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.
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