Memorandum submitted by the Institute
of Chartered Accountants in England and Wales
INTRODUCTION
0.1 We welcome the opportunity to submit
evidence in response to the first inquiry of the Regulatory Reform
Committee.
0.2 Details about the Institute of Chartered
Accountants in England and Wales are set out in Annex A.
0.3 The Government's Enterprise White Paper
(EWP), published alongside the 2008 Budget Statement, set out
significant developments in better regulation policy and, subsequently,
the Better Regulation Executive's (BRE) role. Due to the very
recent timing of the announcements, the Institute is not able
to fully respond to the EWP proposals and their implications in
this submission of evidence. The ICAEW recommends that the House
of Commons Regulatory Reform Committee (RRC) revisit some of the
central questions regarding the role of the BRE after the EWP
consultation period.
0.4 The ICAEW welcomes many of the central
themes of the EWP, in particular the recognition that the burden
of regulation is felt most acutely by the smallest businesses
and the need for policy differentiation for the diversity of business
type and ambition, what the Government has called "stellar"
and "non-stellar businesses". The Institute welcomes
the "think small first" policy which includes the promise
to examine greater consistency in applications of regulatory exemptions
for small businesses, something that has been repeatedly called
for by the ICAEW and is warmly received. We also welcome the genuinely
world-leading proposals of regulatory budgeting and the introduction
of SME exemptions. We urge high-level leadership and commitment
across government departments to ensure delivery of these ambitions.
EXECUTIVE SUMMARY
— The BRE appears to communicate and
engage well across Whitehall. However, delivery of the innovative
programme set out in the EWP will require full political and inter-departmental
commitment to the proposals, particularly with regard to the "think
small first" objectives. (2.1)
— The ICAEW believes that genuine measurement
of the success of the better regulation agenda must include reference
to business satisfaction levels. Our research suggests that the
agenda is not yet fulfilling its full potential, but is delivering
a modest positive impact. (4.1) As such, we fully support the
effort, laid out in the EWP, to improve communication of the Government's
better regulatory ambitions and achievements to business. (1.4)
— We support the expansion of BRE's
activity, but believe that this greater scope of activity should
be balanced by greater scrutiny. The ICAEW is concerned about
the evaluation and scrutiny gap, post the abolition of the Better
Regulation Commission, over the development of the BRE's objectives,
priorities, means, and outcomes. (1.2 and 3.1)
— We welcome BRE's leadership in the
context of the European better regulation agenda, but would encourage
greater partnership and sharing of experience between better regulation
authorities in EU member states and with the European Commission
itself. (1.5)
— The ICAEW calls on the BRE to monitor
and publicly report on the quality of departmental Impact Assessments
(IAs). (4.2)
— Economic analysis should take place
early in the policy development process. (4.4)
— The BRE should work to highlight
the flux of new regulation. "Flux cost" is more troubling
for a business than the stock of old regulation as businesses
will already have coping strategies for old regulation. (4.7)
— For legislation and regulatory change
with significant predicted cost-impact, thorough independent academic
analysis should be utilised in developing IAs, as demonstrated
in the Pensions Bill IA. (4.3)
— Overall, our comments should be placed
in the context of our support for the ambitious regulatory proposals
outlined in the EWP. The EWP has showed that Government has listened
to business. (4.8)
1. To assess the extent to which the Better
Regulation Executive (BRE) has developed a coherent strategy for
implementing regulatory reform
1.1 The ICAEW fully supports the mission
of the BRE, but in recent years has urged it to embrace a greater
sense of ambition and a clearer overall strategy. We feel that
the Enterprise White Paper promises a more proactive approach
in this regard.
1.2 At the strategic level, we are most
concerned about the apparent lack of scrutiny, post abolition
of the Better Regulation Commission, over the development of BRE's
aims and objectives.
1.3 We have been encouraged by recent output
by the BRE, particularly the Review of Consultations and the development
of the new Impact Assessment (IA) form, which, for the first time,
commits departments to implementation reviews of the actual impact
on business. The Institute welcomes these measures and looks forward
to both public and Parliamentary scrutiny of the first of the
new reviews of "actual cost". However, we have raised
issue with the Departmental Simplification Plans due to a lack
of adequate evidence that the plans are delivering tangible benefits
for business and corresponding to improvements in the business
perception of regulation. Specifically, there has been a lack
of transparency with regards to the process of choosing which
regulations were selected to be part of the simplification plans.
1.4 We fully support the effort, laid out
in the EWP, to improve communication of the Government's better
regulatory ambitions and achievements to business. As part of
the drive for transparency and greater scrutiny, we call on the
BRE to embed the measurement of business opinion as the main indicator
of success in their better regulatory strategy. Improvements in
business perception of the reduction of regulatory burdens must
be a strategic target. We are encouraged, given unfavourable business
polling in 2006-07, that BRE has moved noticeably to seek to address
business perception.
1.5 We welcome the BRE's and DBERR's leadership
in the context of the European better regulation agenda, but would
encourage greater partnership and sharing of experience between
better regulation authorities in EU member states and with the
European Commission itself. Whilst, the EWP has committed to take
the better regulation message to Europe and to ensure coordination
between UK and EU simplification measures, we believe that effective
coordination in this regard will require careful thought and considerable
resource and innovation. The December 2007 European Banking Federation
"Better Regulation & Impact Assessment" report highlighted
that better regulation is at a crucial stage of development at
EU and national levels; with many differences between the EU member
experiences and progress, crucially that no perfect model has
yet emerged to be copied.
1.6 The ICAEW believes that the government
should commit to engaging in the EU simplification process. The
EU has committed to reducing regulatory burdens on business by
25% by 2012 as part of its commitment to the Lisbon competitive
agenda. The European Commission is currently finalising the process
of identifying and measuring possible burdens and is expected
to present legislative proposals later this year. The study will
also look at how member states have implemented directives and
the extent to which there has been any unnecessary "gold
plating", the process where by Member States add further
requirements other than those stipulated by an EU legislation
when transposing it into their own legislation.
1.7 Analysis varies as to the exact proportion
of the total regulatory burden on business accounted for by EU
directives introduced into UK law. However, the British Chambers
of Commerce 2007 Burdens Barometer, which compiles and totals
UK Government IA cost figures, indicates that 71.1% of the £66
billion UK regulatory burden is accounted for by EU sourced legislation
and regulations. "Gold plating" exists as an additional
burden on the UK business environment, on top of the necessary
enactment of directives. The ICAEW cautions against "gold
plating" and would argue that the implementation of EU directives
should not be seen as an opportunity for UK departments to introduce
policy without engaging in the proper policy development process,
including full economic analysis at the correct stages. We would
recommend that a system of greater transparency and scrutiny be
considered to highlight gold-plating where it exists.
2. Whether the BRE works effectively with
other areas of government to implement regulatory reform initiatives
2.1 The BRE appears to communicate and engage
well across Whitehall in a difficult environment. However, delivery
of the innovative programme set out in the EWP will require full
political and inter-departmental commitment to the proposals,
particularly with regard to the "think small first"
objectives. We urge high-level leadership across government to
ensure that this commitment is fulfilled.
2.2 The Institute would encourage the BRE
to work closely with the Treasury and BERR's Strategic Policy
Analysis Team. This is the opportune moment for BRE to strengthen
these relationships The Government makes assurances in the Enterprise
White Paper that estimates of costs will be robust. The ICAEW
supports this aim. The new Impact Assessment Guidance states that
"departments must facilitate ... declarations by involving
their economists from the earliest stage of policy development
and by operating sound procedures for advising Ministers"
(paragraph 20). However, this guidance takes no account of the
differing levels of authority of economists in differing departments.
Some departments have a Grade 6 as their senior economist who
may lack the authority to challenge colleagues. The ICAEW believes
that for new primary legislation and major secondary legislation
departments should be required to engage with BERR economists
through the Strategic Policy Analysis team in undertaking the
Impact Assessment. This may require increased resources among
the BERR Strategic Policy Analysis team.
3. If the approach to measuring and reporting
on performance and outcomes is sufficiently robust
3.1 Greater scope of BRE activity should
be balanced with greater scrutiny. Following the abolition of
the Better Regulation Commission, there has been a gap in the
scrutiny and accountability of the BRE in its objectives, priorities,
means, and outcomes. The ICAEW welcomes current Parliamentary
scrutiny of the BRE and encourages the Regulatory Reform Committee
to take a more permanent role in this regard. The institutionalisation
of the BRE within the Parliamentary scrutiny system would, not
only establish accountability benefits, but cement the BRE's long-term
profile and sustainability.
3.2 Given the unique role of the House of
Commons Regulatory Reform Committee (RRC) combined with the need
to refer to business opinion to evaluate the better regulatory
agenda, we urge the RRC to liaise very closely with the key stakeholders,
including business representation and professional bodies, and
potentially establish innovative working groups to help the committee
fulfil its scrutiny aims.
3.3 The ICAEW also welcomes the involvement
of the National Audit Office, as providing independent and objective
scrutiny of the effectiveness of the better regulation programmes.
4. Whether the current approach to regulatory
reform is delivering genuine results
4.1 The ICAEW believes that genuine measurement
of the success of the better regulatory agenda must include reference
to business satisfaction levels. Chart 37 (below), from the 2007
ICAEW Enterprise Survey, shows that more Chartered Accountants
believe the regulatory environment has deteriorated rather than
improved since 2006. However, the extent and scale of that negative
feeling has decreased since 2006. These findings suggest that
the agenda is not yet fulfilling its full potential, but is delivering
a modest positive impact.
Recommendations to improve the delivery of genuine
results in regulatory reform:
4.2 The Institute calls on the BRE to monitor
and publicly report on the quality of departmental Impact Assessments.
The ICAEW believes that the quality and scope of IAs is currently
too variable. No organisation, public or private, is currently
in a position to comprehensively evaluate the accuracy of IAs,
which works to undermine the effectiveness of the IA system. However,
we hope that the first of the new commitments, outlined in the
updated Impact Assessment form, to review the actual cost of legislation
and regulation will provide the opportunity for BRE to bring attention
to IAs that were inaccurate or produced to low quality in the
first instance.
4.3 For legislation and regulatory change
with significant predicted cost-impact, thorough independent academic
analysis should be utilised in developing the IA, as demonstrated
in the Pensions Bill IA. IAs too often fail to identify the full
costs of a proposal and more specifically where the major impact
will fall across the business spectrum.
4.4 Economic analysis should take place
early in the policy development process. Full IAs often take place
too late in the legislative process. For example, the core principle
behind the Community Infrastructure Levy (CIL) proposal was never
costed or subject to an adequate impact assessment. The CIL IA
states that "the details of the proposal are subject to consultation
with stakeholders and will be set out in secondary legislation.
A further fully costed impact assessment will be carried out as
the details are settled".
4.5 Greater clarity is needed in administration
reductions reporting. The BERR Delivering simplification plans
report published in December 2007 identified a total administrative
burdens savings for SMEs of £139.1 million of which £97.2
million related to simplification of the licensing regime following
a measurement exercise. Excluding this one sector specific measure,
the saving is only £42 million, less than 1% of the £9.1
billion burden falling on SMEs as measured by the 2007 Enterprise
survey, although the saving is significantly higher for larger
businesses.
4.6 Departments' achievements in "Delivering
simplification plans" should include quarterly, rather than
annual, publication of progress and BRE should publish cross-departmental
comparison of target progress. This would increase accountability
and increase the effectiveness of the plans by encouraging departments
to fully embed the achievement of the simplification targets within
a department's priorities.
4.7 We urge the BRE to publish full accounting
at department level for the burden savings figures, rather than
the net reductions published in the BERR 2007 Delivering Simplification
Plans Summary. The flux of new regulation is more troubling for
a business than the stock of old regulation as businesses will
already have coping strategies for old regulation. The ICAEW 2007
Enterprise Survey indicated that the cost of new administrative
burdens from July 2006 to June 2007 totalled £10.2 billion.
This is a significant rise in burden cost on previous years. A
public net breakdown of announced savings in administrative and
policy cost would illustrate the extent of "flux cost"
from year to year. We hope that this full accounting of all regulatory
cost will lead to an intelligent balance between the objectives
of reducing administrative cost and efforts to reduce policy cost
to business.
4.8 However, as stated in the introduction,
these concerns should be placed in the context of renewed optimism
following the publication of the regulatory proposals in the EWP.
The EWP has showed that Government has listened to business and
we call on high-level leadership across Whitehall and Parliament
to ensure that the regulatory ambition of BERR, as a new Department,
is fulfilled and delivered.
Annex
ICAEW: WHO WE ARE
1. The Institute of Chartered Accountants
in England and Wales (ICAEW) is the largest accountancy body in
Europe, with more than 130,000 members. Three thousand new members
qualify each year. Our membership includes Financial Directors
and Chief Executives across all sectors of the UK economy, from
large multinationals to SMEs, including micro businesses. Working
as employers, investment specialists and business advisers, our
members command a unique understanding of the economy and better
regulatory issue. The ICAEW 2007 Enterprise Survey, which polled
over 1,000 respondents from businesses across every sector of
the economy, provides an authoritative basis for research and
presents several insights into business opinion.
2. The prestigious qualifications offered
by the Institute are recognised around the world and allow members
to call themselves Chartered Accountants and to use the designatory
letters ACA or FCA.
3. The Institute operates under a Royal
Charter, working in the public interest. It is regulated by the
Department for Business, Enterprise and Regulatory Reform through
the Financial Reporting Council. Its primary objectives are to
educate and train Chartered Accountants, to maintain high standards
for professional conduct among members, to provide services to
its members and students, and to advance the theory and practice
of accountancy, including taxation.
4. To find our more about the ICAEW, please
call Nick Maxwell, Public Affairs Executive on 020 7920 8617 or
email nick.maxwell@icaew.com or write to Chartered Accountants'
Hall, PO Box 433, Moorgate Place, London EC2P 2BJ.
March 2008
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