Select Committee on Regulatory Reform Fifth Report

Appendix 1: The Administrative Burdens Reduction Programme[177]

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

Price = tariff x time Quantity = population x frequency

Tariff is the wage costs (plus overhead, non-wage costs) for activities done internally or cost of external goods or service providers.

Time is the amount of time required to complete the activity.

Population is 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 regulation.

177   Prepared by the NAO using its 2007 report: Back

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Prepared 17 July 2008