House of Commons - Environmental Audit

Select Committee on Environmental Audit Written Evidence

Memorandum submitted by the Law Society

SUMMARY

A. The Law Society regulates and represents solicitors. This response is from the Society's representation arm.

B. We welcome the Committee's inquiry into Policy Appraisal and Regulatory Impact Assessments (RIAs), and note members' concern with the shortcomings of RIAs as a means of assessing environmental impacts.

C. We think there is a need to find a way to value intangible and difficult-to-quantify factors—ones which are indeed "priceless" (as the Committee puts it in para 83 of the Seventh Report). From the Law Society's point of view, these factors are jurisprudential, arising from the Constitution, the rule of law and the existence of civil society. They relate to rights, expectations and obligations, are as difficult to value as environmental aspects, and equally vital to everyday life.

D. In this context, costs and in particular benefits can take tangible and intangible forms. In a policymaking process where costs and benefits are to be quantified, there must be a way of attaching a "value" to intangible factors such as legal and constitutional matters and to weigh any loss of these as costs.

E. Attempts to create equivalent cash values may be to miss the point. These rights cannot be regarded as being "for sale" or "having a market" but are of inestimable worth.

F. Finding a means of incorporating a non-price weighting—a worth factor—for legal and constitutional intangibles might assist. A worth factor could for instance be attached to "rural peace and quiet" and "protection from danger in the workplace" in a similar way to "the right of access to justice".

G. Whatever method is adopted, legal and constitutional rights and other intangibles cannot simply be ignored in the impact assessment process. To leave them out, in effect allotting a nil amount, is to risk distorting the balancing of costs, benefits and interests which is part of the policymaking process.

Note: This response is based on extracts from our forthcoming response to the Cabinet Office RIA Review mentioned above, and does not deal with all the Inquiry Issues.

PREFACE

1. The Law Society regulates and represents solicitors. This response is from the Society's representation arm.

INTRODUCTION

2. We welcome the Committee's inquiry into Policy Appraisal and Regulatory Impact Assessments (RIAs), and note members' concern with the shortcomings of RIAs as a means of assessing environmental impacts, expressed for instance in the Committee's Seventh Report of 2004-05[7].

3. These concerns share some common factors with those raised in the Society's forthcoming response to the Cabinet Office's Review of the Regulatory Impact Assessment[8]. In that response, we discuss the need to find a way to value intangible and difficult-to-quantify factors—ones which are indeed "priceless" (as the Committee puts it in para 83 of the Seventh Report).

4. From the Law Society's point of view, these factors are jurisprudential, arising from the Constitution, the rule of law and the existence of civil society. They relate to rights, expectations and obligations, are as difficult to value as environmental aspects, and equally vital to everyday life.

RESPONSE TO THE ENQUIRY

5. This response is based on extracts from our forthcoming response to the Cabinet Office RIA Review mentioned above, and does not deal with all the Inquiry Issues, merely the first two, which we take together.

6. These refer specifically to the way RIAs, and policymaking more generally, might value intangible assets and assess impacts on them. We argue that there may be common factors which could be helpful in valuing all intangibles, whether environmental ones or those which exist within the Constitution and legal system or elsewhere.

7. The Inquiry Issues ask:

— Should RIAs continue to be seen as the key vehicle for appraising policies against sustainable development principles, given the serious weaknesses that the National Audit Office review highlights?...

— If RIAs are seen as the best solution, what steps are being taken to address these weaknesses, including:...

— the difficulty of ensuring that environmental and social impacts which are difficult to quantify in monetary terms are fully taken into account...

— the variable quality of presentation of RIAs, which can inhibit their ability to allow trade-offs between environmental, social and economic impacts to be readily assessed...

Future role of RIAs

8. RIAs, or Impact Assessments (IAs) as the Cabinet Office Review mentioned above proposes they should be renamed, seem likely to be of growing importance in future.

9. The National Audit Office (NAO) noted this in its Evaluation of Regulatory Impact Assessments 2005-06[9] (the NAO Evaluation). Following the acceptance in the 2005 Budget of the report from the then Better Regulation Task Force, "Regulation—less is more"[10], for instance, RIAs will for example be expected to address implementation in more detail[11] and set out ways in which existing regulation on a topic may be simplified[12].

The need therefore to ensure that they deal with all the necessary issues is correspondingly increased.

Impact assessment needs more than economics

10. While we note with interest many of the points made by the National Audit Office (NAO) in their report on RIAs and Sustainable Development[13] to which the Committee refer, an aspect of the NAO Evaluation, mentioned above, causes us concern.

11. At para 18, p 6 of their Evaluation, the NAO state that the Better Regulation Executive (BRE) "should re-emphasise that economics should lie at the heart of RIAs". We think that this recommendation is badly mistaken.

12. To limit RIAs by requiring that economics should "lie at [their] heart" would be a serious error. Unless other disciplines—along with practical tests of on-the-ground efficacy—are brought in, all that will be assessed is the factors which matter, and are recognised, in economics. These are not the only factors which matter in good policymaking.

13. We argue that many other factors than those which are significant to economists also matter to the end-user. If the analysis made is strictly economic, these may be omitted from the IA to its detriment. As lawyers, naturally we would argue that legal and jurisprudential factors must also be a part of policymaking. Other specialists would also be able to argue convincingly for their own area of knowledge to be taken into account. Policymaking has far wider effects than simply its costs and economic effects.

14. To take an obvious example, economics do not lie at the heart of why democracies prosecute criminal offences. There, the cost far outweighs any fine imposed, for example, and results in further unrecoverable costs if a person is imprisoned. However there is no suggestion that crimes should not continue to be consistently investigated and, when appropriate, dealt with according to law. The reasons do not involve economic factors, but those arising from the assumptions underlying for example the conduct of civil societies and the rule of law. Equally, economics is an insufficient guide to how society approaches issues of civil justice.

15. Nor does economics tell the whole story of the reasons why legal rights and obligations underlie concerns affecting other areas such as education and health, animal welfare, environmental sustainability, employment, sport and the arts.

16. If policymaking is confined to economics—basically, what it costs in money terms—IAs will miss matters of great significance to those affected and will fail to do all they could to improve policymaking.

Tangible and intangible benefits and drawbacks

17. Towards the end of the present RIA process, Ministers are required to declare that the benefits of a proposed measure outweigh the costs.

18. Costs and in particular benefits can of course take tangible and intangible forms. We have many reservations about the possibility that "social and environmental costs and benefits" can be always be meaningfully quantified, as already suggested. We are also concerned that RIAs at present do not (and IAs in future will not) sufficiently assess the value of intangible benefits, such as rights, freedoms and entitlements, nor weigh any loss of these as costs.

19. For example, in a policymaking process where costs and benefits are to be quantified, there must be a way of attaching a "value" to legal and constitutional matters, such as the right to seek the assistance of the court, the freedom to go about one's business unmolested, or entitlement to welfare benefits. Similarly the availability of facilities such as help from the Equality Commissions and legal aid are benefits, even if most individuals may never call on them. Reasonable expectations also need to be borne in mind—that power, water, communications, health, education, dispute adjudication, law enforcement and other services will be maintained at a certain level, for instance. Provision of these facilities should not be regarded only as costs. They should be weighed also as benefits to the community at large.

20. Neither do RIAs currently cover such intangible costs and losses as, for example, serious delay in obtaining resolution of litigation. While such delay may involve practical difficulties, with measurable costs (such as postponement of decisions, pending the outcome, by many others than just the parties themselves), there are in addition less quantifiable losses. "Justice delayed is justice denied" and although this is not always a measurable loss, there will be a loss nonetheless.

Unquantifiable costs and benefits

21. We welcome the NAO Evaluation's advice that "uncertainties" should be reflected in the RIA (para 2.12, p18) and that the Cabinet Office RIA Review consultation paper says the new Regulatory Impact Assessment (the IA) should show costs and benefits and "the assumptions made in costing them" (para 28).

22. In an earlier review of RIAs[14] the NAO noted the difficulty experienced in quantifying costs and in particular benefits "for which", as their report puts it, "there is no market"[15].

23. Current RIA guidance refers policy makers to the Green Book[16], which offers some guidance on this point[17]. If there is no "market data" policy makers are advised to try and assess people's "willingness to pay for a particular benefit" or "the amount of compensation consumers would demand in order to accept" a cost[18].

24. However this is of very limited help. Inevitably there is a particular problem with assessing the cash value of the legal system, for instance, or elements of it, by and to people who have not had contact with it (or whose perception of their contact with it has been negative). Most individuals will have no realistic way of comparing and expressing the value of the right of access to the court, say, with the value of any other constitutional principle, or any other intangible good in their lives, and of then converting it to monetary amounts.

25. Further, the limitations of these methods are recognised: one set of assessment methods is described as only "fairly reliable"[19]. To go some way to solving the problem of "estimat[ing] the value placed on an asset by people who make no direct use of it" the Green Book suggests a combination of assessment methods[20] and admits that an important factor is still a "feel" for the issues involved:

26. The Green Book suggests that information about "the robustness of the valuation techniques employed"[22] should be specifically set out and we think this is an important aspect which should be included in the IA.

27. Other countries have grappled with this issue. For instance, the guidance from New Zealand is as follows:

Tangible and intangible

"66. Tangible impacts are those values that can be identified and quantified. An example is the cost of employing people to collect information from the public. The term "intangible" is often applied to those impacts to which it is difficult to attribute a dollar value. Examples might include time, health, comfort, environmental, and cultural impacts.

A "worth factor"?

28. We recognise that this is a difficult matter. One solution might be to allot a notional amount in the cost/benefit analysis for constitutional rights (this amount would have to be agreed and applied across government and be regularly reviewed to take account of inflation) and other intangibles.

29. However we tend to think that attempts to create equivalent cash values for something like the existence of legal aid, or the right to seek the assistance of the court, may be to miss the point. These rights cannot be regarded as being "for sale" or "having a market" but are of inestimable worth.

30. Generally we think the New Zealand approach has much to recommend it. Finding a means of incorporating a non-price weighting—a worth factor—for legal and constitutional intangibles might assist, as suggested in the extract above, with other IAs as well, such as rural impacts. A worth factor could for instance be attached to "rural peace and quiet" and "protection from danger in the workplace" in a similar way to "the right of access to justice".

31. Agreeing a common way of dealing with worth factors across government would also increase transparency and enable consultees to respond more fully to proposals, or even challenge the worth factor attributed.

32. Whatever method is adopted, legal and constitutional rights and other intangibles cannot simply be ignored in the impact assessment process. To leave them out, in effect allotting a nil amount, is to risk distorting the balancing of costs, benefits and interests which is part of the policymaking process.

33. It is essential therefore that governmental impact assessments, whatever form they finally take, should include some means of recognising the importance of these factors. Omitting them from the equation risks valuing only what is measurable, and damagingly warping the resultant assessment.

Consistent and systematic presentation

34. We agree that IAs should as far as possible be consistent in presentation. This way, users will know where to find what, regardless of which department prepares the IA.

35. However, it must be recognised that one IA format is unlikely to fit all proposals. Where a question is inappropriate or another is needed, we see no reason why this cannot simply be stated in the IA. Nonetheless a consistent format should be used so that for instance it is clear that an issue has been considered and not merely omitted.

CONCLUSIONS AND RECOMMENDATIONS

36. As RIAs are likely to be of increasing importance in future, they must raise the right questions and allow for presentation of the information they contain consistently and clearly.

37. In addition it is essential that a way of valuing intangible factors, such as those relating to legal, jurisprudential and constitutional matters, should be devised and incorporated into the impact assessment. This will ensure that assessments will cover all the costs and benefits and not only those which can easily be measured. Unless this is achieved, impact assessments will fail to reflect the true impact of policymaking and legislative and other change.

October 2006