Select Committee on Regulatory Reform Written Evidence

Memorandum submitted by Professor George Yarrow of the Oxford Regulatory Policy Institute

  1.  Although I have been a longstanding supporter of attempts by successive governments to promote better regulation, I find it increasingly difficult to be enthusiastic about outcomes to date or about prospects going forward. There appears to be a dearth of hard evidence capable of refuting the view that nothing of great significance is being achieved.

  2.  The intentions of the BRE are plainly good, but effective policy is not made with good intentions alone (and they can be positively harmful in the absence of supporting capacities). Other requirements include intellectual coherence, an appropriate administrative "culture", good institutional design, and effective policy execution. None of these can be said to be prominent features of current arrangements.

  3.  Until two or three years ago there were at least some signs of progress. For example, the sophistication of guidance relating to the conduct of regulatory impact assessments was slowly increasing, and there were signs that a body of expertise and wisdom was being developed, which could potentially serve useful purposes across government.

  4.  Unfortunately, that cumulative learning process appears to have come to a halt more or less simultaneously with the increased political profile of the better regulation agenda. Among other things, recent revisions to guidance on regulatory impact assessment have, in my view, constituted backward steps. More generally, the development of critical thinking appears increasingly to have been replaced to a substantial degree by "executive speak". Orwell's "Politics and the English Language" is probably the most appropriate pre-reading nowadays for those about to be introduced for the first time to the world of better regulation documents.

  5.  To illustrate, the word "regulation" encompasses a wide variety of different types of activities related to a wide variety of different types of rules, enforced in potentially different ways in a wide variety of different contexts. Lumping all these together and then framing policy around objectives such as "reducing the burden of regulation" is just not a sensible way to proceed. Much more discrimination than that is required; and in the absence of such discrimination, a lot of what is said about "better regulation" becomes meaningless abstraction, an empty box.

  6.  In reality, effectively functioning market economies require lots of rules, and these rules give rise to significant compliance costs (command and control requires fewer rules because it involves lower participation rates in the determination of outcomes). An overly narrow approach to better regulation, which is focused only on costs, therefore risks missing key questions such as: is this a rule that facilitates or hinders the general conduct of the economic activities that it is intended to govern?

  7.  The sophistication of government tends to lag well behind that of large sections of the public in relation to the making of the relevant distinctions. Few conversations about the rules of association football, even those taking place late on a Saturday evening, are so crude as to involve arguments to the effect that the offside rule should be abolished either to reduce the burden of regulation or because the rule fails a cost-benefit test. The effects of the offside rule, and of its enforcement, are matters of lively debate, but that debate tends to be based around real understandings of the linkages between the specific rule, its enforcement, and the likely consequential effects on behaviour/conduct. In contrast, when the executive arm of government comes to assess a particular regulation it more often than not lacks knowledge and understanding of the linkages between rules, enforcement, and behaviour/conduct in the specific context of relevance, and, in the absence of such detailed knowledge, there is often a strong tendency toward abstraction and the construction of self-serving narrative (aka spin).

  8.  Understandings of the inextricable links between rules, enforcement and behaviour/conduct in association football do not arise by chance; they develop because people care about them. Unfortunately, on average, those engaged in regulatory assessment exercises simply do not care to anything like the same extent.

  9.  This is not meant as a criticism of those individuals engaged in the promotion of better regulation, but rather of the structure of the policy processes involved (which can serve to frustrate the best efforts of individual participants). In words used by John Stuart Mill to describe one of the limitations of government: "All the facilities which a government enjoys of access to information; all the means which it possesses of remunerating, and therefore of commanding, the best available talent in the market—are not an equivalent for the one great disadvantage of an inferior interest in the result."

  10.  This (a relative lack of interest in the result) is a chief basis of the "cultural problem" in regulatory policy, to which experts in regulatory impact assessment frequently refers. There tends to be a lot of focus on documents, techniques, measurement, bees in bonnets, what the minister thinks, and so on, but not a lot of engagement with the task of tracking down all the possible implications and effects (indirect and unintended as well as direct and intended) of policy measures in contemplation. Understandably, there tends to be a particular aversion to the exploration of inconvenient truths.

  11.  Recent BRE activities centred on the reduction of administrative burdens illustrate some of the problems. There are large potential errors in the measurement of such burdens, and whilst a target reduction of 25% in costs might look impressive, that number could easily fall within the range of measurement error, even if cost estimations are conducted in rigorous and objective ways. That is, a "before and after" assessment could show a 25% reduction in measured burdens when nothing real had actually changed. Add to this the fact that, knowing that a reduction will be called for, there is every incentive for departments to seek to shade the figures, tending to the high side for "before" numbers and tending to the low side for "after" numbers, and it is easy to see how the burdens-reduction programme could become another empty box.

  12.  Thus, while the approach seeks explicitly to account for effects that were not previously so accounted for, it is a form of accounting that is heavily controlled by those engaged in the measurement exercises, and that is without professional standards, or external supervision that is capable of imposing effective sanctions on inadequate perfomance. The exercise therefore lacks many of the underpinnings that could serve to establish confidence in its veracity.

  13.  The "numbers drift" that can be expected in the burdens reduction exercises will be familiar to all those who have observed the use of cost-benefit analysis in government from close quarters. Whereas references to numbers may give the appearance of authority and objectivity to impact assessment documents, numbers tend also to be much easier to manipulate than simple, clear descriptions of who is likely to be affected by government decisions and in what ways. Boiling things down into a few, simple, summary numbers means that information is lost or concealed along the way. It also makes scrutiny more difficult. To illustrate, suppose economic consultants were asked to undertake a cost-benefit analysis of a new regulation and came back with the answer that the net benefit would be £20 million. There is no significant information content in that number—just as there is no significant information content in being told that the answer to Life, the Universe and Everything is 42—and the real interest would lie in how precisely the consultants came to it (ie in all the background information, judgments and assumptions/prejudices used and made along the way).

  14.  For these and other reasons, I have reluctantly come to the conclusion that the promotion of better regulation within the UK is currently failing, and will continue to fail, unless there is a major shift in public policy. In evidence to the House of Lords Select Committee on Regulators I suggested that it was unlikely that necessary reform would come from within the Better Regulation Executive itself, and that it might require the development of greater judicial supervision of regulatory decisions to introduce the necessary encouragement for decision makers to care more, and to think more, about the effects of their actions on the public.

  15.  Put more generally: enhanced external scrutiny, via processes that can not easily be controlled by government departments or agencies, offers an alternative way forward; but there are also others. One of these is to unbundle the promotion of better regulation from the principal administrative processes of government, along the lines of the (relatively successful) unbundling of sectoral regulation that occurred in conjunction with privatization in the 1980s and 1990s, and later with the delegation of monetary policy responsibilities to the Bank of England.

  16.  Another approach would be to seek to achieve greater targeting in policy, based upon recognition that one of the things that government tends to be bad at is correcting its own mistakes in a timely manner. In competitive markets there can be strong incentives to bring mistaken ventures (of which there are many) to a swift end, but mistakes often persist for much longer periods in the public sector. Correcting, or better still preventing, a relatively small number of major follies might well have substantially larger payoffs than much more extensive, more diffuse attempts to pursue a better regulation agenda across a wide front.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2008
Prepared 21 July 2008