Examination of Witnesses (Questions 105-119)
MR SIMON
BULLOCK AND
DR MICHAEL
WARHURST
7 NOVEMBER 2006
Q105 Mr Chaytor: Good morning. Welcome
to the second half of our session devoted to you now. We are interested
to hear what you have to say. Would either of you like to make
a brief opening statement?
Mr Bullock: We are happy to go
straight to questions.
Q106 Mr Chaytor: First of all, why
do you feel that policy appraisal and RIAs can play such an important
role in promoting sustainable development? Do you feel they are
working effectively at present?
Mr Bullock: I think the RIAs have
potentially a very large role to play and the clear problem is
that they are not embedded in the policy process. I think the
BRE are right to say that IAs, as they will be in future, should
be involved at a much earlier part in the policy process. We do
welcome that. However, we have some major concerns with how RIAs
as they currently exist are being implemented. The BRE's consultation
is undoubtedly a big opportunity to deal with those concerns,
but we feel at the moment it is a missed opportunity. As far as
we can see the three broad areas where we think there are big
problems with RIAs are made worse by the BRE's proposals. We are
really quite concerned at the moment about how this process will
evolve.
Q107 Mr Chaytor: Do you go along
completely with the criticism from the NAO or do you go further?
Mr Bullock: I think the NAO is
broadly absolutely right. We see there being three main problems
with the process at the moment. The first is that it should cover
the full range of impacts. The NAO is quite clear with the full
environmental and social impacts particularly it does not do that.
The second concern is that the assessment should be fair and balanced;
and largely it does not do that. I think the Environmental Industries
Commission will have said something about the failure to cover
some of the economic benefits of policy. There are other things
as well. We think there is a tendency towards inflating the cost
estimates of regulation; a tendency to ignore the potential for
innovation, for example; and the whole range of issues around
how you value environmental impacts which does not get taken into
account. The third thing which is pretty fundamental really is
that the final reckoning, once you have all this information and
it is full and fair, is how you make your decision about whether
your policy goes ahead or not. We strongly feel that the cost
benefit analysis approach that the Government takes, equating
costs with benefits and if the benefits exceed costs then you
go ahead, that leads to an underlining of the Government's sustainable
development principles. We understand that the Better Regulation
Executive want to simplify the process. We have no objection to
wanting to make that process understandable and clearer for policymakers.
However, with sustainable development you are dealing with what
are inherently complex processes and inherently difficult issues
between things you can quantify and things you cannot quantify.
To attempt to simplify it by saying, "Only consider the quantifiable
impact, the monetisable impact, and then tot them up and make
a decision based on that", it seems to me a way of institutionalising
a trade-off, that this Committee has said that sustainable development
really must try and avoid.
Q108 Mr Chaytor: Do you think the
publication of the Stern Report is going to concentrate the minds
of the regulators? Presumably you feel that the system of RIAs
at present does not reflect the urgency in dealing with climate
change particularly that Stern is pressing on this? Will Stern
concentrate minds? How can your criticism be advanced by the publication
of Stern?
Mr Bullock: I think there are
all sorts of excellent things in Stern. It is a real turning point
in the politics of climate change, particularly its two big conclusions,
that it is a colossal market failure which requires Government
action, and that it is far better for the economy to act now rather
than to delay, so turning round the previous economic argument.
There are a couple of things that have been so far comparatively
overlooked I think. Stern makes a very strong case for international
action, which the Government has very rightly taken on board and
it will be using Nairobi, and we welcome that. Stern also makes
a really strong case for domestic action. It makes a strong case
that if you delay then the transition costs are higher economically.
It says very clearly that there is no macroeconomic threat to
the economy from moving quicker. It says there are major opportunities
where the new markets are cutting inefficiencies. So it is very
strong for the economy. That narrative has not come out yet but
I am sure it will over the months to come. Another really strong
thing they do is that they make a clear case for regulation. It
sets off and says you have got to deal with carbon price, and
that is absolutely right; and you have got to help investment
research and development deployment in new technologies. But Chapter
17 is a strong defence of why regulation is also needed and how
it can be designed well. It is not saying that all regulation
is good, and we would not argue that either; but just that you
have to have good, well designed regulation. Finally, and this
is relatively buried at the moment, the social cost of carbon.
Government currently uses a figure of £70 per tonne of carbon,
and the Stern Report is arguing that that figure should roughly
triple. It is buried on page 287, and then again on page 302.
It is not high up there. They are also clear that that figure
is likely to be underestimated too, because they are not covering
all the impacts. They have made clear there that some things you
cannot value. How do you value 250,000 children dying in 2100—it
is almost impossible to do that. The Stern figure for social cost
of carbon, if that translates across government that will have
a big effect on ensuring that we tackle climate change. Currently
so many policies and strategies are dropped because the environmental
costs are undervalued—the Aviation White Paper is a clear
example of that.
Q109 Mr Stuart: In memoranda we have
received complaints that RIAs are primarily concerned with reducing
the regulatory burden. Do you think that is right?
Mr Bullock: I think there is certainly
a feeling that "better regulation" is sometimes a code
for "less regulation". You can see that in some of the
wording of the document. They do talk about the purpose of assessment
to make sure it is not an unnecessary burden, which is a very
pejorative way of looking at it; the assessment should be to determine
the best way of meeting the policy objective rather than just
reducing the burden; and also saying that the case for doing nothing
is often not sufficiently well made. We would argue that what
Stern is saying is completely the opposite way round in fact for
climate change—there is a much stronger case for more action
rather than less. Yes, we are concerned that the process of trying
to simplify regulatory assessment will lead to worse policy measures
simply because of the fact that you are stripping out the complexity,
which is so important in telling you what is a good decision.
Dr Warhurst: To follow up on the
question and the link into better regulation, the impression I
have had in my work on chemicals and waste, is that the better
regulation is interpreted currently as being about simplification
for business. What it means is you take a large amount of time
reviewing a piece of legislation, you use lots of civil servants'
time, you consult people, you involve people and you produce something
new. The important thing about that new thing is that it includes
no improvement of any environmental objectives. Your aim is simplification.
Most better regulation that we see is about simplification and
not improving objectives.
Q110 Mr Chaytor: Are you saying with
all the legislative changes, regulatory changes, which have come
about following the better regulation guidelines, there has not
been a single improvement to the quality of environmental emissions?
Dr Warhurst: No, I am not saying
that as a general point. What I am saying is that the focus of
the last few years of better regulation has been focussing on
burdens—rather than saying what we actually want to do is
we want to move forward in much stronger environmental objectives
and make it simpler. I think there is a very interesting example
of where that has happened. It is a very big policy, which is
REACH, the EU chemicals policy, which I myself was working on
for many years; and what happened with REACH was the acceptance
that the current regulatory system penalised new chemicals; new
chemicals had to have lots of safety information from very low
tonnages, whereas chemicals produced before 1981 did not have
to have that information. What REACH did was it was basically
a deal between the two elements. What we will do is we will deregulate
new chemicals by hugely increasing the tonnage threshold and then
we will increase the regulation on existing chemicals. What that
meant was, as environmental NGOs in the process, we basically
accepted that trade-off. We accepted a deregulation in one area
because that area was unfairly over-regulated compared with the
bulk. That was because that whole proposal was about making a
substantial step forward. I think what we see in fact, there is
not the idea, we are trying to do more; Stern is saying we should
do more so we will do more and at the same time we will simplify
where possible.
Q111 Mr Stuart: Do you think RIAs
are truly helping in their making of policy; or do you share the
NAO's view that too often they are used as a way of justifying
policy decision already made?
Dr Warhurst: In the example of
the Government's England Waste Strategy, in February they came
out with a consultation policy—the RIA Environmental Assessment—and
what you saw was the RIA there was definitely being used to justify
the policy. The RIA actually showed that if you want to have a
higher rate of recycling you would actually achieve climate benefits
using a range of social costs to carbon. Because the range of
climate benefits were similar to the range of costs they said,
"We're not doing this because the costs may outweigh
the benefits". Their big problem, firstly, is it about whether
they do or do not, rather than may, outweigh the benefits;
secondly, the social cost of carbon is now substantially higher
according to Stern. Suddenly that equation is a different answer.
The answer is that we must do more recycling because the benefits
outweigh the costs. Thirdly, an issue which I heard raised earlier—the
tendency that is happening now is that you only look at carbon
benefits and the Waste Strategy Review released in February is
explicit, once you get into it, that the only environmental benefits
they look at are to climate. They absolutely ignore any other
benefits of, for example, recycling, composting or whatever. It
is purely climate. They have said, "We're going to ignore
the benefits and then we will say what we've got left may not
be quite as much as the costs so we will ignore it". Whereas
my feeling is that they came into it saying, "We don't want
overdo our recycling target, they'll cost us money so let's just
make sure that the RIA backs us up".
Q112 Mr Stuart: How do you think
RIAs can be changed, the system can be changed, so that the arm
at the front end can help influence the making of policy rather
than being just a justification afterwards?
Dr Warhurst: Fortunately the waste
model did include a model with higher recycling rates, which was
a start. At least they said it would be more ambitious. At the
moment there is another provisional RIA out on the Government's
position within the EU negotiations on the Waste Framework Directive
and that one is totally focussed on the administrative burden
to business and Government. It does not bother to try and examine
other scenarios. I think examining other scenarios is very important
because then you actually say, "If we did do this what will
happen?" You have to incorporate as many benefits as possible.
If you are not incorporating benefits—if you are ignoring
things—you need to make sure that gets all the way up into
the summary. One of the worries when we look at the documentation
in the consultation is that the tendency of the summary will be
very much bare bones; anything that is not costed will drop out.
Any caveats in the costs will drop out. We will end up with things
like, "Does the policy comply with sustainable development
principles? Yes/No. Summary." It is about looking at the
whole area, and it is about being very humble about what you are
not looking at. I think at the moment the idea of listing the
things you are not doing, that you are not able to cost right
upfront in the summary is rather a long way from the minds of
most of us.
Q113 Mr Stuart: As we were asking
the last witnesses, a further criticism of RIAs is that they are
an intellectual Whitehall exercise removed from the action on
the ground. Do you think that is a real concern?
Mr Bullock: Yes, I think it is.
I think one of the difficulties with cost benefit analysis generally
is that it does reduce what should be political complex decisions
to technical bureaucratic ones. My own personal example of that
is going through the Aviation White Paper to find out what were
the big economic benefits for each of the runway expansions; and
it took me literally months to work it out through the spreadsheets
that in fact the large proportion of the economic benefits claimed
for the runways are from future passengers who do not fly at the
moment being able to fly in the future and valuing that worth
at about £20 per flight extra to them which, totalled over
millions of people over 30 years, comes up to huge sums of money.
That is compared with actual real life climate impacts that affect
people's lives. By reducing everything to one figure, and the
costs exceed the benefits, that hides that complexity. It should
be a very open political discussion. I think that is what we argued
for. We do think that Impact Assessment is really crucial. But
the idea that to simplify it by quantifying it, the front page
is there recommending we just reduce it to a number. What is the
number?
Q114 Mr Stuart: Is there a danger
the very nature of Impact Assessment certainly as they are currently
constituted could be counterproductive? Inevitably this tension
goes on and sustainable development always falls out; as we heard
from the previous witnesses on visual amenity, and how they will
move to monetise that.
Mr Bullock: I think that is right.
The real danger is that the process will lead to worse policy
because, for laudable reasons, they are trying to make it simpler
for policymakers; but by doing that it hides the important things.
What we would argue for the ministerial sign-off, the chief economist's
sign-off, should not be to say, "I'm satisfied that the benefits
exceed the costs", but, "I am satisfied that this policy
meets the Government's sustainable development principles".
To do that you have that list, and there are not that many of
them, of sustainable development principles and you assess against
the economic criteria, the social criteria and environmental criteria
whether that policy does it. That requires a mix of quantified
and non-quantified and monetised and non-monetised information.
Currently if we have this sort of summary sheet with just numbers
on it, you have got to have the numbers but it is not the full
story.
Dr Warhurst: There is another
important point. A lot of the most successful policies, and this
is particularly true of European policies, have been based around
setting quite long timelines, where in 15 years we will have done
this. To actually work out costs of that, given the amount of
innovation and market change that will happen, and the benefits
of that, it is extremely difficult. One of my concerns has been
the Impact Assessment push will actually start to remove that
sort of policy, even though in fact those policies have been some
of the most effective in really changing the market.
Q115 Dr Turner: The National Audit
Office reviewed a selection of our Regulatory Impact Assessments
and found that few of them identified all the social and environmental
impacts that they might have expected to come. What is your feeling
about the range of RIAs in your experience? Do you think this
is a fair criticism?
Dr Warhurst: I think, yes, basically.
In our experience, you rarely see most of the environmental and
social benefits, the focus is always on the cost to businesses.
Apparently it is the easiest thing to measure, even though in
reality what you see as soon as you review previous Impact Assessments
after implementation is that those costs are usually exaggerated.
Just because they are apparently easy to calculate does not mean
that they are correct, so you end up with a false certainty on
one side and an ignored uncertainty on the other.
Q116 Dr Turner: The National Audit
Office clearly would agree with that because they felt they scoped
it in such a way that it inhibits proper discussion of sustainable
development aspects. I would anticipate that you agree with that
view and I will take that as read. What would you like to see
done to the system to ensure that fundamental sustainable policy
objectives are properly addressed in Regulatory Impact Assessments?
Mr Bullock: There are a number
of things, and apologies for the repetition because I know I have
said a couple of these already. The summary of information that
is presented to policymakers has to include quantified and un-quantified
information and monetised and non-monetised information and it
has to have an assessment of the distribution of the impact, currently
it does not have anything like enough, and also, as Michael said,
which impacts are ignored, whether that is for uncertainty reasons
or simply because the data is unlikely to be able to do it. That
is only the coverage of the data, but then, again, the fundamental
thing is how you use that data, and the assessment has to be against
the sustainable development principles which should be underpinning
all government policy. Just to have it based on cost-benefit institutionalises
trade-off, in our view.
Q117 Dr Turner: That clearly raises
the difficulties of the assumptions that were put into the economic
benefit calculations in any event. I think you will agree they
are not terribly reliable as undertaken at present?
Mr Bullock: Yes.
Q118 Dr Turner: Do you think we can,
in fact, use the regulatory assessment process as a tool in achieving
the results that Stern is now demanding of us? For instance, if
we turn the assessment on its head compared with present assessments
and made the primary requirement to demonstrate that the policy
led to carbon reduction, led to environmental cost-benefits as
opposed to other cost-benefits, et cetera, do you think that is
(a) a workable approach and (b) do you think the assessment system
is the best way of delivering that?
Mr Bullock: I think the assessment
system is probably going to be the best place for it. It has a
lot of faults at the moment which we are all talking about now
about how to reflect that, but it probably will be the best place
for it, especially as the government is clearly committed to making
it a more important part of the policy process, so yes.
Dr Warhurst: One of the interesting
aspects of the debate is at what level do you do cost-effectiveness
assessments and at what level do you do Impact Assessments, because
I think there is this element that where you have made a policy
decision you need to take a measure, then you may be better off
doing cost-effectiveness of how you can most effectively achieve
your objective. The message from Stern is not that we can value
these things a bit higher and then trade them off against something
else, it is that we have to do something. We do have to reduce
our CO2, so that ultimately is what we have to do; it is not that
we have to trade that off.
Q119 Dr Turner: If our RIAs of the
future are couched in such terms that it is obligatory for every
new policy to make a contribution towards addressing climate change
we might get somewhere?
Mr Bullock: I am not sure about
that. Climate change is certainly an incredibly pressing problem
and we have to tackle it, but for the purpose of policy operation,
again it comes back to the sustainable development principles.
We would argue that if any policy has a major negative impact
on any of the sustainable development principles then it should
be sent back and changed so that it did not have that negative
impact. With the environmental limits of the sustainable development
principle, clearly one of the most important environmental limits
is climate change. If a policy was coming into the Impact Assessment
process saying, "This will have a major impact on climate
change", like, for example, the aviation White Paper, then
it should be sent back and say, "In its current form it does
not do that and we have to change it". Yes, you are right,
but I am not sure that there must be a page on climate change
because I think there are other environmental impacts as well.
The UN Millennium Ecosystem Assessment is very clearly that there
are other really pressing biodiversity issues in environmental
terms.
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