably at least 50 of these things in opposing statutory instruments for the Opposition. My assessment of regulatory impact assessment costings is that they are very, very poorly done and that is certainly the impression of interested bodies outside who, when I discuss the RIAs with them, laugh at them, think the way they are calculated is risible. For example, you can say that one RIA might say that a form takes half an hour to complete, omitting the fact that it takes three man days to extract the information with which to fill in the relevant form. What is your assessment of the accuracy of the cost assessments done in the regulatory impact assessments?
  (Mavis McDonald) Our view—and it is a view rather than a full in-depth assessment—is that the practice is very variable and that there are some very good assessments with a lot of work done behind the consultation to try to get a handle on costs, particularly in qualitative areas, whereas in cost benefit analysis the attaching of value is always much more difficult. It is an area where if we are going to develop guidance on better, earlier assessment and better consultation and more inclusion with the stakeholders, then we can look specifically at what else we might do.

  28. Other than earlier, how else will it be made better?
  (Mavis McDonald) More engagement with a wider range of stakeholders on the reality of what is involved in implementation could well help better inform the kind of assessments which are made of the real costs of implementation.

  29. May I ask you a philosophical question about RIAs? I am rather sceptical about the analysis of the benefit side of it and indeed in the report at paragraph 2.32 it says "Evaluating benefits proved much more challenging" which reflects the comment you have just made. If you are comparing the benefits to society of a particular regulation and you are comparing that with the cost to particular businesses who are faced with implementing those regulations, are you really not comparing like with like? The business will incur all the costs but they may not benefit at all from the perceived benefits of the regulation. If you are going to do a proper cost benefit analysis, surely you should be comparing the benefit to society with the costs to society and the costs to society would therefore involve the supply-side consequences of that regulation, the accumulative cost of yet another bit of regulation or the impact of eliminating the marginal firm from the industry because its costs would not exceed its profits and the effect that would then have on reduced competition. This point is picked up in paragraph 1.6, where it says that "The need to understand a wide range of regulatory requirements can act as a barrier to entry to small businesses and hence inhibit competition". There is both eliminating the marginal firm and the barrier to entry for new companies coming into an industry, both of which will reduce competition and therefore have a very negative impact on society. In all the regulatory impact assessments I have read, I have never seen the cost to society juxtaposed against the benefit to society put in that way. Why is that?
  (Mavis McDonald) There are some RIAs where people have tried to get close to doing that, but there are others where it is very difficult to do that full cost to society assessment. Within our guidance and the work we do with the SBS there is quite a close attempt to scrutinise the impact on the marginal company and also the impact on the marketplace of regulation and we do have examples of where RIAs, for example on stakeholder pensions, have led to a process of eliminating the very smallest companies to relieve the costs from them. You could argue that is a policy decision on the part of a Government for the route they wanted to go down, but there the process of the RIA and the way it was implemented actually did take into account some of the factors which you are raising with us now.
  (Mr Andrews) Mr Gibb has made a very important point. We need to disentangle, when looking at the RIAs, some of the costs and benefits. I also think, and I say this particularly from the point of view of the Small Business Service we need to feed back to the regulator views on how effective the regulation is likely to be. We need to look at issues like enforcement for example which perhaps go beyond some of the obvious costs and benefits. What the Small Business Service is trying to do, working in partnership with the Cabinet Office Regulatory Impact Unit, is to look at these issues in perspective, in some sort of context, so that we look at the overall burden on small businesses of the range of measures. At the same time as we look at that overall burden, we look at practical ways of addressing it, for example through much better guidance, through giving people sensible periods in which to take account of new regulation, through sensible mechanisms for enforcement. We have certainly found that some of the processes can fail to take account of some of the particular circumstances of small businesses. It is fair to say that we spent a lot of time trying to look through those issues. It is why the litmus test is so very difficult to get right and to make effective, because that broad context has to be looked at. It is why we have put so much effort into detailed consultation with small businesses, not necessarily about the impact of individual regulation, but the impact of the regulatory regime as a whole, so that we can put individual RIA proposals into some sort of sensible context. It is very difficult to do. A lot of resource goes into it, but we are beginning to see some interesting issues emerging there, which we can begin to address, together with the Cabinet Office.

  30. May I just ask about a comment Mrs McDonald made about policy costs of regulation and implementation costs. This is a distinction the current Government likes to draw between the bureaucracy of a regulation, the form filling and the compliance, as opposed to the policy costs, that is the high wages or the more costly machinery. Are you going to make a distinction in that in your future RIAs or are you going to eliminate policy costs from your cost calculations?
  (Mavis McDonald) No, our current guidance already draws attention to this distinction and one of the recommendations in the NAO report is that we should look and see whether we can do more to help departments make that distinction. We both acknowledge that it is a real one and that it is worth keeping in. As we both agree, one of the significant values of the RIA is actually opening up the policy development process. If we were to drop that element of it, then we would lose a lot of the added value which we get out of the totality of the process as part of that broader policy development exercise within departments.

  31. Will you keep in the policy costs as well because they are real costs?
  (Mavis McDonald) Yes.

  32. Good. You said it is important to make sure that the balance of burden of regulation is appropriate. Do you feel that in Britain today the balance is right?
  (Mavis McDonald) There is not a yes or no answer to that. A lot of regulation at the moment is historic and we do have proposals under the Regulatory Reform Act to remove some of that. Some of it is development of new policies which Ministers wish to follow through for a variety of reasons. Some of it is driven by Europe. We are not starting with a clean sheet.

  33. Whatever the source they all add to the imbalance if there is too much of it, do they not?
  (Mavis McDonald) You would not really expect Ministers to say, if you were talking about protection of life, that there was too much regulation where they had decided there was a real need to regulate to protect life. There may be areas where it is more important to have regulation than others and the totality builds up cumulatively over time without there being a yes or no at any one stage.

  34. What do the Small Business Service think?
  (Mr Andrews) We feel from the small business point of view that there is an awful lot that departments can do to make life easier for small businesses. We are looking this afternoon at the regulatory impact assessments on new regulation, but we are spending a lot of time working with departments to make it easier for small businesses to comply with existing regulation as well. We are finding that departments are very willing to work with us. They value the support we can provide in helping to make their regulatory regimes a bit more helpful for small business. Actually departments have an interest in that. If regulation is easier to comply with, if there is straightforward guidance, if the enforcement regimes are sensible and effectively targeted, then it is easier for the regulating department to achieve its own objectives. Far from seeking confrontation with the regulating departments, we are seeking with the Cabinet Office to try to add some value to that process, to make life easier for the small business community. So far we are finding that approach has been very welcome. We are certainly working closely with the British Chambers of Commerce, the CBI, the Institute of Directors and the other representative bodies to pursue that sort of approach. We are involving them in identifying priorities for our work and trying to sell solutions to the regulating departments. We have found that a rather productive approach. We would still need effective RIAs. We need to keep that focus and we need to make sure that departments really are looking carefully at the particular issues around small businesses. That is still a very important part of our work.

Geraint Davies

  35. May I say two things at the outset? Firstly, I have started a number of my own businesses, so that is where I am coming from. At the same time regulation can be very important. When we saw deregulation with BSE and this sort of thing, people were very concerned about it. Would you accept that in many ways big companies like more regulation because it helps extinguish small companies which are quite annoying when they are entering the marketplace? Big companies have the overhead to cope with regulatory issues and small businesses have very little in terms of that resource.
  (Mr Andrews) In a year in my present post I have seen no evidence of that whatsoever; I have seen some evidence to the contrary actually.

  36. I was interested in what you said about the business response. You talked about the Institute of Directors and the CBI and all this sort of thing. Then you said that when you tried to do research with small businesses themselves it was very difficult to get an in-depth output. It is the case of course that the CBI will give you one story, but the reality is that they do not want small business to succeed, so they do not have that cost. I wonder whether you are actually measuring these costs at all.
  (Mr Andrews) May I give you an example to the contrary?

  37. Yes, do; of course.
  (Mr Andrews) We ran a conference in Stratford-upon-Avon in September to look at the way in which local authorities operate and enforce regulations on small business. That is the supreme example of where an enforcement regime can bear particularly heavily on a very small business or a sole proprietor. We had the sales director of a very large British business enthusiastically participating in that event and his view was that it was very much in the interests of large companies to see sensible regulation for small businesses, because in many cases they were the customers of those large businesses. He really did not see that dichotomy. I have to say that I have not myself seen evidence of that at all. We found that in developing lines to take for our representatives on issues like employment legislation, in fact large companies and small companies had very similar concerns. Small companies have particular concerns because they do not necessarily have a human resources department; often it is the owner/manager. I really do not see that dichotomy.

  38. May I ask incidentally whether the people doing these jobs, you or any of your colleagues, have had any experience running a small business?
  (Mr Andrews) I myself have not directly, not for many years anyway.

  39. What do you mean? What did you run?
  (Mr Andrews) I used to run a hamburger stall at Biggin Hill Airport in the early 1970s.

3   Ev, Appendix 1, p 22. Back

4   Note by witness: This information is not available - it is not held centrally by the EU or the Cabinet Office. Back

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