Examination of Witnesses (Questions 1-19)
DEPARTMENT FOR
BUSINESS, ENTERPRISE
AND REGULATORY
REFORM AND
HM REVENUE AND
CUSTOMS
20 FEBRUARY 2008
Mr Tim Burr, Comptroller
and Auditor General, National Audit Office, and Mr Chris Shapcott,
Director, National Audit Office, gave evidence.
Ms Paula Diggle, Treasury
Officer of Accounts, HM Treasury, was in attendance.
REPORT BY THE COMPTROLLER AND AUDITOR
GENERAL
REDUCING THE COST OF COMPLYING WITH REGULATIONS:
THE DELIVERY OF THE ADMINISTRATIVE BURDENS REDUCTION PROGRAMME,
2007
Q1 Chairman: Good afternoon. We are considering
the delivery of the Administrative Burdens Reduction Programme,
2007.
Sir Brian Bender: As the Committee
knows, the Better Regulation Executive came into my new department
in the summer. We thought the committee would find it useful if
Stephen Banyard came, in view of the emphasis in this report on
HMRC as well as my own department.
Q2 Chairman: By way of introduction,
would you look at paragraph 8 of the report on page 6, which deals
with measuring administrative burdens, particularly the last bullet
point. Sir Brian, this sounds a most wonderful programme. Apparently,
we are going to save £17 billion and we are only going to
spend £35 million. Those figures are in the report. You have
already spent £17 million just on consultancy fees, so you
are not doing very well so far.
Sir Brian Bender: If I may, I
am going to ask the BRE themselves to deal with many of these
questions.
Q3 Chairman: Please pass the questions
on. We do not mind who answers them.
Mr Sargent: If I can address the
£17 million, that was a process by which we measured using
two external consultants, PwC and KPMG, over 20,000 pieces of
information that is required to be produced either to shareholders
or consumers or anybody else in the community across approximately
1,500 pieces of legislation. It was an incredibly elaborate and
detailed study right across the entire economy, which, given that
we are hoping to achieve, as you say, many billions of savings,
it was important to start with a credible baseline and an externally
validated one.
Q4 Chairman: It says here: "Other
departmental costs were either not systematically recorded or
not recorded at all". I think what leaps out of this report
is that we do not actually know what all this is costing.
Mr Sargent: If I can put the numbers
of people in context, at the height of the project, which would
have been from around about the end of 2005 through to the spring
of 2006, PwC had about 700 people involved and departments had
about 300 people involved, who were obviously setting about the
measurement work. That gives you some context. We obviously do
not have the internal costs directly, but these people are normally
involved with the day-to-day agenda.
Q5 Chairman: A lot of these ideas
came from the Dutch and Danish programmes. If you read this report
again, and it is mentioned also I think in paragraph 11, they
do not seem to have noticed much improvement. What worries me
is that if the Dutch and the Danes have not noticed much improvement,
will our own businesses notice much improvement?
Mr Sargent: It is a totally valid
and important point. We have the benefit of the fact that we have
come behind the Dutch and therefore can learn from the importance
of making sure that people realise what we are doing. That is
something very much we are building in now. In the 2007 plans,
[1]which
just happened a couple of months ago, was the beginning of where
we told people exactly what had been delivered as opposed to what
had been promised. In 2008 very much our agenda is to say to people
that this is what is happening, using the business groups as well
as various other techniques. If we do not successfully point out
to people what we are achieving, they will not notice it but those
things will have happened; the economy will have noticed.
Q6 Chairman: This is illustrative of
the point I am making on page 19, box 2, international comparison.
It is always very important: "The Board of Swedish Industry
and Commerce for Better Regulation measured the total cost of
regulation to a sample of businesses operating in different sectors
and presented the results in three categories—administrative
costs, policy costs and financial costs. These measurements demonstrated"—and
that is the point I have just made to you—"that the
administrative costs of complying with regulation are only a small
part of the total cost of regulation, and vary depending on the
business' size and sector". Above that in paragraph 2.21:
"There is, therefore, no guarantee that 25% reduction in
administrative burdens will lead to a noticeable change in the
resources that businesses devote to complying with regulation".
Does this not make the point I am trying to put to you?
Mr Sargent: I would be disappointed
if that was the case. If we take any examples that we have delivered
already, the Health and Safety Executive for example have done
away with half their forms. A number of things are actually already
happening that specifically lead to change. The challenge for
us is to make sure that people realise for example either by making
sure that they do not need advisers to do it for them or they
themselves discover they do not need that. I take another example:
the Health and Safety Executive publishes the short documents
it sends to 18 business groups at the moment—a convenience
store or a small haulage company—exactly what it is that
is expected of them. In the case for example when we talked to
a convenience store, we were told: "Now that I realise what
I have to do for health and safety, it is a lot easier than I
thought and in an hour I was able to get around my shop and work
out what it is I had to do". That is the sort of way I think
people are going about doing business, which hopefully will not
lead to that assumption.
Q7 Chairman: Nobody denies that if
you can make a form easier to understand, it does some good, but
it may not be what businesses are primarily worried about, Mr
Sargent. Read paragraph 11 where it says: "the NAO survey
showed that the administrative tasks covered in the measurement
exercises were not always cited by businesses as the most burdensome
aspects of complying with regulation. Businesses rated the following
activities as particularly burdensome: keeping up-to-date with
changes in existing regulations; the time it takes to go through
the whole process of complying; the lack of information about
which regulations apply; and finding information and guidance.
These are aspects of complying with regulation that businesses
find irritating ..." and not necessarily what you are dealing
with. I just wonder whether you are not dealing with the symptoms
of the problem rather than real causes. Rather than really cutting
regulations, what businesses I suspect want, you are just dealing
with the symptoms of the problem.
Mr Sargent: The report obviously
focuses on the administrative burdens of a project, which is only
one element of the work we are doing. The items that you have
identified in the NAO survey, which was very useful to us, just
reinforce the work that we are doing. For example, with regard
to keeping up to date, we made it clear to the departments that
guidance is actually an incredibly valuable and valid way of simplifying
things. If someone is able to get a document that says, "This
is what you have to do", that saves you time.
Q8 Chairman: You keep making this
point but I do not think you are really getting to grips with
the fundamental point that I am putting to you. What I am trying
to say to you, Mr Sargent, is that it may indeed be useful to
make a form easy to understand, but this is not the fundamental
problem that businesses are dealing with at the moment. The Dutch
and the Danish experience goes against you.
Mr Sargent: If we get away from
the form, which is where I was heading for, just to deal with
understanding the law and to be able to absorb the law as you
are supposed to do is where the guidance comes in. It is a personal
observation. Having two dates a year when new laws come in and
having an easy way of being told what they are is what business
is looking for. So they are looking for easy ways to be able to
be told what is required of them and that is where the guidance
comes in. The administrative burden is only one of a number of
projects.
Q9 Chairman: I do not think we are
getting very far. Other colleagues will try to chip away if they
wish. Sir Brian, I want to try and get out of you where and how
you are going to achieve this £17 billion. We read this in
paragraph 1.7, and it says: "potential for an estimated £16
billion increase in GDP". That is staggering. If you can
indeed achieve this kind of saving by just spending £35 million,
it would be an achievement which no government in history anywhere
in the world has ever delivered.
Sir Brian Bender: As Mr Sargent
said in his answer to your first question about the cost, clearly
the costs have not taken into account the staff costs across departments
in monitoring and applying this programme. At the end of 2007,
the Better Regulation Executive published a year 1 report on implementation
of this. It is a three year programme and certainly as far as
my own department is concerned, we are determined we will deliver
the full 25%, which is a significant part of the overall target.
The BRE certainly adopts an appropriately challenging approach
across all departments, including within BERR.
Q10 Chairman: I think a lot of this
so-called £16 billion saving or increase in GDP is due to
a broad estimate for improving productivity. Indeed in paragraph
1.7 it actually mentions the Government aim of improving UK productivity,
which we all share, but if you actually look at it in more detail
and, say, look in paragraph 1.5, it says, "A paper for the
May 2006 Oxford Review of Economic Policy also highlights that
there is no conclusive evidence on the correlation between the
level of regulation and productivity growth. It states, however,
that if regulation has had an impact on productivity growth, it
is through its `distorting effects on investment and innovation
rather than simply administrative costs'". I am not sure
that I have had a clear answer from you yet, Sir Brian or Mr Sargent,
as to how you get to this £16 billion. I suspect that it
is a very broad brush estimate based on the back of an envelope
estimate for improving productivity and the evidence is simply
not there to back this up.
Mr Sargent: The £16 billion
figure came from an independent group that worked this out, which
was the taskforce. [2]That
was not the Government's calculation. That was their starting
point.
Q11 Chairman: So nobody on this committee
needs to place any credence on it. Is that right?
Mr Sargent: No. At the moment
what we have said on the administrative burdens project is that
we believe that between ourselves and Revenue and Customs and
the rest of government departments we can achieve £4 billion.
That is the first significant part, dealing purely and simply
with administration costs which are easy to measure. There have
been a number of studies, including ones that we are beginning
to work on, to try to look at the link with productivity. You
can look at it technically: for example, there is a recent Dutch
one that identified that if we achieve the 25% in the UK, it will
lead to 0.9% of GDP in the case of the UK, and if we achieve what
the European Commission are looking to do with the same 25%, it
will be 1.5% across the EU. That is a technical Dutch study that
they have done. If I look at it from my point of view of running
a business and saving an hour here or saving a policeman's time
or a nurse's time, by definition that is an improvement in productivity,
whichever end of the scale you come at it. It is significant.
Q12 Phil Wilson: My first question
is to do with paragraph 2.10 of the report where the same sample
sizes for deciding the baselines are not really statistically
reliable. So how can you accurately measure reductions if the
figures based on the baseline are distinctly unreliable?
Mr Kohli: The way the standard
cost model works is that it asks a small number of businesses
how much time it takes them to comply and if you get a significant
discrepancy, it keeps doing observations. That is not going to
give you a statistically absolutely reliable number for each information
obligation you are measuring but across the board, it gives you
a pretty good sense of whether something is bigger or smaller.
As a result of that, we know that the two largest information
obligations in the UK are the requirement to furnish employment
particulars to new employees and the requirement to apply for
planning permission. Whether those numbers are actually £985
million or £940 million does not really matter. What matters
is that they are big numbers and that taking a quarter out or
taking one-third out is a good thing to do. We could have spent
a lot more money getting statistically reliable estimates on each
information obligation, but that would have been an enormous amount
of money and probably impossible to do, if I am really honest.
Q13 Phil Wilson: According to figure
9 on page 17, my understanding of it is that the Town and Country
Planning Act and Value Added Tax are the two areas of regulation
that have imposed the highest burden on business. What is being
done to reduce burdens in these two cases?
Mr Kohli: I can respond on the
Town and Country Planning Act. To date, there is a simple thing
that that they are doing. Under the current planning system, if
you apply for planning permission in different parts of the country,
you have to go through a different process. Those people who are
applying for planning permission have to learn that process each
time. Under the new regime, under the new system, what the Department
for Communities and Local Government has done in the last few
months is introduce a new planning portal, which is the same across
the country. It simplifies the processes by which you apply for
planning permission. That single measure delivers quite significant
savings, though it is not the end of the story for them. They
are also, as you know, putting a Bill through Parliament or Parliament
is considering a Bill which would make further simplifications
to the planning regime. I leave my colleague to answer about HMRC.
Mr Banyard: In the case of VAT,
we start with a VAT regime which in Europe is one of the most
efficient or business-friendly regimes there is. For example,
we have the highest VAT exemption rate there is. We have one of
the simplest VAT returns with a nine-box VAT return. The nature
of VAT is that because it is a transactional tax and applies at
every stage in the process, it is a burdensome tax to collect.
What we have tried to do is to work at every stage and try to
minimise the burden as far as we can. So for example VAT voluntary
disclosures is an area that businesses have told us is a burden
at the moment and they ask if we could look at those. We have
looked at VAT voluntary disclosures. We have looked at whether
we could move from a quarterly to an annual return basis for VAT.
Business have told us that actually they do not want to go for
that; they would prefer, in the main, to stay with quarterly.
So we have done an end-to-end review of VAT and worked with our
business consultative forums to see where we can take small changes.
Q14 Phil Wilson: I stay with you,
Mr Banyard, with another question. Why are you seeking to reduce
administrative burdens by just £358 million when your baseline
is £5.1 billion? It is only a reduction of 7%?
Mr Banyard: We started from a
lower baseline than, say, the Dutch, and so our administrative
burden is about 0.4% of GDP against the Dutch at 0.8%. We have
already done quite a lot of the things that the Dutch would have
done. When we came to set our targets, we talked to our external
advisory board made up of businessmen and accountants and we talked
also to the Danish tax authority that was a bit further forward
than we were. They both said that it would be better to look for
a more focused approach to targets, and on talking to the advisory
board, they said to us, "We would like you to target forms
and to take a reduction there. We would like you to look at your
audits and inspections and we have some irritants that we would
like to bring before you and work up a list". We took two
sets of targets. We have not covered the whole baseline because
they wanted us to focus on those particular areas but, as it happens,
we have been working on the non-targeted areas as well. So we
have actually achieved very significant savings in the part of
our baseline that is not targeted. Overall, we have currently
achieved a 6% reduction since 2006 across our whole baseline.
Q15 Phil Wilson: One last question:
the 25% target in that set across the board in the departments
and the agencies, is this the right approach or would it be better
to set different targets for each department depending on their
individual circumstances?
Mr Sargent: The approach we took
to try and do a common 25% was based on looking at experience
everywhere else in the world, trying to look at some sort of constant
and easy to communicate base target. The choice was made by Ministers,
having looked at the evidence and experience everywhere else and
felt it the best way to do it. What that then results in is that
different people have different speeds at which they can travel,
depending on whether the legislation or forms that need to be
changed, but the 25% felt to us like the best tactic and the NAO
confirmed and the World Bank with their auditing of the Dutch
process have confirmed that by sticking to nice straightforward
targets, it makes it much easier to focus people's minds, rather
than negotiating and working your way across departments. Simplicity
was what we were going for really.
Q16 Chairman: You referred to the
target of 25% across the aboard, Mr Sargent. Would you look at
paragraph 2.15, at the bottom of page 18, where it says: "The
targets are not based on calculations of the desired or achievable
level of reductions". Do they mean much?
Mr Sargent: They do because you
have to start somewhere. You have to set some sort of benchmark
and we felt that if we started with £20 billion and tried
to get rid of a significant amount of that, then that is a good
place to start; it means something in terms of—
Q17 Chairman: Yes, but they are not
based on calculations that are viable to achieve a level of reductions?
Mr Sargent: They are based on
the fact that we acknowledge and recognise that they are costs
in there that probably do not need to be in there and we are going
after—
Q18 Chairman: All this seems very
vague. There is nothing wrong with it but this is the Public Accounts
Committee and we really want to get to grips with the detail of
actually what is the reality going on. How much does it cost?
What are you recording? How much have you spent on consultants?
What are you going to say? So far, I have to say, Mr Sargent,
you have not filled us with confidence that you know what is going
on.
Mr Sargent: If I can focus on
the administration burdens project, we identified approximately
1400 laws, which was a very specific number, and 20,000 obligations.
We measured them, came up with specific costs, have requested
the departments to identify specific amounts of pound notes they
have to take out of that, given them a date by which they have
got to do it, asked them to publish each year what those plans
are and at the end of the second year tell us what they are doing
with regard to the first year. They have identified 741 in the
first 18 months. They have delivered 288. The costs that they
have identified so far and extracted from that is a net £800
million, which was net of anything that has been added since May
2005. I feel that is very specific.
Sir Brian Bender: May I chip in
from the point of view of my own department? We know from both
this data and from business that the areas that impose the most
costs and the most irritants are the ones identified here not
necessarily in this order: company law, employment law, consumer
law. Those are the areas, in consultation with business, that
we have focused on. In the case of the companies area, we had
the major legislation that Parliament passed in 2006. In the case
of employment law, we have been approaching it in two different
ways. One is simplification of guidance because of the burdens
that businesses tell us: the lack of clarity and simplicity imposed.
And the removal of the dispute resolution process that is contained
in the Bill currently before Parliament. In the case of consumer
law, we are doing a review across the piece. So we are focusing
via the 25% on the three areas that are of most concern to business
in the dialogue we have with them.
Q19 Keith Hill: This is all very
difficult, is it not, because I think like the Chairman and Mr
Wilson, I do not really believe in the database that we have before
us. I think it is all very, very dodgy. Let me allude to I think
the two paragraphs Mr Wilson drew your attention to. Firstly,
I think we do need to agree that we need to be extremely careful
about any cost estimates we bandy around in this discussion. If
you look at the way you describe the methodology for arriving
at what are imputed costs of regulation, all the time imputing
costs of regulation, the key paragraph is paragraph 2.5. Mr Kohli,
how many businesses were there in this small sample that you have
used?
Mr Kohli: There were 8,500 interviews
with businesses.
1 Note by witness: Simplification measures identified
in the 2007 Simplication Plans show that savings of £3.5
billion will be delivered to business by 2010. Back
2
The Better Regulation Taskford Report: Reducing Burdens, Regulation-less
is more: Reducing Burdens, Improving Outcomes (http://www.bre.gov.uk/upload/assets/www.
bre.gov.uk/lessismore.pdf). Back
| 
