Examination of Witnesses (Questions 20
MONDAY 26 NOVEMBER 2001
CB AND MR
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indicated is that you have not actually withdrawn any proposal.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
(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
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
(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.
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.
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.
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 viewand it is a view rather
than a full in-depth assessmentis 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
(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
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
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
(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
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
Note by witness: This information is not available - it
is not held centrally by the EU or the Cabinet Office. Back