Appendix 1: The Administrative Burdens
In 2005 the Government introduced the Administrative
Burdens Reduction Programme (the Programme) to reduce the administrative
burdens of complying with regulation. It focuses on reducing
the costs to business of carrying out the administrative activities
that they would not undertake in the absence of regulation, but
that they have to undertake in order to comply with regulations.
For example by allowing companies to send out information to
shareholders by email rather than insisting that it must be sent
in writing. The Programme only considers administrative costs
- often paperwork - and does not seek to change the protections
and benefits offered by regulations. The Programme does not consider
the wider costs of complying with regulation and does not seek
to change the protections and benefits offered by regulations.
The rationale was that reducing administrative burdens will allow
businesses to redeploy 'saved' resources and, in doing so, help
to promote innovation and improve productivity.
In 2005-06 the departments mapped extant legislation
and estimated the burden of complying. The Standard cost Model
(see below) was used to measure the cost to business of complying
with regulations that impose information obligations which require
businesses to provide information to Government to demonstrate
that, and how, they comply with a given regulation. The administrative
burden of complying with regulations in the UK was estimated at
just under £20 billion at May 2005.
The regulations of four departments; the Department
for Communities and Local Government, the Department for Business
Enterprise and Regulatory Reform, the Health and Safety Executive
and HM Revenue and Customs represent about three quarters
of the total administrative burdens in the UK. The burden imposed
by these departments is high because many of their regulations
apply to all businesses in the UK.
Departments have committed to reducing administrative
burdens by 25 per cent by 2010. HMRC is a taxing authority and
has set its own targets: to reduce the cost of complying with
tax forms and return by 10 per cent, and the cost of complying
with audit and inspections by 15 per cent, by 2010-11.
In December 2007 the BRE reported that departments
are on track to deliver against the 25 per cent target by the
end of the Programme in 2010. Departments estimated that they
had reduced the net annual cost of complying with administrative
activities by approximately £800million, equivalent of six
per cent of the total baseline. In March 2008 HMRC reported reductions
of almost £400 million.
The Standard Cost Methodology (SCM) seeks to measure
the cost to business of complying with regulations that impose
information obligations. Information obligations require business
to provide information to Government that demonstrate that, and
how, they are complying with a given regulation. They also include
all legal obligations that Government puts on business to supply
information to third parties, including shareholders and customers.
The SCM estimates the cost of the tasks that businesses have
to undertake to provide the necessary information to comply with
regulations. It assumes that businesses are compliant and normally
efficient for their type or sector.
The Standard Cost Model Formula
Administrative costs are related
to the time and wage costs that a business spends carrying out
a particular administrative activity. This is multiplied by the
number of businesses affected and the frequency with which they
have to do that task.
Administrative Activity Cost
= Price x Quantity
tariff x time Quantity = population x frequency
the wage costs (plus overhead, non-wage costs) for activities
done internally or cost of external goods or service providers.
the amount of time required to complete the activity.
the number of businesses affected.
Frequency is the number
of times that an activity must be completed each year.
The measurement exercise in the UK was undertaken
by PWC. HMRC engaged KPMG to undertake a separate measurement
exercise specific to tax regulations. The consultants conducted
interviews and held focus groups with a small sample of businesses
to establish the time and resources they spent carrying out the
activities each year. The estimated costs of these administrative
activities were then added together for each regulation.
The results from the measurement exercises provide
an indicative estimate of administrative burdens. The small sample
sizes and non-random sample selection mean that the results should
not be seen as representative in statistical terms.
The SCM estimates the costs of a defined set of administrative
activities. It does not capture the 'costs' to businesses of dealing
with other administrative aspects of complying with regulation
that are perceived as irritating, but that are not necessarily
costly in monetary terms. These are generally related to how businesses
perceive regulation and include issues such as the cumulative
impact of regulations that businesses have to comply with; complexity
of regulation; instances where businesses perceive that they have
to provide duplicate information to Government; and not knowing
which regulatory requirements apply, especially because of frequent
changes made to regulations.
Furthermore, the SCM does not measure the costs to
business of complying with the policy objectives of regulation;
for example, having to make adjustments to premises to ensure
disabled people can access them. Neither does it measure 'one-off
costs' nor the 'financial costs' of complying with regulation,
such as paying tax or license fees. This means that the SCM only
measures one part of the total cost to business of complying with
177 Prepared by the NAO using its 2007 report: http://www.nao.org.uk/publications/nao_reports/06-07/0607615.pdf Back