Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 120-139)



  120. You have produced a reference to your Burdens Barometer. Perhaps you could explain to us first of all why you say in your evidence at paragraph 5.9 that this covers 1997 to 2002 when it seems that the figures are calculated up to May 2001. When you say there is a cumulative cost of regulation, can you explain? Does that mean, as a result of all the regulations brought in between 1997 and 2001, in this current year, there is a cumulative burden on business of £X million or billions of pounds, or are you saying that there was a burden last year and a burden this year and you add the two together to produce your cumulative result? Perhaps you could explain a little bit more what you mean by what is contained in paragraph 5.9.
  (Ms Low) The Burdens Barometer takes all the regulatory impact assessments produced by government departments and takes what is available in the latest listing produced by the Cabinet Office. The last Burdens Barometer showed the compliance cost to business of regulations to be 15.6 billion and that was compiled last year. We extrapolated the costs up to May 2002 so essentially we are taking costs from 1997 for the regulations and then we had regulatory assessments available to us and then we estimated the recurring financial costs up to 2002.

  121. They are recurring financial costs as a result of regulations brought in since 1997?
  (Ms Low) Yes.

  122. They are annual recurring costs? The 15.6 billion is an annual recurring cost?
  (Ms Low) No. The Burdens Barometer is set out. I do not think you have a copy of the table.

Mr Berry

  123. Is it the excess of costs in 2002 over costs in 1997?
  (Mr Fletcher) No. The choice of the five year period was to look at what would normally be a parliamentary term and it is the cost of new regulations that have been introduced over that particular five year period. For example, the national minimum wage was not introduced until April 1999 so it would be the cost of that from 1999 through to May 2002.

  124. You mean the cost in 1999, if that cost occurs again in 2000, which presumably it does? You add the two together?
  (Mr Fletcher) Yes. It is a five year lump sum.

Mr Chope

  125. Can I venture to suggest this is not a very helpful way of proceeding. Much as it may suit me from a party political, partisan point of view, I much prefer to go into a debate with useful statistics and I would be much more interested in the annual recurring cost. What is the cost in this current financial year as a result of regulations which have been brought in over whatever specified period you want to measure it against, but certainly the annual recurring cost rather than a cumulative cost, because that does not define the burden this year on business.
  (Mr Fletcher) From our political perspective, we thought that three million a year would not illustrate the impact as much as 15 billion over a parliamentary term.

Mr Berry

  126. Shades of the Treasury at this point. This is treble and double counting, is it not? You have a very fair point to make that there are costs as a result of regulation but if you are looking at a five year period the rational thing to do, I would have thought, is to say the costs that occur in 2002 over and above those that occurred in 1997—that is the additional costs which could go on, year on year, if the regulations are not changed—but in some cases double, treble and quadruple. You have done that because you get a bigger number.
  (Ms Low) Essentially, it is reflective of the cost to business. Businesses are still having to have that burden year on year.

  127. Why not extrapolate to 2005 to get an even bigger figure?
  (Mr Fletcher) Because governments do not tend to change every five years.
  (Mr Peel) Can I suggest that you might like to receive a figure which is differently presented?

  Mr Berry: What would be useful would be your estimate of the difference between the cost of regulation in 2002 and the cost in 1997 so that we can see the increase over that period.

Mr Chope

  128. Or the annual recurring cost as a result of regulations introduced in particular years. If you are able to do that, it would be helpful.
  (Mr Fletcher) What we tried to achieve was in one number, the summary of that total impact. It will vary from year to year.

  129. Whatever these figures are, do they apply both to manufacturing and service sectors or just to the manufacturing sector?
  (Mr Fletcher) It will encompass the whole business community.

  130. Is it possible to divide it between the two sectors or not?
  (Ms Low) The regulatory impact assessments that we use do not make that distinction in most cases.

  131. How much of this is attributable to the minimum wage? Is it a big part of this three billion a year?
  (Ms Low) The minimum wage as reflected in the Burdens Barometer does not include the figure that we put, 674.5 million. That does not include the cost of paying the minimum wage; that is a recurring, administrative cost.

  132. Is the burden of regulation, whatever it is, going up or coming down?
  (Mr Fletcher) It is going up. If you look at the 15 billion, whether you like that figure or not, and compare it with the government's deregulatory orders over the past five years and the regulatory action plan published in the last fortnight or so, the figures do not bear comparison.

  133. In your evidence, you refer to the costs that entrepreneurs incur by way of opportunity costs. Can you put a figure on that?
  (Mr Fletcher) No. That is something that we are keen to drive, to get regular impact assessments that departments are obliged to produce to take some account of those opportunity costs as well as the recurring costs of administration and the policy costs. There is currently a review of guidance to departments on the regulatory impact assessments.

Sir Robert Smith

  134. In that global figure, was that all annual, recurring, permanent, new costs or was some of it start up costs?
  (Ms Low) There is a one off administrative cost included in that figure; then recurring administrative costs.

  135. So it would need to be broken down. I did sit on a committee back in February where, if you were looking at the costs, you would have said that the costs to pig feeders of the new pigswill regulations would be X but obviously the cost to the industry of not doing it was Y. Is there any way of looking at the other side? Obviously, that is one of the problems. One person's regulation burden is another person's salvation.
  (Mr Fletcher) We do not object to the government introducing what would be seen as decent standards. Our objection is the way it regulates it. We agree with the objective; if not sometimes the means. For example, a regulation that is currently being progressed through the Employment Bill is to introduce the right to careful consideration of the return to part time after maternity leave, a very worthy objective, but did the government look at achieving that through other means in terms of supporting small businesses towards that objective, rather than simply passing a right that small businesses may not be able to meet?

  136. On the other side of the coin, that figure may be an under estimate in the sense that you are relying on the regulatory impact assessments which are quite narrow.
  (Ms Low) The regulatory impact assessments are looking at direct costs, not indirect costs.

  137. What government incentives, new or improved, does the manufacturing sector need to improve investment in R&D in business expansion? In your chart, you show a worrying trend in this country.
  (Mr Fletcher) There are fairly broad, generic incentives. Generally, the feedback we get from businesses is that a lot of incentives come through the tax system and add further complexity to the tax system. Is that a price worth paying for the incentives? In the case of things like capital allowances, most small companies employ an accountant. If the owner/manager is not able to get his head round the capital allowances, then the accountant will. There are however some more targeted incentives, things like the Enterprise Investment Scheme, Venture Capital Trust, things of that nature, where there is a large, up-front cost in terms of understanding the incentive in the first place. I have come across examples of businesses where they have had to call in quite specialist accountants and lawyers to be able to ensure that that particular incentive is taken and that their reasons for taking it are watertight.

  138. Are you suggesting you make things clearer?
  (Mr Fletcher) In the case of targeted incentives, yes. Using the tax system is not the way to go. In those cases, using grants creates difficulties in terms of EU state aid laws. But from our perspective, we would rather see it coming through grants than through the tax system.

  The application procedures would be simpler in that respect.

  139. Have you any other suggestions?
  (Mr Fletcher) In the case of the more generic incentives, we are pleased to see the government giving appropriate emphasis to research and development on that score. Given the difficulties that manufacturing sectors are facing at the moment and this problem of instability in 40 per cent of this market, it might be worth pushing for greater capital allowances going up to 100 per cent rather than the existing 40 per cent for small and medium sized enterprises.

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