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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 474-i House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE REGULATORY REFORM COMMITTEE
GETTING RESULTS: THE BETTER REGULATION EXECUTIVE AND THE IMPACT OF THE REGULATORY REFORM AGENDA
Tuesday 1 April 2008 MR CLIVE DAVENPORT, MR ALEXANDER EHMANN, MR MATTHEW FELL and MS SALLY LOWE Evidence heard in Public Questions 1 - 68
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Regulatory Reform Committee on Tuesday 1 April 2008 Members present Andrew Miller, in the Chair Gordon Banks Lorely Burt John Hemming Judy Mallaber Dr Doug Naysmith ________________ Memoranda submitted by Federation of Small Businesses, Institute of Directors, Confederation of British Industry and British Chambers of Commerce
Examination of Witnesses
Witnesses: Mr Clive Davenport, Trade and Industry Chairman, Federation of Small Business; Mr Alexander Ehmann, Head of Parliamentary and Regulatory Affairs, Institute of Directors; Mr Matthew Fell, Head of Corporate Affairs, Confederation of British Industry; and Ms Sally Lowe, Director of Policy, British Chambers of Commerce, gave evidence. Q1 Chairman: Welcome everyone and thank you for coming to give evidence today. I think you have had a good briefing on what we are seeking to do. It is four important organisations giving evidence today. I appreciate that some of the questions might be directed at one of you and others may think, "I would like to comment on that," and if there is time we will take comments from as many as possible, but if there are other things you want to supplement your comments with in writing after, please feel free so to do. There are a couple of other members who will be joining us who are detained at other events at the moment, but if you are happy we will get straight in. Perhaps for the record the four of you could formally introduce yourselves, starting with Ms Lowe. Ms Lowe: I am Sally Lowe and I am Director of Policy and External Affairs for the British Chambers of Commerce. Mr Fell: I am Matthew Fell, Head of Corporate Affairs at the CBI with responsibilities including the Better Regulation Agenda. Mr Ehmann: Alexander Ehmann, Head of Parliamentary Regulatory Affairs at the Institute of Directors. Mr Davenport: Clive Davenport, the Chair of Trade and Industry at the Federation of Small Businesses. Q2 Chairman: Thank you and welcome. Can I start off by asking all of you: do you believe that the BRE has a firm grip on its own objectives? Mr Fell: My take on that is the BRE in a sense has two key roles to play in this whole agenda. At a strategic level its job is to act as a champion of better regulation right across Whitehall, and I think it has put in place a number of processes and systems in order to help drive that agenda. Then, secondly, it has a more pragmatic role in a sense, which is working with colleagues across Whitehall to reach practical solutions on how we go about implementing or determining particular policies to achieve the correct outcomes, so I think I would very much describe their role as a journey. I think there is a lot of effort and a lot of processes which have been put in place but, quite clearly, there is more to do on that agenda. From the CBI's perspective, I think we would see it as important that there is an increasing focus on the flow of new regulation. I think we need to better communicate changes which have been made to date on deregulatory measures. I think finally we would welcome an increasing focus on some of the real impacts on business that we might draw down to a little bit more this morning. Mr Ehmann: If I might add something to Matthew's comments. Broadly speaking, I think we would share the same view. I think it is important to point out that it is far easier to deconstruct a process than it is of course to create one, particularly in an area as difficult as deregulation, and I think we should acknowledge the effort that has been put in there. That said, if one takes a specific initiative of the BRE like the simplification plans and the Administrative Burdens Measurement exercise, which I am sure we will come on to later, one does get the instinct that the whole process is rather more driven by outputs than outcomes, and what I mean by that is that the target does seem to be the 25 per cent empirical reduction rather than the shift in perceptions that the IoD would argue is absolutely critical to the process, so if there was an accusation I would float out there I would say where there is more effort that needs to be done is a recognition of this slightly more holistic necessity, which is to make sure that business, in this case, recognises it is different. The only other thing I would add is that there is perhaps a lack of clarity about what the Better Regulation Executive and the agenda more broadly is expected to achieve beyond 2010. I think the process up until 2010 may or may not yield results, but there is a question about whether that just sits within a vacuum or whether there is a wider strategic goal for the Government. Mr Davenport: I would certainly endorse my two colleagues' comments and there are two things I would add. The first is that my feeling is that when the BRE was brought into BERR as an organisation, it certainly made things more efficient, it was less confrontational for a start, which was certainly an advantage, and the other thing is that as far as the legislation is concerned, I think the focus needs to be much more on the problems that are encountered at the smaller end of the market. The larger end of the market can handle changes in legislation. The average proportion is that the small business has six times more load on its administrative time when it has an alteration in assessment, so that is the only addition I would put forward to you. Ms Lowe: Again, I would broadly endorse what my colleagues have said. If we are looking at the BRE as having two functions, the first to reduce the stock of regulation and the second to tackle flow, on the first part of that I think there has been success and things like the Hampton Review have brought about a new approach to risk-based enforcement which has been useful, and there have been a number of other positions that the BRE have adopted to address issues around the stock. With regard to the flow, when we look at a publication that you will be familiar with I am sure that the British Chambers of Commerce publish, which is the Burdens Barometer, in which we have been looking at impact assessments since 1998, what we have seen, and also endorsed in the report that we published yesterday, is that actually in the first four years from 1998, about 130 impact assessments per annum were coming through and this has now increased to 300 per annum, and I think that basically points to the fact that the BRE has to heighten its influence across Whitehall to bring to bear greater pressure to reduce that and tackle that flow of new regulations coming into being. Q3 Chairman: In your note to us you suggested that it was a mistake for the BRE to withdraw from detailed scrutiny of impact assessments. Following on from that, what exactly do you think their role should be: policeman; think-tank; deliverer; teacher? Can it take on the role of deliverer of the kind of joined-up government that we would all like to see and, in your judgment, is it using its resources efficiently if it examines every impact assessment? Ms Lowe: I certainly think there is a strong case to be made for the BRE to adopt, as I have said, a much more robust stance with regard to its policing of departments across Whitehall through the impact assessment mechanism, and whilst we see the production of a top sheet as being fine in its way, it does not really address the fundamental issue. We have devoted an enormous amount of time to studying the analysis of impacts and for example, when looking at the disproportionate impact of regulation burden on small firms, you see that only one per cent of impact assessments quantified in the last 2006-07 year quantified the additional costs of regulation for small firms in those impact assessments, and we believe on behalf of the network of chambers of commerce, 100,000 businesses, that whilst culture change is important - and I think the top sheet is a way of bringing about some culture change - fundamentally the measurement and analysis of impacts of the burdens on whatever is the recipient or whoever is having to carry out the regulation, namely business in our case, is absolutely vital to the process, and so in response I do not think that that is an inappropriate use of resources for BRE to carry out that role across Whitehall. Mr Fell: Just to pick apart the two elements of your question, as I said at the outset, I think the chief role of the BRE is to act both as champion and then pragmatic helper, if you like, with other government departments. In terms of scrutiny of impact assessments and how good and robust they are, I again think that is a journey where there has been progress. I think if you look at impact assessments today, they are better than they were, say, five years ago but, quite clearly, there is more to do. Where I think they are useful is to provide an indication of cost/benefit analysis, and for that to be helpful, quite clearly, there needs to be good quality scrutiny of those if they are to be robust and to be useful as a policy tool. In addition to that robustness, the other issue that is particularly important for impact assessments is their timeliness. I see a number of colleagues getting quite frustrated when impact assessments come out at the point of consultation, thinking particularly in the tax arena for example, HM Treasury, where it would be useful to have more dialogue before we reach formal consultation stage to say are the figures and the assumptions that you have built into your impact assessments correct, and I think more emphasis on that informal dialogue before we get to the proper consultation stage, to understand the different factors that go into impact assessments, will be just as useful as the BRE taking on a greater scrutiny role. Q4 Gordon Banks: I suppose I should declare that I am a Member of Federation of Small Businesses before we start. I wonder how good the BRE at getting their objectives across to organisations and especially small companies which are not represented by people in your organisations, et cetera, because the majority of small businesses are not represented by anybody other than the people who are running the small businesses? Do we fail to get the message across to these small businesses? Mr Fell: Perhaps if I just carry on on that theme for a moment. I think the importance of using intermediaries is quite a good example. I see the Department for Business this morning has issued a notice that it is contacting 20,000 accountants and solicitors to set out the changes on the Companies Act that are coming into force. I think the greater use of intermediaries that small firms will typically turn to - their solicitors and accountants - for advice and guidance is perhaps the best way to reach that audience that you are talking about. Mr Davenport: I would say that as far as small businesses are concerned, the biggest problem we have is that the information does not get fed down, and whatever information does get fed down tends to be in, shall we say, 'Whitehall speak' and the average business does not really understand it, so it gets filed in the bin fairly quickly and forgotten about. That is not what it is about. The whole thing is about informing people. If I can just give you one example. The Ministerial Challenge Panel did an enormous amount of work to promote the Local Better Regulation Office. The idea of that office was to produce a more even standard for councils throughout England and Wales. I have seen one document from the LBRO. I think if I can get the chief executive to sign it, it would be quite good because it would be worth quite a bit of money! I have not seen it anywhere delivered to any business at all. How on earth the LBRO can be expected to glean information to produce better performance if it does not inform the people that are its customers effectively I am not quite sure. The whole of the government system needs to get its communications act together a lot better than it does. One of the comments I would also like to make is about the HMRC. I am not quite sure whether the HMRC is included in the BRE reviews and, if it is not, I am quite intrigued to know as to why not; it is a department the same as any other. Mr Ehmann: If I might add a couple of extra points. I think all of the points my colleagues have made are absolutely right, but there are two examples I can give you of how the BRE is perhaps not getting the comms aspects of this agenda across as well as might be hoped. To echo the point about HMRC, and I would really emphasis that, we asked our members what was the last government agency or department they had physical interaction with or over the telephone, and for two-thirds of our members the most recent interaction was with HMRC. It seems therefore bizarre that that is the department that uses the least amount of leverage in this process. I would really echo that point. I think the other thing is if you look at some of the initiatives that have been announced, to pick just one, there is something which I think is now called a different name but it was the portal for simplification suggestions from business, the recognition levels in the NAO Report are incredibly low, and when we did some work on this in a report called Words or Deeds back last year, one of the proposals that we put forward was that purely on forms and administrative burdens, the Government might want to consider putting at the bottom: "If this irritated you, there is a place for you to go and make that representation", because at the moment there is a complete lack of join between the point of burden and reporting that burden to a government department or agency. To expect a business to think when they come across some kind of advertising, if they do, of this channel for communicating, "Oh yes, the burdens that bother me are..." is frankly not going to happen. Ms Lowe: I would just like to say that I think the best way of communicating with business the benefit of what the BRE is achieving is by showing the proof in the pudding. We have measured in our Burdens Barometer a cumulative burden of cost on business of £66 billion this year; it was £10 billion when we first started the exercise in 1998. This year for the first time we actually saw some negative readings which showed that in three cases there were examples of regulations that had been the subject of regulatory reform orders. That amounted to £67 million-worth of reduction of savings, if you like, which admittedly is only one-tenth of one per cent of the overall £66 billion figure, but that is important in that it starts to show impact, and we were happy to trumpet that fact. There are a number of issues that we have with legislation in this area because it is a very hard to actually redress the balance once something is in place. It is very, very difficult to turn the clock back. However, showing the proof in the pudding, showing to businesses what has happened by using hard figures is a very powerful way of communicating the benefit of the work being done within government. Q5 Chairman: Talking about the proof of the pudding, you have mentioned twice your Burdens Barometer; do you publish the methodology behind it? For example, is it measuring net burdens or simply new burdens? Does it take into account changes in a piece of legislation that are on the positive side of the equation or does it just add up all the negatives? Ms Lowe: It adds up the burden to business which comes from the impact assessment as recorded so we do not measure benefits in that way. Q6 Chairman: So it is not true to say that in net terms the Government has placed £66 billion-worth of new burdens on business this year? Ms Lowe: The main reason we do not measure benefits is that in hardly any cases are they actually quantified within the impact assessments. Q7 Chairman: Can I finish off this section by asking a very simple question: should the BRE concentrate on one major strategic vision or should it continue to pursue a number of goals based on what it is likely to get results on? Mr Davenport: I think from our point of view we are almost into a position of "if it isn't broke, don't fix it". Multi-visions can be confusing anyway. I think what it is doing at the moment is beginning to work. The problem we have is that it takes an inordinate amount of time for it to work and changing things dramatically now would be more confusing and would dissipate the energies that are already being directed in the areas that they are. Mr Ehmann: I think the initiatives in the areas of work of the BRE are broadly acceptable to the Institute of Directors. As I said earlier, I think there is a case for bringing those together under somewhat of a strategic aim, and I think the key component of that aim has to be about changing perceptions. If the BRE were a regulator, for the sake of argument, its role would be dictated by what you were hoping for it to achieve, so in the case of economic regulation it would be to create a market which operated effectively. I would say that the BRE's mandate should very much be to bring about a change in perceptions amongst the business community primarily but also amongst others to say that the regulatory environment in the last four years has improved, and tangibly. Q8 Chairman: Any counterviews? Mr Fell: I would underscore what I said . I think the BRE's primary function is to champion the Better Regulation agenda right across government. I think it has put in place a number of measures to do that and that journey is going in the right direction, and I think that the reform agenda would go at a slower pace without the role of the BRE doing its job as it is. Q9 Lorely Burt: My first question is directed mainly to the FSB. Clive, you said initially that there is a ratio of six to one in terms of the impact of regulation on small businesses. The Government has got this mantra of "think small first", so I am intrigued to know what you think of that. In your submission, you say that new legislation should specifically analyse the potential impact and costs to small businesses and adapt a proposed regulation accordingly. Could you elaborate a little bit on that and what specifically you think the Government should do to achieve that? Mr Davenport: That is a large question. Q10 Lorely Burt: It is, sorry. Mr Davenport: The problem for many years, probably 20 years, with government is that as small businesses have increased as a proportion of the total GDP of the nation, the perception in government of that proportion is not really taken account of. Government, by its very nature, tends to look at the large picture and at very large sweeping things to be able to create a result as fast as possible with a minimum amount of financial impact. The problem with small business is because of the disparate types of business that small businesses are, the Government cannot really get a handle on that situation, and that causes it a lot of heartache. They are aware of the situation but not quite sure, I do not think, how to handle it. Being engaged more with businesses directly would give them a big insight. I can remember the previous Director of the BRE, who was doing the Ministerial Challenge Panel, Mitchell Lehman(?), spent a week in Scotland and was absolutely mortified at the situation of the energies that had to be expended in small businesses. He came back and from the anecdotes screamed around the corridor for a week at the amount of work and effort that goes into a small business, and the amount of damage, effectively, that one small piece of legislation can create. I think that is a classic example of the way civil servants really ought to be involved more with small business and they would become more focused on what should happen to them. Q11 Lorely Burt: I would like to drag civil servants from behind their desks and send them to industry as part of their induction just to give them an idea of what is going on there. Mr Davenport: Indeed, that would not be a bad idea. Q12 Lorely Burt: There are moves afoot to do that. When we interviewed BERR, they were saying there was a senior civil servant induction process to do that but I think it has got to be a culture change right the way through really. Ms Lowe: I think it is a good idea of course for civil servants to spend time within businesses to understand the management issues that the burden of regulation imposes on a small business, the extra cost that it imposes, and all the other problems such as not being able to command economies of scale, etcetera, but I do think we have to be realistic about what sort of culture change a civil servant spending a week or so in a business is going to manage to achieve, because that particular gentleman has now moved on to a different department so all of that learning has effectively been dissipated. This is the problem. We facilitate via the chamber of commerce network lots of trips like this and they have always been valuable and they have been very good to show the host business that somebody cares, that somebody is listening, and that central government is awake and alert to the particular problems, but for us I would say that that is a limited benefit and I think that really there is no substitute for a much more robust and, as I set out, much more of a policing effect. If you look at the hard evidence, when we carried out our impact assessment report last year, which is the supporting report to the Burdens Barometer piece of work, it said that in eight per cent of the cases of impact assessments that were coming through they had quantified the additional costs of regulation for small firms and carried out a small firms impact test. The impact assessment report that we published yesterday recorded one per cent, so it is actually going down, and that is a problem and that is something which needs addressing with much more hard-hitting measures I would suggest. Q13 Lorely Burt: Absolutely. Can I go on and talk mainly to the IoD about the perception of business on delivering results and how you feel that could be better improved. You say in your submission that one per cent noted an improvement to the regulatory environment and 46 per cent of your respondents felt that regulation had worsened over the past 12 months, and you go on to talk about investing more in communication with firms. Would you like to elaborate a bit more on that? Mr Ehmann: Yes I think delivery and communication are interlinked, so if you will excuse me I will touch briefly on delivery. If I contextualise the point that you have just made which is the one per cent that recognised any change in the first year of the Administrative Burdens Reduction and the simplification plans, if you look at the two other countries - and we may come on to international comparisons - ahead of us in this process, the National Audit Office of Denmark remarked in their analysis of their process that from an examination conducted by the chamber of commerce in Denmark in December 2006 it happened that eight out of ten businesses were of the opinion that the administrative burden in 2006 had been largely the same as in 2004. The report goes on to give quite a mixed picture and a slightly negative one about what the process achieved. In this process, eight out of ten said it had not improved. Our analysis says that half of businesses were saying it has gotten worse, so I think the picture is more stark, and we must recognise that, otherwise we will end up with results similar to Denmark's, if not worse. I think the ways to fix that are very wide and the reason I touched on delivery as an important point is because, clearly, if delivery is not significant and is not targeted in the right areas that business would want to see it in, then communication by its very nature will never fix that problem. That would be propaganda of a sort so that would be very difficult to do. I think that more effort does need to be channelled into making sure, as I touched on earlier, that things like the Simplification Portal and much more of the work of the simplification plans and the agenda for reducing administrative burdens relates to genuine suggestions by businesses themselves. That would to some degree counter the problem that we face. I think the second point is about where there are areas of significant achievement making sure that that is communicated to the correct audiences. The point that I raised in our written submission was that whilst I do not expect, and certainly our members would not expect government to be able to communicate directly with every business in this country in an effective and bespoke way, there are business organisations like ourselves, and indeed many more out there, trade associations, and it would not be difficult to understand the demographics of their membership and to therefore create not perhaps completely bespoke packages of what had been delivered but something with a lot more resonance for their membership. I quoted in our written evidence that we have been given a document with about ten regulatory improvements, including the deregulation of beryllium injections. I am sure our members at some level are interested in that but I imagine less so professionally! I think the issue was it came with very little understanding of our overall membership, and more effort needs to go into that. Q14 Gordon Banks: I wanted to pick up on the point that you have just finished making. I come from a construction background and having run my own business for 19 years, there needs to be a much more focused approach to particular industrial sectors. In my business for instance, and the analogy I always use, I do not need to know how to dispose of fridges because of some new EU regulation but I need to know of the issues that are relevant to me in the construction sector, and that is the real challenge, and it probably goes back to what I was saying in the first part of the questions, yes, we can communicate through organisations like yourselves but how do we get this information through to the people who are not in organisations such as yourselves? In the government portal that we use - or some people use - do you not think it would be much better if there were industrial sectors within that portal so that there is a certain amount of regulation which is obviously relevant to everyone, health and safety stuff et cetera, but there is a lot of specific stuff, and would it not be better if there were sectors where the construction industry could go, where the motor retail industry could go, where the fridge disposer could go to look at particular regulations that are relevant to their individual businesses? Mr Fell: Jumping in slightly, I would say perhaps the portal is not the best place to do it but I absolutely endorse the sentiment about packaging up, if you like, deregulatory measures to say, "How should this make an impact for you? If I am in a given sector employing a certain amount of people then these are the things that should be making a difference to your lives and helping you out." If they communicated it in that way rather than a broad brush message that has some relevance to some people and not to others, I think that would be a much more effective way of getting across the messages and making sure that people actually take up the changes in a beneficial way. Mr Ehmann: I think that is absolutely correct. Whilst you are absolutely right in saying that there will be businesses out there that are not part of a membership organisation or do not have some kind of representative who you can channel communication through, if you look at some of the questions we asked back last year, apart from a general question about whether regulation is getting better or worse - we asked about three of the initiatives that the BRE seemed most proud about having achieved, and one which strikes me (it is quite wide ranging anyway) is the abolition of the requirement in certain circumstances for an annual general meeting. The recognition rate amongst our membership, of which 73 per cent are SMEs, was only 43 per cent. I agree there is a question about what you do about people who are not members of membership organisations, but there is still a problem with people who are members of membership organisations, so I would argue let us tackle that first because it is an easier one to win. Ms Lowe: Just a quick point to add about making the information more sectorally based, there is some best practice which came out of Hampton on things like the retail enforcement pilot and I think there could potentially be scope to develop that line of thinking where you have got the simplification of a process. In enforcement there is a communication job to be done in there as well and also cross-cutting across all local authority boundaries looking specifically at sectors. John Hemming: I will start with a declaration of interest. I have been in business on my own account for 24 years during which period I have in fact been a member of a chamber of commerce but I am not longer; I resigned a couple of years ago, but I am still, I believe, a member of the Federation of Small Business. That is I think I have sent off the cheque! Q15 Chairman: It is in the post. Mr Davenport: Let me just check that! Q16 John Hemming: I intend to be a member of the Federation of Small Businesses, let us put it that way. We have all encountered regulation generating organisations and you have that on one side and on the other side you have attempts going on to simplify regulation. One of the eternal problems of politics is measurement and how you measure what you are trying to achieve, so the question as to whether the chambers of commerce have another mechanism or whatever. We have the Standard Cost Model which focuses on the administrative burdens. Okay, it is an easy target but it does at least give you something definable. Shall we start with Matthew as he is nodding, what is your view in respect of the Standard Cost Model and whether it is worth looking beyond administrative cost or whether we should focus on administrative cost because although we have only hit one per cent so far it is a sort of deliverable? Mr Fell: I think the Standard Cost Model on simplification plans goes to the original game in town, which is tackling that administrative burden, and clearly that was an important step. I think when we all gave a broad endorsement to that approach, we did so knowing that the Standard Cost Model did come with its faults but it was perhaps as good a tool as there was of providing an indicative cost about the areas to tackle. If you pick a department that we are pretty familiar with, the Department for Business, Enterprise and Regulatory Reform, and you look at their simplification plans, then the big ticket items that it flags up suggests that they sit in employment, in company law, and in consumer law, and for us at least that would feel about right, so I think it is a useful tool for pointing in the right direction and providing indicative costs of the problems to tackle. That gets at the administrative burden and where I think increasingly the focus should shift is on that whole policy burden and the flow of new regulation as opposed to chipping away at the stock. I think there is quite an exciting proposal that came out of the Budget to look at the notion of regulatory budgets, which might be more effective in looking at some of those flow issues, and on the policy burden not just the administrative side. Q17 John Hemming: You mention the issue of employment law and cases like Ivan v Wand (?) obviously have a substantial impact. Is that something that you have thought of? Mr Fell: I think at the end of the day these are all tools that we use to help us make informed decisions and I do not think that we should ever get to a situation where, whatever measurement tool we use or approach to costing, it completely overrides making an informed decision, but it helps us make decisions and then it is for the elected Government of the day to decide how they go on a particular policy choice. I think if there are more tools out there that help us make informed decisions --- Mr Ehmann: I think Matthew is broadly correct. I think there is a question about whether we would, looking at it again, have chosen this process today? I am slightly undecided on that particular issue and I think again not to want to use our other European colleagues but the Dutch Audit Office said their government selection of reduction measures should concentrate on the legislation that creates the greatest burden, that is not perhaps surprising, but they found that information from the baseline measurements can distort the actual burden, since the measurements are based on a series of unrealistic assumptions. Enterprises find those laws and rules that they do not understand to be the most burdensome. It really goes back to the key point; the process is not fundamentally flawed but what needs to happen is a closer calibration between the process and genuine business suggestions for how to improve it. If I can briefly say, we submitted, through that same portal again, about 35 suggestions last year and from an IoD perspective, certainly wholeheartedly, none of those were adopted. It touches on Lorely's earlier comment which is when we confronted Government with this - and these were suggestions on behalf of small and medium-sized businesses, which was the purpose of the portal - one answer that was given to us was that GlaxoSmithKline had good success with this process. I think that shows perhaps a misunderstanding of the small business aspect but also about how we actually elicit genuine suggestions from members in an interesting and innovative way. Ms Lowe: From the outset, we have expressed reservations about the Standard Cost Model, particularly about the methodology. Q18 John Hemming: What aspects of the methodology? Ms Lowe: Yes and the way that it calculates cost. Q19 John Hemming: In particular, what is the reservation about the way it calculates cost? Ms Lowe: The Standard Cost Model essentially takes three different companies as examples, takes a median, and assesses the cost of the regulation from the data from three firms and, if it is 20 per cent either way, it will measure that. It is unlikely that just three businesses are going to exhibit the sort of costs that meet that criteria. For example, in the UK you have got ten different sectors of industry, six different business size bands, and that would create about 60 cells of data to start to analyse. If you get into that kind of methodology then you are creating a flawed methodology for the future. One of the problems, and we have set all this out in Deregulation or Déjà Vu which we have sent to the Committee, is there was a rush to endorse the Dutch model as the Standard Cost Model and then various other mechanisms that have been deployed, without properly looking at other systems or bringing to bear more rigour, as we have said, in the impact assessment process that we already had going in the UK, so I think that was a mistake and, as we have said in a number of our reports and documentation, that is one of the reasons we have problems with that and about the quality of UK impact assessments across the board. Mr Davenport: I fully endorse what Sally just said. The fundamental thing about Hampton was that the Dutch model was the model. Dutch structures internally are not the same as British structures, and yet we now seem to almost be in a position where Hampton is the mantra that we must not touch, when I think that really we should be looking at the whole Hampton principle in detail and examining where we can improve it and where we can actually deliver to the end user a more efficient and more concise process so that the end user can understand it more easily and use it more effectively. There is no point in having loads and loads of legislation if it is so complex and unwieldy that the end user cannot understand what he is supposed to be doing, and that is counterproductive in itself, and you end up with the end user disengaging completely and that has its own dangers. I think that is one of the foci that should be concentrated on. The detail is much more important than the overarching scheme. Q20 John Hemming: We are now about halfway through the Administrative Burdens Reduction Programme and perhaps have seen a one per cent reduction on the Standard Cost Model. Is it best, steady as you go, to keep going down the same route or should we be revising the target or aiming to revise the Standard Cost Model? Mr Davenport: I think BRE is already having its problems in trying to achieve this 25 per cent on 25 per cent on 25 per cent. It is starting so scrabble round a little bit to see where it can be doing things that will comply with that model. I think if we are going to make it work for the next half, it is a matter of refining it, improving it, looking at the whole process again to see whether there can be improvements in other areas to make the whole thing more efficient and improve that one per cent. Ms Lowe: We are in the Admin Burdens exercise, as you say, and I think it has merit in terms of continuing with that exercise, but I do not think, as we have said, with the impact that it is achieving that it is really setting out to achieve the benefits for British business that we feel we need it to do. One other thing to say on the Standard Cost Model is that we have also had problems with the 'business as usual' exercise which was built into that model, which I do not think for a number of reasons was the right way to approach it, because effectively it managed to shave off a large percentage of the overall figure in ways that we would not have endorsed. Mr Ehmann: I think the starting point is that the lessons that we can take from the Dutch and the Danish show that we cannot do exactly what they did because I do not think that will produce a satisfactory end result in 2010, so I think we to change things and up the ante in some areas. Just to contribute a few which I have mentioned earlier and some of my colleagues have as well, HMRC must be involved fundamentally. I do not think we can achieve valuable change without that. We need to look at whether simplification plans are too heavily backloaded towards 2010. If they are, then I think there is a genuine problem in trying to convey to businesses that this is a serious agenda over the next few years and it will be very difficult for business organisations like ourselves to be supportive of the process if in a year's time, if we go back (which we will) and ask a similar question, we still do not notice any improvement amongst our members' perceptions, so we must start delivering more quickly. As I said earlier and I will not labour the point, we have got to communicate much more effectively and in a much more bespoke way. We have got to elicit business suggestions rather than sit within government and devise a good way of reducing burdens. The other thing is we need to plan for beyond 2010 for this to be credible, otherwise there is a feeling that it is perhaps government holding in its stomach to reach 2010 and afterwards there is a chance that all sorts of things could befall us. The last thing I would contribute, which seems to me to be the elephant in the room, is some sort of appraisal of culture in the Civil Service. By that do not mean in an ephemeral sense; I mean what is the incentivisation structure and how does one progress within the Civil Service in relation to regulation and deregulation and the better regulation option. Q21 John Hemming: That comes to the difficulty of measuring quality which of course you cannot do. What you are saying is not to change the 25 per cent target but to do things earlier that are planned for doing later? Mr Ehmann: I am saying do something slightly differently and I am saying do some other things which are not being done as well. Q22 John Hemming: Okay, Matthew? Mr Fell: My starting point would be: this is the game in town so we should not rip it up and start again. It has at least started to change culture in that there are now teams of officials working to identify ways of simplifying legislation to get them to that 25 per cent target, and quite clearly some departments will get there and some might not, but everyone is pointing in the right direction. The challenge for me lies in that this is meant to be a net reduction and I think there has perhaps been an overfocus on looking at the existing stock of legislation, and coming on to some of Alexander's points about what is coming down the pipe, I think we need a little more emphasis on that so we do achieve that net reduction. I think that will be useful going forward if that is where more of the emphasis was put. Q23 John Hemming: So summing it up, put on the foot on the accelerator; go roughly in the same direction; but have somewhere to go after 2010? Mr Ehmann: Yes. Mr Fell: That is good for me. Q24 Judy Mallaber: The BCC has argued for better linkage between EU and UK impact assessment processes. Do you think that our emphasis should really be on what you would regard as the burden of EU regulation and improving EU impact assessments rather than the current emphasis on the Administrative Burdens Reduction Programme and the 25 per cent target? Would you like to switch that emphasis based on your statement that 71 per cent of your Burdens Barometer figure is EU-sourced legislation? Ms Lowe: It is true that a large proportion of the cumulative burden is EU-derived. What we would like to see from the UK's perspective is the UK Government pushing much harder at a much, much earlier stage to ensure there is a much better link in establishing what the impact assessment of what might become a Directive is going to be. I think that having a partial impact assessment at that early stage, three years before we see a Directive for example, could yield much better results in terms of stemming that flow of EU-derived regulation. Out of that 71 per cent, the number of regulations that come from the EU, there are actually more in number but fewer of greater value within that number, so we need to address that as well. It is essentially about looking at the UK Government pressing much harder at the earliest possible stage. That is the most important point to be made. We are not at the moment; we are very much focused on implementation and implementation deadlines and timings and dates as a UK Government rather than being bolder and requiring better analysis at the earliest possible point. That can bring the added benefit of better data to draw from when the proposals are being considered at an EU level, which has to be a benefit in terms of having better quality policy-making and more informed policy-making. Q25 Judy Mallaber: Can you give some examples of some of the areas that you are most concerned about in terms of EU regulation? Ms Lowe: Assuming that members of the Committee will have received this poster which has all of the regulations listed in the Burdens Barometer and, as I say, it is marked which ones are EU-derived and which ones are not, I could not talk to individual ones out of that list because there are so many, but I can certainly quote from a number of --- Q26 Chairman: Can you not give priorities to which ones you think are the most burdensome? Ms Lowe: The most burdensome for small and medium-sized businesses tend to be the ones on employment-related issues. Data protection is another very big burden on business. The number of dangerous substances, sale and control of substances and hazardous substances areas are some of the others. Judy Mallaber: We are coming on to discussing employment and health and safety so we can maybe pursue that further. Q27 Lorely Burt: Just on that point, we were talking about getting in there before EU regulations come down the line; in your view is there any truth to the view that once we have got the EU regulation, we are not doing industry in Britain any favours by the way that we are then subsequently interpreting those regulations? You hear the express 'gold-plating' and something I am fond of saying is, "Why are we doing it to ourselves?" Is that your view? Mr Ehmann: I cannot talk about whether it is symptomatic of a widespread problem but I certainly have been involved with some work that has been going on both at a European level and domestic level here on an obligation called the Intrastat where there is latitude to discuss potential simplification of this process of reporting imports and exports of businesses. What we found when we looked at this in detail was that the requirements laid out by Europe were in fact added to by this Government, and in the pursuit of simplification in Europe it puts one in a very difficult circumstances for the Government to argue for additional simplifications that are pan-European if it has not taken full effect of the ability domestically it has to do so. I can certainly say in that circumstance, yes, there was, but whether that is symptomatic of widespread gold plating I do not know because, as Lord Davidson's review suggested, it was not as widespread as previously thought. Q28 Judy Mallaber: So would you put more emphasis on getting in at an earlier stage with EU regulation rather than the current programme that we have? Do you think that the emphasis should shift? Ms Lowe: Yes. Q29 Judy Mallaber: Is it realistic, as you have suggested, that Member States should be required to do impact assessments before the Commission get involved? Ms Lowe: Partial impact assessments. There should be a consultation and an estimate of burdens at that earliest possible stage. It would not be easy to carry out a detailed impact assessment at that point, but a partial impact assessment in looking at the potential impacts on business could be done at that earlier stage. Q30 Judy Mallaber: And would your aim be to stop those regulations or just to look at how they are implemented? Ms Lowe: No, to enable the policymakers and the politicians taking that piece of proposed legislation forward with a more informed view of what the impacts would be and then, if the impacts and costs outweigh the benefits, then that should be subject to scrutiny. Q31 Judy Mallaber: Are there currently any pan-European initiatives on this or is it very much just left to the Commission and then the governments to look at it after? Are there any pan-European initiatives that impact on business? Ms Lowe: I would have to come back to you on that. I cannot think of any off the top of my head. Q32 Judy Mallaber: Moving on to another aspect, you were a bit sceptical about the Dutch and Danish experiences, but from the links between you and equivalent industry bodies overseas, are there any examples of organisations similar to those that we have operating that do things better or do things differently that we can learn from? Mr Ehmann: From the Institute of Directors' point of view, purely from the conversations I have had with other business organisations - and I am not talking about formal links - I have not learned of any other best practice but, as I said, I think there is a question about perhaps not just business organisations being aware of foreign contemporaries but also foreign governments being aware of the outcomes that come from processes. What I find interesting about the Dutch and Danish examples is that we embarked on a process that was not even partially evaluated at that stage and the feedback from businesses, as I dictated earlier, has not been as favourable as one might imagine in those countries. I think that is particularly important not just for UK business but also for us ensuring the productivity of Europe as a whole, because clearly Europe and Germany, for example, are embarking on very similar processes too. If this process as currently constructed is not going to deliver results we should surely pass on that learning too? Q33 Judy Mallaber: Do you gather information on what is happening in other countries and do you talk to your equivalent organisations about it? Mr Fell: My instinct is that a lot of the debate has focused this morning on how we improve the UK model and how the UK Better Regulation agenda could be enhanced, and it is my experience that we are actually a little bit ahead of the curve compared to Europe. The CBI certainly receive frequent visits from our sister federations who are quite keen to learn about what is going on in the UK and apply that both in their countries and indeed look to promote the agenda at an EU-wide level, so it is certainly not perfect here but my sense is that we are perhaps ahead of the curve as far as European countries are concerned. Q34 Chairman: By that do you mean in terms of the direction in which we are moving or do you mean, going back to Ms Lowe's Burdens Barometer, that we have in net terms fewer burdens? Mr Fell: I mean by use of some of the tools such as impact assessments, whether it was simplification programmes or common commencement dates, all the things that have been introduced in the last three years, I think we are perhaps ahead of the game in deploying some of those. Quite clearly, some of the results have still to come through from that but I think others are keen to learn from us and draw on our experiences rather than there being people out there who are light years ahead of where we are on this agenda. Q35 Judy Mallaber: What about the US? Do we have any knowledge about how the Office of Information and Regulatory Affairs operates? Mr Fell: I could very happily come back to you with more detail later on that. I think the US, contrasted to Europe, is perhaps the one area where perceptions that there are lessons to be learned from that. Q36 Judy Mallaber: Nothing you wish to share with us at the moment? Mr Davenport: Coming back to Europe, we have a permanent office in Brussels and we are a key member in ESBA, which is the European Small Business Association. We are seeing European legislation now starting to come through, albeit in its initial stages, on regulatory reform, so we are a little bit concerned that we could end up with regulatory reform on regulatory reform if we are not careful, Europe doing one thing to improve things and then the legislation comes over here and it gets churned again. There are some concerns about that at the moment, but it is early days. Q37 Chairman: Comments about the US from any or all of you would be extremely interesting. Ms Lowe: Could I just add that we are members of Eurotrom and we are managing a number of Europe projects across our European member chambers on this issue and I would slightly take issue with that. I think we have good mechanisms and good processes in the UK which serve as a good model, but ultimately, going back to the root of that 71 per cent, it is important as well to identify and head off potentially burdensome regulation at the very start of the process. That is one point where pressure could be brought to bear more. Mr Ehmann: Unfortunately, I do not have anything additional to offer on Europe but what I would say is that there is a lot of best practice floating around in the UK in terms of other suggestions that are made abroad. Q38 Dr Naysmith: Could I first of all apologise for arriving half an hour late? It is always a dangerous thing to do, to come in in the middle of a hearing like this and then start asking questions, so if I start asking something that has already been covered will the Chairman or you please tell me to shut up and say, "We have done that", and we will move on to something else. I am going to move on to talk about the scrutiny of regulation, but before I do can I pick up a point about gold-plating that was mentioned a few minutes ago? Every time I meet a business group they tell me that things are different in other countries; we gold-plate and they in Italy and France and Spain do not follow the legislation. You mentioned, Mr Ehmann, just a minute or two ago a study that had been done; it is probably the BRE one of a couple of years ago, which claimed to have looked at it fairly rigorously but that it really is insignificant, the amount of gold-plating that goes on. Is that true or was that playing down what is happening, or do we need a study that looks at it properly and sorts that out? Mr Ehmann: I think it is an issue on which we at the Institute of Directors still do not have a completely bottomed-out view on at the moment. The BRE's report, as you rightly noted, by Lord Davidson suggested that the extent of the problem was limited, if at all existent, in the UK. What I would say is that, from the few pieces of regulation that I in my role had to deeply get involved with, I found one example in the last year from only dealing with a few in quite regular detail and that was, as I say, this Intrastat reporting requirement, so whether that is enough to launch a wider inquiry I do not know. I think there is a wider question about whether the UK Government has a culture of adding to, and I think that is a very serious allegation. If we are adding to the obligation that comes out of Europe that is a pretty serious problem and perhaps we need to look at that. Q39 Dr Naysmith: Would that not qualify as gold-plating? Mr Ehmann: Yes, it would indeed. Q40 Dr Naysmith: It is fairly easy to find out whether that is true or not. Mr Ehmann: It is. One of the things that you mentioned, and certainly we will have heard from business owners, is something that is slightly different, which is about whether other European nations are fulfilling their obligations. I think that is a wider problem and a more difficult problem to measure, but if there are widespread examples of gold-plating in its true sense that is quite a serious issue which needs investigation. Q41 Dr Naysmith: I am supposed to ask questions about the scrutiny of regulation. As you know, lots of bodies have worked with regulation scrutiny in the UK - the Better Regulation Executive, the Risk and Regulatory Advisory Council, the Cabinet-level Panel for Regulatory Accountability, as well as this Committee, and I suppose the Public Accounts Committee has been poking its nose in recently as well. Do we have the right structure for scrutinising regulation in the UK in the light of all these different bodies? Mr Ehmann: I will start with a very short one, if I may. We absolutely welcome the amount of scrutiny that is going on. Accepting that there may be best realms for certain types of scrutiny and better realms for others, it is excellent to see that there is so much interest and energy invested in scrutinising this agenda, so I would not discourage that in any sense. I think clarity about which elements are being looked at is critical though. Q42 Dr Naysmith: Was it a good idea to transfer the BRE from the Cabinet Office to BERR? Was that a good move? Mr Ehmann: I cannot see that its move has affected its ability to do its job in the short term. There was a potential question about whether a department, seen in a different light from that of the Cabinet Office, would be able to extend across government in the way that was desired, but I think the jury is still out on that and we have not seen any problems to date. Q43 Dr Naysmith: Was there any evidence of that happening before in a meaningful way that is not happening now? Mr Davenport: There was some evidence of friction between BERR and the BRE and it was starting to become confrontational, and I think it was a good move that they moved them together because they are working to the same end at the end of the day. Albeit that one is scrutinising the other, they are still working to the same common end and I think they have kissed and made up now. Things are a little better. Q44 Dr Naysmith: Have you anything to add, Mr Fell? Mr Fell: On the scrutiny point, I would endorse what Alexander has said about the need for greater clarity in that. As we have had a number of changes in some of the bodies as we have gone from a Better Regulation Task Force to a Better Regulation Commission and a Risk and Regulatory Advisory Council, I think there is a perception there that the scrutiny involved in that has diluted slightly, so I think there is a big onus on the Better Regulation Executive to play a big scrutiny role, and I think there is a need for transparency about that scrutiny to add to confidence in the process and that will help to tackle some of the perception issues we have been talking about this morning. That would be my take on where the scrutiny role sits at the moment. Ms Lowe: I would broadly agree that I do not think we have any appetite for any different structures from what we have at the moment. We have not noticed anything appreciably different or falling off in the way of the BRE's effectiveness since they went into BERR, but I think there is still a very important point to make about the lack of measurable benefits from the structure, but that is not to say that merging all of those structures into one is going to produce different benefits. It is about ensuring that BRE is operating effectively within the heart of Government and is providing that very robust scrutiny role. Q45 Dr Naysmith: I am sure you have mentioned earlier this morning the health and safety and employment regulation and the Government and BRE are looking at both of these areas. Do you have any specific suggestions on how to improve those areas without lowering standards? I suppose we had better remember that health and safety is probably the most misunderstood and the most unpopular body that is responsible for regulation. Mr Davenport: From the FSB's point of view, we did a survey on that and found that 72 per cent of businesses found health and safety administrative requirements more bureaucratic, and some of the bureaucracy that is in that legislation can be slightly farcical when you are talking about businesses of one or two people, things like fire doors, where you have signs over fire doors and it is the only door in the building so it is difficult to get out anywhere else, silly things like that. Q46 Dr Naysmith: But was it not also found that when things were properly explained in clear English people understood and accepted it? Mr Davenport: Absolutely. Q47 Dr Naysmith: And the amount of time they had to spend on it vanished? Mr Davenport: Yes, and also the Health and Safety Executive come round a lot more. Funnily enough, in my business we had a survey only recently and they were saying to me that on the estate that we are on, which is something like 40 separate companies, there were only two question marks on the entire estate, and they say that small businesses tend to be much more on board because the business owner is living and working in the building so he does not want to injure himself, so he is going to get the Act correct. Mainly health and safety is common sense and it tends to be larger organisations - I have a colleague who is in the construction industry - where things become a problem because building things is a risky business, and that is where the legislation needed to be concentrated more than on electronics businesses or, in my case, high precision engineering businesses. Q48 Dr Naysmith: So you agree with me that explaining things better and making the regulations clear makes a big difference? We do not want to lower standards in lots of areas, and certainly in the building industry standards have improved immensely in the last ten years or so. Mr Davenport: We mentioned this before. It is communication which is what we are talking about. There used to be a resistance to talking to the official that comes through the door, but they are beginning to have some training, although I think that could be improved, and if they are not seen to be enemies but are seen to be assisting then a lot of those comments will disappear. Q49 Dr Naysmith: Mr Fell, do you have anything to add? Mr Fell: I would agree with exactly your starting point. Quite clearly at the end of the day business has got very much the same interests here, as Clive said. Everyone wants fit and healthy people at work. That has got to be the starting point. I think where the frustration comes in is how you go about that. HSE, in their simplification plans, I think, have already delivered something like a 50 per cent reduction in the form-filling aspects of what they do and I think that will help to tackle a lot of frustrations there. The other bit about it is getting the touch points right, so on the inspection and enforcement regimes, if we can get right a lot of some of these ideas around data sharing so that they are not providing the same bit of information several times over or to different agencies or bodies, I think that will be a real help in getting a more positive level of engagement with this agenda. Perhaps some of the work that is going on in the retail enforcement pilot approach could be a useful model there. Q50 Dr Naysmith: How about employment regulations as well as health and safety regulations? Some of the employment regulations are unpopular because they inevitably increase costs as part of the regulation. Mr Fell: I think that is right, but again you can help tackle some of the frustration aspects of employment legislation. With the national minimum wage, for example, when it was introduced, I think a number of sectors from the outset (and it remains the case today) found it difficult to pay that absolute amount but it has been introduced at a very pragmatic level and certainly is quite simple to operate as a process. Contrast that with the Working Time Directive, which I think firms would tell you administratively is, quite frankly, a bit of a nightmare. We are talking about examples of EU best practice, definitions of autonomous workers, for example, to whom the directive should apply, so I think there are two good contrasts there in probably the most well known pieces of employment legislation in recent times in terms of the approach that is taken to them and the frustration factor that companies have with them, albeit they might take issue with the cost basis, and if we can tackle the frustration aspect that would certainly help. Q51 Judy Mallaber: The CBI in its report talked about new employment rights adding £37 million to business costs and the FSB in the piece that they have given us go into all the different employment rights. Are there any of those employment rights that either organisation or the other organisations would want to get rid of, or is it just around administration? I would prefer you to be up front and say if you are arguing to take any of those rights off the statute book. Ms Lowe: For us it would be impossible to make a case to remove any one piece of regulation. That is where the cumulative impact of argument comes from because our business members can very easily see what the underlying policy aim is of a lot of the employment legislation and what has come on board. One of the things that I think it is important to bring out, particularly with employment legislation now, is the fact that there is a shift and what adds to the frustration which Matthew was talking about is also when you get businesses who are doing much of the things that are being advocated and then they see more legislation coming in on the top of that, so that is back to the point about flow. We have picked up from survey work about small and medium sized businesses, with the right to request to return to work on a part-time basis, for example, substantial evidence to show that 90 per cent of those surveyed showed that the businesses are doing that for their employees and so you then get a very powerful argument against any more employment legislation in that area. I think that is quite an important policy point to make when the thinking is coming in around what new to do. Just very briefly on parliamentary scrutiny, when you look at the fact that 3,000 statutory instruments come through each year, many of them on very minor things, once again it is a cumulative point, that buried in there will be a number of very big things which have a lot of large impacts and stemming that flow is a very important part of the parliamentary scrutiny process, I would suggest. Mr Ehmann: If I may add something else, and it is also tied in with your previous question about best practice internationally, there is a question, perhaps not exclusively on employment law, about exemptions which was certainly raised in the Enterprise White Paper which came out recently, which is the extent to which we can exempt smaller businesses from some obligations. I think that is a detailed piece of work to do because, as has clearly been pointed out, some obligations legally and socially should be universal, I do not think there is any doubt about that, but there also is not any doubt that if you look at small business statistics over the last five or ten years you will see that there has been good growth in sole trader set-ups but that has not percolated through to growth of smaller, medium and larger sized enterprises in this country. I would argue, on behalf of what I hear from our members at least, that part of that is linked to a very distinct line about the regulatory obligations that one takes on when one has that first employee taken on. I am not necessarily espousing restricting regulatory requirements for a certain number of employees but what I would recognise is that the current system does have an effect on growth of businesses in this country. Q52 Judy Mallaber: What about the FSB? Are there areas which you would remove? Mr Davenport: I absolutely agree with what Alexander has said. I mentioned earlier that the level of burden on small businesses is six times larger than it is on larger businesses because it is one individual doing it and he has a large amount of paperwork to do, but it is important to try and encourage small businesses. Their first two years are when they are at their most frail but there is the next stage which often tends to be ignored and that is when they want to expand and they reach a point where they are often overstretched and lots of businesses which have been running for five or six years tend to fail because of the fact that they overstretch their resource or something like that. That is not the time to suddenly have large administrative burdens placed on them, at the point where they are just about to go from a very small, comparatively frail organisation to a more robust organisation, and it is important that we recognise that. The amount of finance that is available to start-up businesses is huge in relationship to expansion businesses. We also have an issue as far as businesses coming to retirement are concerned. Ninety-seven per cent of small businesses in Britain have owners over 55. That is a time bomb which is ticking away. What do we do with those small businesses? Do they just close? Do we leave them as they are and let them die on the vine? Do we encourage them to be sold to young entrepreneurs to start again? That affects what is happening to the burdens that are applied to those businesses because when someone is assessing a business, a bank or any finance house is assessing what is the cost that is going to be incurred on this business if it is purchased by this individual, that tends to constrain the movement and acquisition of businesses. Q53 Judy Mallaber: One of the areas that you particularly highlight and has been highlighted to me is around maternity rights. I was interested in whether any of your organisations in your overarching view of what is good for your membership have looked at both the skills gap as a constraint on future encouragement of your membership and its ability to expand in the economy and the relationship between that and these various pieces of legislation, given that a huge area where we are not using people's skills is amongst women. Certainly, as somebody who has both run a small organisation myself and now employs a small number of staff, I would do anything to keep my good trained staff and do things to assist them to remain or come back into my employment, and that is clearly a constraint on business and I wondered if you had done any analysis as organisations of how you reconcile what we need to do to retain and enhance people's skills and get more people involved in the work with these areas of what I can understand are quite burdensome to implement for a small organisation. Ms Lowe: The survey work that we have done shows that businesses are providing all types of flexible working to retain staff. Business owners that we surveyed said that they were operating flexible working not just for women with young children; if they did it they were doing it right across the board for everyone, because in small businesses you have relationships with everyone so that is very much how it was framed, but the first reason they were doing it was out of personal conviction, and staff retention was a very important part of that too. There was the belief in the fact that it was the right thing to do but also the fact that it was the best way of retaining good staff and having that commitment for the long term, as you say. Q54 John Hemming: There has been a debate about the over-judicalisation of government and there is a question in employment law as to whether we are seeing the same situation. I have employed people for over 20 years and some individuals still work for me whom I employed many years ago. About 15 years ago you would have had a quiet word with somebody but now you have to initiate a competency procedure. I wonder if the way in which the rights are enforced and the way the costs operate, and obviously the FSB have a very helpful service which I cannot use for my larger business because it is a larger business but I can with a smaller business --- do you have any comments on the over-judicalisation of employment law? Ms Lowe: Very often, to make things tidy, it has been a preference, particularly, I have to say, of large companies with large HR departments, for example, to have that certainty within the process and then that would require representatives and procedures. The flexibility and the informal nature of that has then been lost as it filters down the scale to smaller businesses employing smaller numbers of people. As you know, they will not necessarily have HR departments and have that advice and knowledge of procedures in-house, so I think there has been an element of that. In flexible working, with extending the right to request, for example, there is a procedure to be gone through and if you have never had anybody who has requested it before and you are not used to that then as a manager you have to get up to speed with that and employ that process. Mr Ehmann: I think flexibility in implementation is critical because no two businesses are the same in terms of size or the business they practise, so, as has been said earlier, if you can draw much more of a link with the common-sense objective of a policy and therefore a business is able to implement it in a way that suits them best, that will probably deliver much more of the result that you intend to achieve. The other thing I would just say is that the Institute of Directors also offer the advice service to any sized business as well. John Hemming: I have refused to join the IoD on a number of occasions. Chairman: We will move on. Some of this recent series of questions are not absolutely central to our inquiry but are of interest to members because it contextualises things. Mr Ehmann, you talked about the evidence that burdens can affect growth and I heard Mr Davenport's interesting observations there. If there is any comparative evidence that you can produce to show that other people do it better that would be extremely valuable to us. Can we move back to the BRE? Q55 Gordon Banks: I suppose what we have been hearing from you indirectly today is about your experiences of working with BRE, but directly what are your experiences of working with the BRE? We have talked about the business focus and how the move to the Cabinet Office was maybe a good step. How good has that been, or is the aspect of business still viewed as a necessary evil to complete the process that the BRE has got and not really as a partner? Does the BRE have the right people and is it organised in a way which is helpful to you, or is it organised in a way which is helpful to the BRE? I suppose you could go on and say, does it have enough new ideas, does it talk enough to organisations like yourselves? How can we expand on some of the issues that we have talked about, how the BRE can improve its communications processes, because we have been talking about some of these things over many meetings and it would be good to think of a focused way in which we could move the communications issue forward. Mr Fell: My experience and the CBI's experience of working with the BRE is that it is quite a positive working relationship. Quite clearly we engage with any number of government departments where they have business-based issues and will continue to do that. I think we would have a level of dialogue with BRE if we had a particular concern about something that was coming out that we think they could usefully on work from the inside to help raise awareness of any concerns or issues. I think they are quite happy to work with us on a relatively informal basis to say, "Are you aware of some changes that are coming out? What are your views on them?". I think that level of dialogue is pretty good and pretty healthy right across the piste, so, in terms of a working relationship with the department, that works quite effectively for us from a business association point of view. Quite clearly that may be different if you are an individual firm, for example, and particularly a smaller company. In terms of those communication channels that we have talked about this morning I think there is scope to do more on that front, but certainly from an organisation point of view, from the CBI's perspective, those channels are working quite well. Mr Ehmann: If I may add a couple of points directly to the questions you ask, on the whole the Better Regulation Executive has been extremely helpful and willing to assist. I think it is well resourced in the sense of the capacity it has amongst its staff to engage with us. I think they are very good on the whole. On the flip side I am not sure they are well enough resourced to do what they do today, let alone what we would like to see the agenda achieve and the activities that would be necessary. If I may add two other slightly more negative points, there is a lot of listening but the transference of that into tangible activity sometimes does not take place, and the last point is that I still feel the relationship is perhaps, speaking from the Institute of Directors' point of view, a little too much pull in the sense that the onus is very much on us to go to the BRE with what we want rather than the BRE coming to us a lot more proactively. Mr Davenport: I would completely endorse that section of Alexander's comments. It always seems to be that we go to them, not them coming to us. I think some of that was when they were in the Cabinet Office more than now. They are beginning to realise that engagement is the way forward because it gives them information as well. Q56 Gordon Banks: They will have to view you as a partner? Mr Davenport: Yes. Q57 Chairman: They did claim to us, Mr Davenport, that some of their officers have been out in the field working with some of your members. Has that been a positive experience? Mr Davenport: It has, yes. I take note of what Sally said about the Mitchell Leeman experience and the fact that he has moved on to another department. What I would say about that is that Mitchell's experience in the field is anecdotal within BERR. The information is still there. It is still being used. I remember when Mitchell was out in the field, so they are conscious of it. It is no bad thing and I think the more it happens the better for both organisations it will be, because it is a positive thing for business as well to understand how the Civil Service works and how the regulatory system works. It is always positive for both sides, I feel. Mr Ehmann: Sometimes I am under the impression that business organisations are being managed by the BRE rather than seen as a solution to the problem which they are looking to solve. I think maybe there is a little change in view that is necessary. Ms Lowe: We would say that the BRE is key to all this, to delivering regulatory reform. We would like to see greater political clout at the centre and greater levers that they can pull across the government departments so that we are seeing step changes in measurement and rigorous enforcement of impact assessments, as I have set out. I cannot really think of any great new ideas that have come out but there certainly has been partnership working operating effectively; we have very good dialogue, and also we have seen a lot of the key senior people, not just the inimitable Mr Leeman but also Jitinder and William Sargent were very visible and we have hosted across the chambers a number of roadshow events which have enabled a number of our businesses to meet and for them to get in front of businesses. Also, there have been across BERR a lot of shadow trips to businesses, which is all good, but I think you have to weigh it against the vast task that has to be done, so we need to keep that in perspective. I would say yes, it is a positive relationship and I think there is good dialogue, which has, I think, warmed up since they moved into BERR. Mr Fell: A thought that always occurs to me is that sometimes they have a bit of a tricky task, in a sense, in that a lot of their successes might be done behind closed doors if they have had a quiet word with colleagues in other departments. Perhaps it is sometimes not the best idea in the world to go trumpeting your success because the person you have had that success with might not be so keen to turn to you for advice next time out if you have then a big public fanfare about how you put them right on an issue. I think it is worth recognising that that is the nature of the work that they are engaged in and sometimes that is the way that they will operate. Q58 Chairman: HMRC claim to have made progress in making life easier for business by designing better forms and simpler returns. Should the BRE work more to share best practice with HMRC? Mr Ehmann: Absolutely, but I would go one stage further. I think the BRE needs to have as much of a stick as they have with any other department with HMRC, in fact perhaps more so. Mr Davenport: That would be a real culture change as far as HMRC is concerned. Mr Fell: We would endorse that view. You only need to look at the classic example of the tax handbook which has shot up by some 4,000 pages to be the longest tax code in the world in about the last seven or eight years, so the message back to HMRC is that all is not entirely well on that agenda. Q59 John Hemming: I come back to the measuring process again. Do you think the figures for savings stand up, such as the £800 million in savings claimed under the Departmental Simplification Plans to date? Mr Ehmann: There is a clear mismatch between that and the one per cent who feel that regulation has improved. If I might just say, I think the Armageddon scenario in 2010 is that government departments say they have achieved 25 per cent but business has noticed no change. In that circumstance I see the political will that exists on this agenda dissipating, I see businesses' engagement in the process completely diminished, and potentially we could have a list of new regulatory burdens that are all mounting post-2010 too, so no is the ultimate answer. Mr Fell: For me it would come back to the point about communicating the changes that have taken place. Employment legislation has figured quite high on our agenda today and a lot of the savings which are claimed in, for example, the BERR Simplification Plan are centred around 20 or 30 per cent take-up rates on employment guidance. I think that is where a real job of work needs to be done to make sure that those take-up rates are secured for the savings to be real. Ms Lowe: I support that, and I also think that business as usual has distorted that as well. Q60 John Hemming: The BRE is suggesting what to me is not a credible figure as the savings to business from scrapping the need for private company AGMs. Do you think it is a credible figure that people generally have saved £45 million by not having to have private company AGMs and is the abolition of the need for a company secretary having any effect? Mr Fell: This for me again is all about chipping away at the baseline burden. Where we are coming from on that is quite frankly that small businesses do not have huge amounts of shareholders, so the cost of holding an AGM is not immense to them in the first place, so it is a step in the right direction. I think it is about getting as many of these cumulative wins as we can. John Hemming: I have had a small company for a long time. We have not really had AGMs but we have documented the AGM. That is the standard practice. Dr Naysmith: That is right; I agree with that. That is the process. Q61 John Hemming: The process has been to document the fact that one occurred and get everyone to sign for it. Mr Ehmann: Can I add to that? I do not want to refer constantly to the Dutch and the Danish, but the Dutch did find in their conclusions that one of the reasons the reduction measures did not deliver everything they had hoped for was that enterprises did not always comply in full with the obligations that were abolished, which is essentially what you are saying, and that employers have retained certain administrative procedures for their own purposes even if there is no statutory obligation for them to do so. I think what some of those show is that unless you understand how businesses are operating on the ground and will operate there is no point engaging in a process of ticking figures here. Ms Lowe: If we were seeing substantial savings they would be reflected in things like our Burdens Barometer and at the moment they are not there. Q62 Chairman: But equally, if these figures are so nebulous, does it not raise questions about the accuracy of throwing out £66 million as your barometer? Ms Lowe: No, because the Burdens Barometer is based on impact assessments and the admin burdens exercise was based on the Standard Costs Model and we say that methodology is flawed. Q63 John Hemming: In the case of the private company AGM I am not sure that was ever deemed to be in contradiction of the 1983 Act or the 1986 Act, whichever it was. Mr Ehmann: Nonetheless, John, if only 43 per cent roughly speaking of our membership are aware of that change then ----- John Hemming: I was not aware of the change. Q64 Dr Naysmith: You are just in the process of destroying my reason for existence by saying what you are saying. I have been on this Committee for about seven or eight years and you might something like say, "Get a life, please", but we put through the changes to the fire safety regime and it was probably the biggest change and the biggest deregulationary reform that we have put through on this Committee. It was not the most controversial. The most controversial one was births, marriages and deaths registration which we eventually had to abandon because it was too controversial. The fire safety regime in 2007, in the summary of Departmental Simplification Plans, claimed £53 million in savings from scrapping the fire certificate regime as a result of the changes. Is that credible? The reason I ask is that, instead of sending out fire officers to investigate premises and the businesses having to pay for those investigations, nowadays it is more of a self-certification and there has been a big reduction in the number of visits required to premises, so that must somewhere register as a saving, certainly to larger businesses. Mr Fell: I would agree with that and I do not think on any of these measures we are saying they are a bad idea; I think we are saying they are a very good idea. From our perspective the costs are always going to be indicative of where burdens lie and if it helps to focus attention on some of these areas then that is a good thing, and I think that is a much more useful exercise than arguing about the exact pounds, shillings and pence that are attached to them. Ms Lowe: I am afraid I cannot agree with that. The Manchester Business School compiled this piece of work and it is the only effective mechanism for quantifying burden on business that exists. Over the years we have consistently asked the Government to take over the database the Manchester Business School holds and do it themselves but we have never been taken up on that offer. I would say that the fire safety regulation is a great example because it took six years, as you will well know, and was as a result of good old regulatory reform of the Act, and I get that to £67 million in savings. Q65 Dr Naysmith: Of course, some of the savings will be on the side of the Fire Service as well because they can now do other things. Ms Lowe: Which is a good win. Q66 Dr Naysmith: Yes. Mr Davenport: The big problem with all of these figures is that if there are figures in there which have a question mark on them, like the figures you were mentioning, it calls into question the whole thing and that is when it becomes a danger, because quite easily the whole thing can be completely disregarded because of one set of figures, and that is a concern. Mr Fell: I would entirely agree with that point about if they are wildly inaccurate then it discredits the entire operation. That was not at all what I was meaning though in saying if it feels in the right ball park and we will all be noticing if it is not and making noises about it. I think it is about making sure that the focus is pointing in the right direction. Mr Ehmann: I agree. I think the abolition of the fire certificate was given to us last year by the Better Regulation Executive and we wanted to use research about whether businesses noticed the change, and we thought it was unfair to just ask a simple question about has the regulation got better, worse or is it much the same, but also to ask about specifics and whether they noticed them. The removal of the requirement to have a fire certificate I think registered about 70 per cent recognition, so it was the best of the three that we asked about, but still you are talking about three in ten businesses not knowing about that, which I think is quite strange. What you did see in the follow-on question when you asked about these three issues that had had a change, "In light of that do you feel the Government is doing enough?", and whilst it was not one per cent it was significantly higher; it still was not a great figure, I must admit, was that on those three issues what it demonstrated was that businesses just had not really noticed those changes, and when you did explain it to them there was a higher recognition and approval of what the Government had been doing on this agenda. Mr Davenport: If I can come in there on a slightly different thing, I was involved with the Unfair Commercial Practices Directive which is one that is going through Parliament at the moment. That is going to remove 23 pieces of legislation but it is very difficult to tell a business that 23 pieces of legislation have been removed because they are not going to see it, and that is where the problem lies. It is about perception and making sure that any figures that are issued have logic to them. I listened to a programme that went out on the Birmingham network television only recently and they were saying about the amount of people that were sleeping rough, and we ended up with in the whole of Warwickshire there were two people sleeping rough. The reporter went round and within 20 minutes had totally blown the whole thing out of the water and it discredits the whole situation. I think exactly the same thing happened here. Q67 Dr Naysmith: The fire safety regime had, as I recall, something like 79 or 80 different overlapping regulations that were wrapped up into one, which was much simpler. Mr Davenport: Much simpler, yes, which is what UCPD is doing. Q68 Chairman: So despite the problems that you have identified this morning you would still all concur that Britain is a great place to do business in? Sure. We have kept you here for an hour and three-quarters and you have been very frank with your answers, for which we are extremely grateful. Is there anything you would like to add in conclusion? Mr Ehmann: I would simply leave the Committee with the remark (paraphrased) of David Arculus, which is that if all this process brings is government departments feeling somewhat better about the burden that is not what we are looking for here. Chairman: Can I thank the four of you very much for your attendance this morning and for your notes, and hopefully for some follow-up notes on the points we have pressed you on. If, during the course of this inquiry, other information comes your way that you think would be helpful please feel free to pass it on to us. Thank you very much.
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