Memorandum submitted by the Sustainable
Development Commission
INTRODUCTION
The Sustainable Development Commission (SDC)
is the Government's independent advisor and watchdog on sustainable
development, reporting to the Prime Minister and the First Ministers
of Scotland and Wales. Through advocacy, advice and appraisal,
we help to put sustainable development at the core of Government
policy.
Despite a number of revisions since the inception
of regulatory impact assessments (RIAs) in 1998, the SDC believe
that the existing structure is still an unsuccessful vehicle for
incorporating sustainable development (SD) into policy making.
The National Audit Office (NAO) review of SD in RIAs found that,
even in their selection of ten policies judged to have significant
environmental and social impacts, sustainable development concerns
were covered badly, if identified at all.
RIAs and now the new Impact Assessment (IA)
are based on cost-benefit analysis. This emphasis on quantification
and monetisation of impacts necessarily downplays qualitative
costs and benefits. As a result, the sustainable development impacts
that are difficult to quantify, such as biodiversity, are insufficiently
considered in the policy analysis process. However, we recognise
that RIAs are the only existing mechanism currently available
for analysis of policy impacts and that attempts are being made
to improve them. Our response is therefore aimed at identifying
improvements that could be made to the existing system and the
new IA system currently out for consultation.
The SDC however feels that the biggest problem
for embedding SD into policy is not just mechanisms and rhetoric,
but action and leadership. For SD to become a force within policy
making in Government, the five principles in the Government SD
strategy, "Securing the Future", must become the basis
for decision making rather than an afterthought. Many departments
are as yet unfamiliar with the principles and for the most part
cannot demonstrate how they are being used. As yet, there is little
evidence that policy makers have made any politically difficult
decisions based on a desire to encourage sustainability. Indeed,
the path of least resistance seems invariably to be the status
quo.
EXECUTIVE SUMMARY
Better Regulation Executive Consultation on Impact
Assessments
This memorandum is submitted during the Better
Regulation Executives (BRE) public consultation on the new Impact
Assessment. The SDC welcome this consultation and its intention
to simplify and improve the existing RIA structure. We also very
much welcome the proposed reference to the five SD principles
in the policy summary sheet questions and associated guidance.
Some issues from this memorandum will be addressed in more detail
in our consultation response to the BRE in October 2006. We are
happy to forward our BRE response to the EAC if it would be useful
to this inquiry.
Better Guidance and Training on Quantification
of SD
As the decision has already been made to emphasise
quantification of policy impacts in the appraisal process, we
feel the best way to ensure that sustainable development impacts
are given sufficient emphasis is for these to require accurate
quantification. Given the complexity of this task, the SDC would
like to see Defra and the Better Regulation Executive work together
as a matter of urgency to develop strong and clear guidance and
training on costing and accounting for environmental and social
impacts within new policy.
Stand-alone Assessments
The Impact Assessment consultation document
proposes that "other" concerns such as health, equity
and sustainable development should be the subject of stand-alone
assessments. This is because their inclusion was felt to: "detract
from the core purpose of the Regulatory Impact Assessment: ie
ensuring that the costs and benefits of the policy options are
identified, quantified wherever possible and set out transparently".
We feel that this conclusion is wrong. By clearly separating SD
issues from the purely economic in this way, the BRE is specifically
working against the Government's commitment declared in Securing
the Future for the five principles of SD to be the overarching
framework within which policy is to be made. If all environmental,
social and economic costs and benefits are fully considered and
measured, there should be no requirement for any stand-alone assessment.
Widening the Scope of Impact Assessments
Broadening the scope of the RIA analysis is
a difficult but crucial issue for sustainable development and
for the better regulation agenda more generally. The NAO found
RIAs were often, "scoped in ways which precluded or inhibited
discussion of sustainable development concerns." This point
is not dealt with by BRE in their consultation on the new IA structure,
and we believe it should be further explored.
Overarching Departmental SD Objective
The lack of consideration of SD within RIAs
is symptomatic of a continuing lack of prioritisation of SD outside
of the champion department Defra. This is despite a number of
mechanisms in place to embed SD into departmental objectives.
The SDC would like to see each department given an overarching
SD objective that is actively linked to their Public Service Agreements
negotiated with HM Treasury during the Comprehensive Spending
Review in 2007. We believe strongly that a clear line of accountability
for the overarching SD PSA is needed for all Departments. This
would establish SD within the responsibility and reporting lines
that are already in place for delivering against their PSA objectives.
Better Scrutiny
We recommend that both the BRE and the Better
Regulation Units (BRUs) within departments need to be more proactive
and take on responsibility for highlighting where the quality
of the SD analysis and costings within RIAs and IAs are of unacceptable
quality. The capability of the BRUs to address these issues is
currently variable and this skill needs to be strengthened through
training and guidance. In the meantime, we feel Defra should consider
the need to provide a dedicated contact to help departmental BRUs
strengthen their capacity in line with the new guidance so they
can offer strong advice on appraisal of SD impacts in new policy
areas.
EAC QUESTION 1:
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? Is there a better way to ensure environmental, social
and economic impacts are incorporated into policy-making?
1. Even though the existing RIA structure
often fails to sufficiently account for SD, the SDC does support
the pragmatic viewpoint expressed by the NAO that, given the current
lack of any viable alternative, RIAs do have "potential strengths
as a means to inform and influence policy making, and to facilitate
the consideration of sustainable development concerns in new policy[24]."
The Better Regulation Executive (BRE) is currently holding a consultation
on a new version of impact assessments (IAs) to replace the existing
RIA structure. The SDC feels that this new IA structure could
also be improved in terms of coverage and integration of SD principles.
Therefore, we suggest a number of improvements to this structure
within this response and will develop these in more detail in
our consultation response to the BRE in October 2006. We are happy
to forward our BRE response to the EAC if it would be useful to
this inquiry.
EAC QUESTION 2:
If RIAs are seen as the best solution, what steps
are being taken to address these weaknesses, including:
(2a) what steps are being taken to address
the weak link between the structure of RIAs (and accompanying
guidance) and the principles and priorities set out in the UK's
Sustainable Development Strategy;
2. The new proposed IA involves a cover
sheet and a cost and benefit summary page. As we understand it,
this up-front information is intended to provide policy makers
with a high-level summary of the key issues. One of the tick box
questions in the summary page indicates that the policy option
needs to be assessed against SD principles. The guidance then
asks that impacts should be costed where possible and refers readers
to the assessment toolkit for further information. The SDC very
much welcomes the inclusion of this question and reference to
the five SD principles in the policy summary sheet and guidance.
3. However, other than those two references,
there is very little reference to SD principles within the new
guidance and consultation. The SDC feels that SD principles could
be better embedded within the whole document implicitly rather
than explicitly. For example, we would anticipate that SD would
feature in the summary of the policy purpose and intended effects.
Furthermore, qualitative impacts would also need to be judged
against the five principles.
(2b) what steps are being taken to address
the difficulty of ensuring that environmental and social impacts
which are difficult to quantify in monetary terms are fully taken
into account;
4. Given that the decision has been made
to emphasise quantification of costs and benefits in the new IA
structure, we feel the best way to ensure that environmental and
social goods are given sufficient emphasis is for these to also
require accurate quantification wherever possible. Unfortunately,
few environmental and social goods have reliable market rates
for goods and services, and there is a tendency to downplay the
value of these goods due to this uncertainty. However, there are
various methodologies that can be used to derive a monetary value
for the majority of environmental and social goods. The social
cost of carbon is a well-established valuation method for climate
change impacts. For other goods, it is often possible to use a
combination of revealed preferences or contingent valuation.
5. We would also like to highlight that
difficulties with monetary quantification are not just limited
to environmental and social impacts. The NAO report in 2005 found
that only four out of their sample of ten RIAs quantified the
benefits of a policy whereas eight quantified the costs. Quantification
can be problematic for all estimates of future costs and benefits,
including economic; competition and small business impacts will
still require a high degree of approximation and judgement in
order to reach a monetary estimate. We feel that acknowledgement
of this uncertainty in any calculation needs to be better reflected
and referenced in the summary pages of RIAs and the new IA structure.
6. Given the complexity of the subject,
the analysis within the RIAs of environmental and social impacts
will only be as good as the supporting guidance, training and
toolkit. Without both comprehensive training and guidance on SD,
it is likely that we will return to a situation where it is considered
"too difficult" to quantify environmental and social
goods and, as a consequence, they are either ignored or given
insufficient weighting within the policy decision. As a result,
the SDC would like to see Defra and BRE work together as a matter
of urgency to develop strong and clear guidance on costing and
accounting for environmental and social impacts. We would recommend
that, when completed, all departments then sign up to agreed valuations,
methodologies and discount rates so that each department is not
able to pick and choose a convenient level of valuation.
The Guidance should:
— be based upon the five SD principles
from "Securing the Future", the Government's SD Strategy;
— draw upon on the Defra "Stretching
the Web" tool, developed to help policymakers integrate SD
considerations;
— address the issue of lower or zero
discount rates for environmental and social goods;
— be of a similar level of clarity
and format to the DTI toolkits that assess regulatory impacts
on competition and small businesses;
— be developed and rolled out through
classroom and web-based training to policy makers, Better Regulation
Units and departmental economists and their teams.
(2c) what steps are being taken to address
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;
7. The new IA structure includes a recommendation
that Chief Economists sign a declaration on the RIA that states,
"I have read the Impact Assessment and I am content that
the evidence base supports the proposed costs, benefits and impact
of the policy option". Ultimately, this declaration makes
the quality of the RIA a reputation issue for departmental economists.
The SDC supports this requirement as we feel it would encourage
more input and attention to the evidence base by departmental
economists and result in better quality assessments and trade-offs
of costs/benefits.
8. Finally, the quality can be improved
through better scrutiny. There are a number of bodies that should
contribute better and more proactively to scrutinising the quality
of SD assessments within RIAs. Both the BRE and the Better Regulation
Units within departments need to take on the responsibility to
highlight where the quality of the analysis and costings of SD
are of unacceptable quality. Sub- standard RIAs should be required
to be re-submitted, and the policy makers responsible offered
further training and support. Clearly the capability of the BRUs
to address these issues is currently variable and this skill needs
to be strengthened through training and guidance. In the meantime,
we feel Defra as champion department should consider the need
to provide a dedicated contact to help departmental BRUs strengthen
their capacity in line with the new guidance so they can offer
strong advice on appraisal of SD impacts in new policy areas.
(2d) what steps are being taken to address
poor co-ordination with other policy appraisal processes, such
as European Impact Assessments and Strategic Environmental Assessments.
9. The SDC agree with the EAC that RIAs
are rarely coordinated with other appraisal processes outside
the integral structure of the assessment. This is in contrast
to the good coverage identified by the NAO of the assessments
of impacts on competition and small businesses that are central
to the current arrangements[25].
We would recommend that in order to adequately incorporate other
policy assessments, their consideration be made mandatory and
integral to the RIA or IA structure.
10. The Government has previously insisted
that a good, properly structured RIA should raise all relevant
issues for SD[26].
However the BRE has now proposed in the IA consultation that "other"
concerns such as health, equity and sustainable development should
also be the subject of stand-alone assessments. This is because
their inclusion was felt to, "detract from the core purpose
of the Regulatory Impact Assessment: ie ensuring that the costs
and benefits of the policy options are identified, quantified
wherever possible and set out transparently". We feel that
this conclusion is quite wrong. By clearly separating SD issues
from the purely economic in this way, the BRE is specifically
working against the Government's commitment declared in Securing
the Future for the five principles of SD to be the overarching
framework within with policy is to be made.
11. The SDC feels strongly that the proposal
for a stand-alone assessment is likely to make SD issues even
less well-addressed than they are at present. However, if de-coupling
assessments is approved, the BRE consultation document currently
provides very little clarity on the proposals about stand-alone
assessments and their relationship to the IA. There is no indication
as to when a stand-alone assessment would be required, whether
they are published with the IA, or what their ultimate purpose
or influence would be.
The SDC would like to see:
— a very clear link between the stand-alone
assessment and the new IA structure;
— assessments acting as a strong evidence
base for the costings of environmental and social goods within
the IA;
— assessments triggered when the policy
has an impact, either positive or negative, on the Government's
targets on "other" issues such as health, inequality
and the environment;
— a reference being to all completed
stand-alone assessments in the summary sheet of the new IA;
— assessments and relevant policy appraisals
published alongside the RIA or IA to improve transparency for
stakeholders and the general public; reports need to be fully
downloadable from the same departmental and Cabinet Office websites
that host final RIAs.
EAC QUESTION 3:
Does the formal role of Better Regulation Units
within departments take adequate account of sustainable development
objectives? How can training and guidance to officials be improved?
12. The Better Regulation Executive is supported
in its work by Better Regulation Units (BRUs) within each departments.
As well as the "better regulation" agenda, these units
also clearly champion the overarching objectives of their respective
departments. Within Defra, whose PSA1 is to promote SD across
Government and in the UK, we feel that the unit does adequately
take account of SD principles. Within other departments, this
is rarely the case. To counter this, the SDC is recommending to
HM Treasury as part of its input to the Comprehensive Spending
Review, that all departments should have an overarching SD objective
as part of their Public Service Agreements. We feel this objective
should help to embed SD within departmental objectives.
13. Improving SD guidance on policy appraisal
is an crucial issue which we have partly addressed in paragraph
6 of this memorandum. But better guidance itself is clearly not
enough. The crucial issue is whether it can be applied effectively
within Whitehall. A few departments have already undertaken to
develop appropriate training tools to develop the skills and capacity
of their policy makers to deliver SD. For example, DfES plans
to develop a policy makers toolbox with a simple SD policy appraisal
method, and the Food Standards Agency has also developed an active
training programme on these issues. We would like to see all Whitehall
departments take similar active approaches.
EAC QUESTION 4:
How can the Better Regulation Executive improve
its scrutiny of RIAs to ensure that sustainable development issues
are adequately incorporated into each appraisal?
14. The Better Regulation Executive has
a key role in scrutinising new policy proposals, and RIAs, from
Departments and Regulators. This scrutiny role is mainly focused
on delivery of their main remit, "to minimise bureaucracy
for businesses and front-line staff in the public sector.[27]
" We feel that an explicit intention to "minimise regulatory
burdens" as outlined in the IA consultation deviates from
what should be the key aim of the process, which is to ensure
"better regulation" and good policy making. The SDC
would agree that bad regulation does cause an unnecessary burden,
but would also stress that it should not be assumed that regulation
is bad per se. For example, regulation can be a very cost-effective
tool to raise sustainability standards.
15. In their review of RIAs and SD, the
NAO highlighted that a policy change triggered direct BRE involvement
primarily when a policy impact reached certain economic conditions.
The result has been that BRE is often primarily concerned with
economic impacts with little regard to those on environmental
and social goals. The SDC recommends that BRE involvement in an
RIA should also be triggered when the policy change works contrary
to any of Government's SD objectives, such as an increase in carbon
emissions. This change will focus policy-makers on these impacts
and encourage the development of more expertise within BRE on
sustainable development.
EAC QUESTION 5:
What evidence is there that RIAs make a difference
to policy outcomes?
Can departments document examples where the appraisal
process has resulted in a change in the preferred policy option
to one which is more sustainable?
16. The SDC has no evidence of a situation
where a policy was changed to one with a more sustainable outcome
through an RIA. There is evidence from NAO that policies have
been changed in other ways as a result of the RIA process[28].
If there is no evidence of changing policy due to SD considerations,
the only conclusion can be that this is a failure to assign SD
enough political emphasis and importance, rather than the fact
that RIAs are not fit for that purpose. This conclusion supports
our response to question 1: that RIAs have the potential to integrate
SD into policy making but for various reasons do not yet fulfil
it.
EAC QUESTION 6:
Is the application of the RIA process sufficiently
comprehensive? Should it be extended to cover areas such as the
Pre-Budget Report and the Comprehensive Spending Review? If not,
what other processes are there to ensure that there is transparency
and accountability over the consideration of sustainable development
issues at the very earliest stages of decision making. Are these
processes adequate?
17. We feel that scope of analysis is a
key issue that is limiting the RIA's effectiveness of embedding
SD in policy making. The NAO found RIAs were often, "scoped
in ways which precluded or inhibited discussion of sustainable
development concerns[29],"
and "each RIA only deals with small aspects of a policy there
is risk that the fundamental issues of a policy are never fully
addressed." Broadening the scope of the RIA analysis is a
difficult but also crucial issue for sustainable development and
for the better regulation agenda more generally. Obviously there
cannot be fundamental re-analysis of a whole policy every time
a small area of regulation is amended. However, it may also be
the case that changes and amendments can highlight that the original
policy may be flawed or incomplete. Rather than simply adding
another layer of policy or regulation, it may well be more sensible
to scope the RIA more widely. This point is not dealt with by
BRE in their consultation on the new IA structure, and we believe
it should be further explored.
18. The SDC believes that the biggest omission
for RIAs is taxation, and would therefore support the EAC's suggestion
for extension into the areas listed above. The Budget, pre-Budget
reports and Spending Reviews are highly political and significant
areas of Government policy. To have no publicly available cost/benefit
analysis of Treasury taxation and spending policy raises big questions
about transparency of government decision-making. Fiscal policy
could have an enormous positive impact for SD, though currently
many Treasury taxation policies are problematic for SD. For example,
both the EAC and the Treasury Select Committee have questioned
Treasury policy concerning the continuing freeze and falling yields
from air passenger duty against the exponential and highly damaging
rise in carbon emissions from air transport.
EAC QUESTION 7:
More generally, are there sufficient mechanisms
across government for ensuring that sustainable development is
fully incorporated into policy making in order to deliver the
Sustainable Development Strategy?
19. At present there are a number of mechanisms
within Government with the aim of incorporating SD principles
and objectives into policy making. These include a champion department
(Defra), scrutiny bodies such as BRE, NAO and EAC, an SDAP requirement
and a newly-formed "watchdog" for SD in the Sustainable
Development Commission. In addition to this, the SDC would like
to see each department given an overarching Sustainable Development
objective that is actively linked to their Public Service Agreements
negotiated with HM Treasury during the Comprehensive Spending
Review in 2007. We believe strongly that a clear line of accountability
for the overarching SD PSA is needed for all Departments. This
would establish SD within the responsibility and reporting lines
that are already in place for delivering against their PSA objectives.
20. The SDC feels that the biggest problem
for embedding SD into policy is not just mechanisms and rhetoric,
but action and leadership. For SD to become a force within policy
making in Government, the five principles must become the basis
for decision-making rather than an afterthought. As yet; there
is little evidence that policy makers have made any politically
difficult decisions based on a desire to encourage sustainability.
Indeed, the path of least resistance seems invariably to be the
status quo.
SD mechanisms include:
Sustainable Development Action Plans (SDAPs)
The recent House of Commons report on Government
SD reporting explains the Treasury's position on SDAPs that, "these
action plans will be a key tool in ensuring that sustainable development
is taken into account in policy formulation and operational decisions
in government Departments. The plans will provide a basis for
assessment of progress and... reporting of sustainable development"[30].
Unfortunately, the approach taken by most departments
and agencies in their first SDAP is unlikely to drive any key
changes in priorities, work programmes or approaches at present,
although many plans do provide a glimmer of hope for how the plans
could potentially work in the future as a mechanism for SD. Ultimately,
the hope is that SDAPs will allow policy makers to take an active
approach to reviewing how existing departmental work programmes
and infrastructure contribute to, and support, sustainable development.
Scrutiny Bodies
These bodies include the NAO, EAC and others
such as the BRE. Currently, the NAO also undertakes an annual
analysis of the quality of RIAs across Government or, as in the
most recent report, assessing the performance of individual departments.
The report from the NAO in 2006 looked specifically at sustainable
development in RIAs following a specific request and is not planned
to be repeated with any regularity. Although performing a useful
scrutiny role, the general analysis of RIAs by the NAO does not
generally cover sustainable development in much depth, if at all.
Sustainable Development Commission
The Sustainable Development Commission (SDC)
was given the role of SD watchdog in the SD Strategy launched
last year. The Commission is currently building its own capacity
in scrutinising Government performance, offering departments help
to improve their own capacity on SD, and providing policy advice
to government on policy making and policy processes such as the
RIA. As part of this role, the SDC will shortly be reporting on
the departmental SDAPs and other departmental performance indicators
and objectives, to assess whether these mechanisms are driving
change across government. Given that the NAO is unlikely to repeat
its report on sustainable development in RIAs with any frequency,
we feel that there may also be a role for the SDC as watchdog
in this area.
October 2006
24 NAO (2006) Regulatory Impact Assessments and Sustainable
Development. p 2. Back
25
NAO (2005) Evaluation of Regulatory Impact Assessments Compendium
Report. p 2. Back
26
EAC (2005) HMT response to EAC 7th Report. p 5 http://www.publications.parliament.uk/pa/cm200506/cmselect/cmenvaud/528/528.pdf.
Accessed September 2006. Back
27
http://www.cabinetoffice.gov.uk/regulation/about_us/index.asp.
Accessed September 2006. Back
28
NAO (2005) Evaluation of Regulatory Impact Assessments Compendium
Report. The NAO discovered that four out of 10 policies in their
2004-05 compendium report were changed as a result of the RIA
process. Back
29
NAO (2006) Regulatory Impact Assessments and Sustainable Development.
p 7. Back
30
House of Commons report on Sustainable Development Reporting
by Government Departments, Seventh Report (paragraph 13). Back
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