Select Committee on Regulatory Reform Written Evidence


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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