Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 100 - 119)



  100. I can well understand in that situation how you could balance different proposals against one another, one might have a greater impact on the companies concerned and one might cost more than another. What I am interested to know is how you try to get the balance between going ahead with the regulation or not. That must to some extent depend on the number of people who might be affected by this sort of an accident in future and how you reckon that sort of a risk up.
  (Mavis McDonald) A proper cost benefit analysis would give you some methodology with which to make that judgement but at the end of the day some of these judgements will be for Ministers to make within the context in which they are looking at that particular change. This is about money, risk and uncertainty to some extent and there are always choices largely to be made by politicians in the circumstances.

  101. I understand that, but in a case like that, is it part of the regulatory impact assessment to provide Ministers with information about what the likelihood of numbers of deaths due to this sort of accident would be over the next ten years or whatever?
  (Mavis McDonald) Yes; certainly.

  102. Do you also give then advice about what financial value could be put on that?
  (Mavis McDonald) I ought to make it clear that we do not purport to be the experts on methodology for cost benefit analysis. We would largely direct people to the Treasury green book which is being revised at the moment between us and the Treasury and more particularly pick up some aspects of how that guidance might be more easily applied to the RIA process.

  103. I think you said earlier that you had never come across a case in which the regulatory impact assessment had been critical in stopping something going ahead, stopping a policy going ahead at all, stopping a new regulation going ahead at all. That surprises me, given that it seems to me that we do quite often get situations in which we are more or less driven into introducing new regulations to cover some point which may never occur again.
  (Mavis McDonald) I ought to be clear. When I made that comment we were talking about the internal processes of exchange as the policy was being developed. I referred to there being an iterative process between departments and Ministers. There are examples where going through the RIA process, indeed there is one in the report itself, has led to the conclusion that what was proposed was disproportionate and that there should be no regulation. I think it was on pesticides if I recall correctly. The process itself can lead to that conclusion and has done.

  104. To what extent do you consider when you are going through one of these impact assessments the possibility that some of the bodies affected may just collapse completely? I am thinking particularly here of an interesting case which arose recently where new regulations were introduced for voluntary bodies which were dealing in some way with children and the regulation was proposed that all such bodies should have to go through checks on anyone who applied to work with children. This was going to cost them. Some of the bodies concerned said that if they had to pay for these costs they would go under, they simply could not do it any more. In that case there was obviously a cost to society of that work no longer being done. To what extent is that taken into account and how do you judge the value of that?
  (Mavis McDonald) That seems to me a perfectly legitimate kind of factor to take into account and we would expect an individual department developing its proposals to know where that vulnerability existed. That would not mean they could not look at alternative ways of achieving the desired end result by some different kind of registration system or indeed help in bearing the cost if necessary directly from the department if they thought it was essential for that objective to be achieved.

  105. I appreciate that and in a sense you have answered my question but I was getting at something a little bit different from that, which is that the cost to the company may be £10 per person or whatever, but actually the cost to society may be the loss of a whole company or the loss of that whole voluntary agency, which may have a much greater cost than the individual pound per person cost. I am wondering how you judge the cost of the loss of a whole organisation?
  (Mavis McDonald) David would deal with small businesses such as small nurseries and child care providers in that kind of way. We would expect, if feedback from broader consultation was so significant that to follow that route meant that you lost the service you were relying on, that you would have to go back to the drawing board and wonder how you delivered this service, whether you wanted these skills already there to continue in delivery, what else you needed to do to get the policy result you wanted and to sustain the level of provision the service was currently providing.

  106. I understand but, if I may say so, that is an entirely general and unquantified way of looking at it. There may be cases in which you can say if we go ahead with this regulation, we will lose three per cent of the organisations which provide this service, but the other 97 per cent may well be able to bear the cost.
  (Mavis McDonald) Yes.

  107. How do you judge the cost of the loss of an organisation in that sense? I cannot understand how you can do it in a woolly-minded way of thinking about whether it is going to be worth it or not. It seems to me you ought to be able to have some quantified data about what this is really going to cost if three organisations out of 100 are going to go under.
  (Mavis McDonald) Yes and I would hope you would get that from any analysis you have done on the cost benefits and any feedback you get from the consultation on the way you propose to proceed. It does seem to me you still get back to the point where there is a judgement to be made about the risk of losing that three per cent and whether you want to go ahead regardless or whether you want to change the proposals so you do not lose that three per cent. At that point there are policy options for Ministers to re-visit.

  108. Let me turn now, if I may, to another sort of benefit in a sense. Part of the reason for introducing regulation sometimes is that you get some small businesses which are in some way acting in a slightly shady manner, trying to cut corners or whatever. What you are trying to do with the regulation is to create a proper level playing field so that everybody has to meet certain basic guidelines and cannot get away with things which other companies might not feel they ought to do for moral reasons; some companies do not feel that moral imperative. What is the value you give to creating a level playing field in that sense?
  (Mr Andrews) Very considerable. We have tried a two-track approach to that issue. First of all, as the Small Business Service we are sponsoring a number of projects across the country to look at the way in which regulation can be enforced more effectively. That is imposing fewer burdens on the honest companies, the well-intentioned companies, but targeting enforcement effort on those who are less well intentioned. During the course of next year we shall review the success of those different approaches. Essentially we are conducting an experiment. Secondly, we are working with the regulating agencies to see whether we can promote more effective ways of targeting. I shall give you one single sentence example of that. We are working with the Health and Safety Executive to see whether we can draw lessons from the work their local enforcement officers undertake to see whether we can refine guidance they received, so they can target their activities more effectively and provide guidance to companies who want to comply but maybe have not and target their enforcement activity and legislative impact on those companies who do not want to comply but know perfectly well what is expected of them. Those are the two approaches we are following at the moment. There is the experimental, approaching, running different projects, but also working directly with the enforcement agencies.

  109. It seems to me that another aspect is that as soon as you introduce legislation, any sort of regulation, you get people who are going to try to get round it in some way. You will almost certainly get lawyers who can see some sort of loophole through which they might be able to push a company or voluntary agency and you will get legal challenges and you are likely to get further regulations introduced in order to cover some of those loopholes. To what extent when you are introducing the initial regulation do you cost into that the likelihood that you are going to have further regulation following on, so your initial costs may be only part of the overall costs?
  (Mavis McDonald) That is a nice one. Where we have a regulation provided for in a main piece of legislation and then the order-making power to follow through that legislation, clearly we would expect to understand that follow-through and what the costs were. I am not aware—and my colleagues behind me will correct me if I am wrong—that we have costed in the potentiality of people to get round and our needing a new regulation in order to go for harder enforcement.

  110. You are assuming whenever you make a regulation that it is going to be perfect and nobody is going to be able to get round it or through it.
  (Mavis McDonald) What we do suggest departments do is look very hard at the best way to achieve compliance. If it looks as though there is really not going to be any buy-in, people are going to spend the whole time getting round the whole approach because they are not convinced by it, think hard about whether that is the right way to proceed and whether something like-self-regulation where an industry itself —

  111. It does sound as though if you go ahead with regulation you are assuming it is going to be watertight and not cost you anything.
  (Mavis McDonald) We are fairly clear that we do not assume you will always get 100 per cent. We do assume that by the time you have gone through the whole process and you are going ahead the validity of the regulation is well founded.

  112. Some legislation, particularly perhaps recently, has had to go through the House of Commons, the House of Lords, rather fast as a result of some emergency situation. We have decided amongst ourselves in Parliament that it is necessary to introduce legislation within a month or so. How on earth do you manage a regulatory impact assessment when you have legislation moving at that sort of speed.
  (Mavis McDonald) It is clearly much more difficult, but we would hope to encourage departments to do what they could within the timescales available and we do have some examples, something like the Animal Welfare Bill, where we were able to do that.

  113. Do you ever warn Ministers that to try to do that sort of thing may well end up with a Dangerous Dogs Act situation?
  (Mavis McDonald) Ministers are advised on the pros and cons of very speedy legislation quite frequently

Mr Jenkins

  114. I shall try to help you as much as I can by not asking the same questions so you will not have to repeat yourself. Coming so low on the list we do tend to run out of questions so we have to be a bit more inventive. I see from Figure 2 on page 3 of the report that an RIA looks at all costs. In your answer I should like you to differentiate between policy costs and administration costs so I think I have an understanding why you look at all the costs. When you look at all these costs, do you look at the costs with regard to a company who is at present one of the few companies producing stuff in this country in competition with overseas competitors? Do your cost benefit analyses take into consideration the extra burden on that firm and its position with regard to competition with overseas companies?
  (Mavis McDonald) The answer is yes, there is absolutely no reason why the cost benefit analyses cannot do that and indeed a good one would do.

  115. When you do this individual cost, do you submit all the costs imposed upon a company of all the other regulations as well?
  (Mavis McDonald) No, we do not do that.

  116. You do not?
  (Mavis McDonald) No.

  117. So they fall by the wayside, they do not make an impact on your cost benefit analysis.
  (Mavis McDonald) Our experience has borne out that we get information back, that the cumulative impact is stressed to us in areas where people feel particularly that a marginal addition is going to impact their competitiveness. We do ask people in doing their regulatory impact assessment to look at the effect on the competitiveness of the proposal. Indeed the new role of the OFT will also enhance the analysis which is going to be done on the competitive effect of policy changes as well. That area of analysis will get strengthened. The OFT's analysis will be fed into the RIA process.

  118. Would I be right in saying that if we put regulations on firms in our country which are not put on firms in European partner countries, we have in effect what could be called negative state aid, have we not? It could therefore be taken to the European Court I should imagine because it constrains trade. It is just a point. I do not expect you to answer some of these things, to be honest. What I would ask you to do is look quite specifically at a regulation we imposed, particularly like the working families tax credit, which meant a lot of administration being imposed on a company. Quite simply, in the cost benefit analysis—and you might not know this case particularly—would it be possible to consider paying the company to administer this on behalf of the Government and therefore take out the negative state aid situation?
  (Mavis McDonald) I shall ask David to comment in a minute on any more general examples of the kind of cases you are quoting. There is no reason in principle why the Government could not reach a decision in the way in which I explained when answering Mr Rendel that if it wanted to achieve a particular objective, then it might have to meet part of the costs of meeting that objective. In principle that could happen, but an industry would have to make a very strong case for that or small businesses would have to make a very strong case for that to happen. Theoretically it could well do so.
  (Mr Andrews) I would simply observe that it is often contended that UK companies are disadvantaged in particular ways but we are very short of hard evidence and obviously would consider very carefully evidence in particular cases. Certainly I have not seen any from the Small Business Service perspective.

  119. Would not the impact analysis and all the cost benefit analyses you do on that give you the hard evidence?
  (Mr Andrews) No, not necessarily. It would only give us that evidence if a company could demonstrate that in some way they had been disadvantaged. I have to say that does not normally come out of the RIA process; we have not seen it.

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