Memorandum submitted by the British Chambers
of Commerce
1. The British Chambers of Commerce welcomes
the opportunity to submit evidence to the Regulatory Reform Committee's
Inquiry: Getting Results. The Better Regulation Executive and
the Impact of the Better Regulation Agenda.
2. The British Chambers of Commerce is the
national voice of local businesses, acting on behalf of a network
of Accredited Chambers of Commerce across the UK.
3. Representing over 100,000 businesses
and five million employees, Chambers of Commerce are the Ultimate
Business Network. Lying at the heart of their local community,
Chambers serve all businesses with a passion no-one else can match.
INTRODUCTION
4. British business is still feeling the
pressure of an ever increasing regulatory burden. Survey data
collected by the polling firm Populus on behalf of the British
Chambers of Commerce showed that regulation remained the number
one concern for businesses ahead of education and skills and the
UK's tax burden. Our 2008 Burdens Barometer figure has risen to
nearly £66 billion, which is the cumulative cost of new regulation
to business since 1998. This has increased from £10 billion
in 2001 when we first compiled it.
5. If we are serious about creating the
conditions for businesses to be successful in the UK then reducing
this burden has to be a priority for the Government and opposition
parties, because while it continues to rise the competitiveness
of the UK will suffer.
6. In this year's Barometer there are three
regulations, which actually produce an annual saving for business.
For example, the Fire Regulatory Reform Order (regulation 77 in
our Barometer), has provided a saving to business of £67
million. The impact of this saving was to cut the cumulative total
by one tenth of 1%. This underlines the scale of the challenge
that government faces and therefore the urgent need for action.
If the £10.4 billion cost of regulation that now falls on
business annually is to be reduced, then many more deregulatory
measures will be necessary.
7. Unfortunately despite two Acts of Parliament
designed to make this possible: the Regulatory Reform Act (2001)
and the Legislative and Regulatory Reform Act (2006), the increase
in regulation surges on.
8. Small to medium-sized enterprises (SMEs)
are the backbone of the UK economy constituting 99.9% of all private
enterprises in the UK. It is also smaller enterprises that are
disproportionately impacted by regulation.
9. The economics of small business is not
well understood by civil servants.[10]
The British Chambers of Commerce's annual Impact Assessment audit
will be published on 31 March 2008 and this will show that in
2006-07 only 1% of (R)IAs quantified the additional costs of regulation
for small firms and 64% claimed no additional burden for them.
10. Some of the reasons why small firms
incur higher policy costs of regulation, as well as higher administrative
costs are as follows:
(a) There are fixed costs associated with
most regulatory change eg searching for and assessing the appropriateness
of new equipment to comply with a regulation (such as the "Work
at Height" rules). Small businesses have fewer economies
of scale over which to spread these costs.
(b) For similar reasons, new equipment and
assets tend to be more expensive for small operators per unit
of output. Small firms also tend to have to acquire multi-purpose
equipment as they have to compete on the basis of flexibility
and service.
(c) Small firms incur higher costs of capital
than larger businesses. Thus all forms of investment expenditure
are more expensive for smaller firms.
(d) Small firms do not have in-house regulatory
expertise such as a health and safety officer. Consequently new
regulations require the attention of the owners to understand
and make decisions about the appropriate response. Thus regulatory
change constrains or exhausts the supply of general management
talent more quickly in small firms than in larger businesses.
(e) If the owners feel unable to cope with
the additional volume or complexity of regulatory work they will
have to recruit external advisers, often consultants, who will
probably be relatively expensive. Consultants may also exhibit
a tendency to advise clients to over-comply, at the margin, in
order to reduce the professional indemnity risks that consultants
face.
(f) Small firms' profits are smaller and
more volatile than large firms, small businesses are therefore
less likely to be able to offset the costs of regulation against
tax. Even in years when the costs can be used to reduce tax charges,
the applicable tax rate will tend to be lower than for large firms.
Thus small business owners incur a higher proportion of the net
costs of regulation than do larger companies.
11. Embedding within government departments
an understanding of the disproportionate impact of regulation
on small firms is an important step towards creating the economic
conditions for businesses to thrive and grow.
The BRE and the impact of the regulatory reform
agenda
12. The BRE is absolutely key to the successful
delivery of regulatory reform. It is crucial that the better regulation
agenda is driven from within Whitehall by an influential unit
capable of holding departments to account and driving regulatory
culture change and standards. However, it is our view that in
order to do this the BRE must be pushed further towards the centre
of regulatory activity within Whitehall and must be backed by
strong political support. The BRE would consider its primary function
to be that of an adviser to government departments rather than
a policeman. While we understand that the BRE must work with departments
to achieve results, we are not convinced that they exert sufficient
influence over the activity of departments. As evidence of this
we would like to draw the Committee's attention to the publication
of the Command Paper. The publication of this document has been
delayed year on year. The latest version was published on 24 January
2008, this covered all (R)IAs up to 30 June 2007. When we analysed
this document it was clear that some 90 (25%) had not been captured
by our own monitoring of departmental websites, a rigorous process
necessary to produce our own annual publications: the Burdens
Barometer and our Impact Assessment audit. The Command Paper only
has to list what has already been published, being unable to do
so for nearly seven months indicates that departments are still
failing to take seriously the regulatory reform agenda. Since
the BRE are tasked with compiling the paper, we can only conclude
that their influence over departments' work and priorities needs
to be stronger.
Assess the extent to which the BRE has developed
a coherent strategy for implementing regulatory reform.
13. We would separate the work of the BRE
into two broad categories: that which is aimed at reducing the
stock and that which is aimed at tackling the flow of regulation.
By stock we mean the existing legal framework and the total cost
that is attached to it. By flow we are referring to the throughput
of new regulation annually.
14. Progress on the former has been better
than on the latter. For example, the implementation of Hampton
has progressed well. Principles like "risk-based enforcement"
are becoming embedded in the thinking of regulators and initiatives
like the retail enforcement pilot are starting to turn theory
into practice. While the recognition of this from the business
community may not be immediate we get the sense that over time
we will see results.
15. On flow, the progress has been slow
and there are three steps the BRE must take to address this. First
of all, the UK needs a robust Impact Assessment process, which
displays a better understanding of the economics of small business.
Our research indicates that only 1% of Small Firms Impact Tests
actually quantify the additional cost of regulation to small business
and 64% claim no disproportionate impact for SMEs.[11]
16. Second, better linkage is required between
the EU and the UK Impact Assessment (IA) systems. 71% of our 2008
Burdens Barometer figure is EU sourced regulation. The additional
cost that EU sourced regulation imposes could be reduced if member
states were required to carry out IAs before the European Commission
conducts their analysis. The benefit of this would be twofold:
UK interest groups would be consulted on EU proposals much earlier
in the policy making process well before any formal negotiations
between member states begins and for the Commission there would
be a ready supply of data on which to base their analysis.
17. Third, parliamentary scrutiny must be
increased to stem the flow of regulation. More than 3,000 Statutory
Instruments go through Parliament every year.[12]
Most of these are relatively insignificant, which masks the minority
which impose heavy burdens on business. These minor administrative
orders need to be filtered out to focus Parliament on those regulations,
which impose significant costs.
18. Where the Government has really failed
to make progress has been in making a strong case for better regulation
at the citizen or individual level. While better regulation is
absolutely vital for business success there must be a buy-in to
the agenda from a wider audience than just the business community.
It should be absolutely clear that better regulation is about
making people's lives easier, freer and allowing business to create
more jobs and wealth for the UK.
Whether the BRE works effectively with other areas
of government to implement regulatory reform initiatives
19. There are two measures of success: one
is the degree to which they have influenced departmental simplification
plans and the second is the extent to which they have influence
over Impact Assessments. Success has been better on the former
measure than the latter. Through direct involvement with the development
of annual plans the British Chambers of Commerce is confident
that the BRE has a positive influence on this process.
20. On Impact Assessments the evidence is
that the BRE is reducing its scrutiny role, this was confirmed
in their evidence session to this Committee. This is a serious
concern and it is our view that the BRE's confidence in the IA
front sheet as a means of increasing accountability and improving
analysis is misplaced. Whilst we believe that the introduction
of a front sheet is extremely important we do not see it as an
immediate solution to the poor quality of analysis in IAs. Our
2007 IA report highlighted the following:
(a) 71% of (R)IAs assign benefits to business
without quantifying them.
(b) Less than 8% of those that carry out
a small firms impact test identify additional costs to small firms.
(c) Over half of UK (R)IAs do not explore
the "do nothing" option.
21. The front sheet will help drive culture
change within departments, but this is a long term process. In
the short term scrutiny by the BRE needs to be increased.
If the approach to measuring and reporting on
performance and outcomes is sufficiently robust
22. From the outset we have questioned whether
the Standard Cost Model is robust and whether it can be applied
to a national level Administrative Burdens Exercise. The SCM,
as adopted in the UK, has provided a very high level estimation
of the total Administrative Burdens resulting from regulations
on business. However, because of the small sample sizes that are
part of the SCM design, it will not be possible to interpret the
figures as equivalent to the true cost of administrative burdens
to UK business. Despite its methodological flaws we recognise
that the exercise has some value for our members.
23. We have significant concerns about the
quality of UK Impact Assessments. We urge the Committee to review
the findings of our annual Impact Assessment audit which provides
a detailed analysis of the system. Last year's report The Burden
of Regulation: Who is watching out for us? is available to
download from our website www.britishchambers.org.uk.
Our latest IA report will be published on 31 March 2008 and we
will circulate copies to the Committee.
Whether the current approach to regulatory reform
is delivering genuine results
24. The Government's approach to regulatory
reform is delivering limited results. The UK's regulatory burden
continues to increase at an alarming rate and our members are
faced with annual additional costs of more than £10 billion.
As discussed in paragraph 14 there has been some progress on simplification
and the implementation of Hampton, but not enough, as yet, to
really make a substantial difference to businesses. There have
been two acts of parliament to give Ministers additional powers
to deregulate. However, as a result of the first Act (2001-05)
the Government only issued 29 Regulatory Reform Orders and since
the new 2006 Act only one Legislative Reform Order has been laid
before the House: the Local Authorities Consent Requirements (Laid
25 July 2007). This compares with over 300 new regulations each
year.
25. Despite expressed concern with the total
volume of regulation, their pace of introduction, as measured
by (R)IAs, has continued to increase. About 130 regulations per
annum were generated in the first four years of this government.
The number has increased progressively to about 350 in the year
to 30 June 2007. The cumulative burden on British business since
1998 is, according to the (R)IAs themselves, nearly £66 billion,
of which 71% arises from EU sourced regulation (73% last year).
In terms of the number of regulations, the EU accounts for a smaller
proportion only about 35%. The financial cost shown by the (R)IAs
is only part of the burden; keeping track of changing legislation
is a major burden in itself.
26. In paragraphs 15 to 17 above we have
made three recommendations to tackle the increasing flow of regulation.
March 2008
10 Chittenden F and Ambler T, 2007, Government Regulation
and Small Firms: a role for the Comprehensive Spending Review?,
in Talbot C and Baker M (eds), The Alternative Comprehensive Spending
Review, Manchester University Press. Back
11
Statistics are taken from the forthcoming British Chambers of
Commerce study: The British Regulatory System, Tim Ambler, Francis
Chittenden and Stefano Iancich. Back
12
The Burden of Regulation: Who is watching out for us? Tim Ambler,
Francis Chittenden and Deming Xiao, The British Chambers of Commerce,
April 2007, p 9. Back
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