Examination of Witnesses (Questions 20-39)
DEPARTMENT FOR
BUSINESS, ENTERPRISE
AND REGULATORY
REFORM AND
HM REVENUE AND
CUSTOMS
20 FEBRUARY 2008
Q20 Keith Hill: There were 8,500
interviews. Were these the same interviews as are used in all
of the tables that we have here? These are by Ipsos MORI?
Mr Kohli: No. There were two separate
exercises. There was an exercise that we conducted, which delivers
the estimates of the administrative burdens associated with different
forms of regulation. That was the one conducted by PricewaterhouseCooper
augmented by an exercise led by HMRC conducted by KPMG. On our
exercise there were 8,500 interviews with businesses asking them
specifically to tell us what the costs of particular legislative
requirements were. In addition to that, the National Audit Office
conducted an exercise to ask businesses perceptional questions
about how they feel about different types of regulation, and that
is the Ipsos MORI stuff that is referred to in the report.
Q21 Keith Hill: I want to come on
to that. Let me refer again to the paragraph that Mr Wilson drew
your attention to, paragraph 2.10 and specifically the observation:
"The small sample sizes and non-random sample selection mean
that the results should not be seen as representative in statistical
terms". What does that actually mean?
Mr Kohli: It is impossible to
say with certainty that the requirement to furnish employment
particulars costs £585 million, which is what our estimate
is, but it is possible to say that that estimate is indicative
of the likely cost. So it is extremely unlikely to be £150
million or £200 million; it is going to be somewhere in the
ballpark of £585 million. It is going to be about the same
as the requirement for businesses and other employers to conduct
a risk assessment on behalf of safety legislation. That estimate
comes out at about £480 million. I would not feel confident
saying that the employment particular requirement, which is a
bit higher than the risk assessment one, is definitely 20% higher.
It is not that level of confidence, but it is a level of confidence
that tells you that these are both big measures that cost hundreds
of millions of pounds.
Q22 Keith Hill: If you look at the
figure of £31 billion for total administrative costs, which
appears in paragraph 2.7, it would be impossible, absolutely impossible
literally, to offer a breakdown in the real world of where that
figure comes from. It is an extrapolation; it is absolutely not
a reflection of the real world burden of the administration of
regulation.
Mr Sargent: Let me give that breakdown.
We started with the fact that we had identified by the consultants
20,000 lines in a spreadsheet, and against each line there is
a specific requirement, so we get down to the particularly items:
you have to do this and give this information to that person,
to your employee. We then asked a group of business people, normally
six, seven and eight, to do this: how long does it take you; what
do you have to do; do you have to use a lawyer or can you do it
yourselves? For each one of those 20,000 items, we got down to
the specific item with business people, 77% of which were small
firms. We asked: how long does this take you? We put a cost against
that and then we multiplied that by the number of businesses that
that law affects, so if that law affected employment, and take
a million and a half employers, then if was £100, for example,
times one and a half million employers, and that got you to a
number. To get more specific than that—
Q23 Chairman: Mr Sargent, would you
mind me just saying that I do not understand a word of what you
are saying. You are just speaking in some extraordinary bureaucratic
speak. Try and express the answers in laymen's terms that will
make sense to us and to the public gallery behind you, unless
they are all civil servants!
Mr Sargent: If I can put it in
context, Mr Chairman, I have come into this from being a business
person. I have not been a bureaucrat or a civil servant. The manner
in which you go about looking at a problem, extracting information,
taking a form, asking six to eight people how long and costing
that out, is a very, very simple, unambiguous, clear way of going
about doing it and it results in a number. Whether that number
is 10% more or 10% less does not really matter, but what it tells
you the sort of ballpark of how much that is going to cost you.
That is as layman's language as I can get.
Q24 Keith Hill: Actually, was it
really seven or eight people that you went through this exercise
with?
Mr Sargent: It varied from item
to item.
Q25 Keith Hill: On each of the 20,000
you had seven or eight people?
Mr Sargent: It depended upon particular
items, whether they needed more or less, and where we could not
get clarity. In other words, if you ask the same six people how
much it costs and you got the same answer, it was likely that
that was going to be the right number. If you asked those six
people and you got six numbers that varied from £100 to £1,000,
they then went in and investigated further. But quite often most
businesses faced the same costs to do the same transaction, normally.
Q26 Keith Hill: That is perhaps rather
reassuring because most of the tables that we have in this report
are in the mind, are they not? They are perceptions of problems
for business people. They tell us what business people think,
but you are telling me that your database actually reflects practical
real time measurement of the time and resources spent, for example
informally.
Mr Sargent: The administration
burden thing is very physical and tangible and we have done exactly
what we have said. The NAO survey, which I find particularly useful,
then explores separate to that what it is that people are worried
about. People are worrying about how complex it is, how easy it
is to get a hold of.
Q27 Keith Hill: I find that particular
aspect extremely worrying.
Mr Sargent: Why?
Q28 Keith Hill: I will tell you why.
The fundamental problems is that business does not like regulation.
If you look, for example, at figure 3 on page 13, it shows, apart
somewhat grudging lip service to the principle of regulation,
a fairly deep scepticism across the board on the part of business
about regulation, and this is age old, is it not? This goes back
to when all those Liberal—and we have not got any Liberal
members on the committee with us at the moment—mill owners
were resisting that Tory factory legislation. It was the end of
the world as far as they were concerned. Is it not the instinct
of business to resent really regulation of any form?
Sir Brian Bender: That is why
this report and this exercise focuses on the costs of complying
with the regulation rather than the policy intent behind it. If
you look at Figure 16, then that identifies the sorts of irritants
that companies have, so they are not talking about whether they
like this environmental regulation or this employment regulation.
They are saying the things that really they find burdensome are
things like: having to keep up to date, the length of time it
takes to go through it, finding information, competing the paperwork.
That is what this exercise is trying to achieve.
Q29 Keith Hill: Sir Brian, do you
really believe that? Let me take the responsibility which is cited
here of your own department which has already been mentioned by
Mr Sargent, which is the health and safety legislation. I declare
an interest at the moment since I have a Private Member's Bill
which is designed to strengthen that legislation. If you look
at what the Health and Safety Executive has achieved in recent
times, Mr Sargent mentioned a halving of the number of forms which
need to be filled in. I have checked the HSE's website; it is
an extremely accessible website, and yet you have business telling
you that compiling the health and safety legislation is a burden.
By the way, there has been a reduction from 1,000 fatalities a
year in 1974 to 250 on the latest data in 2006 and it has yielded
absolutely the best record for health and safety at work in this
country or any European country. It is not a burden. If I may,
Mr Chairman, let me get another bee out of my bonnet and also
declare an interest as a former housing and planning officer,
and that is the issue of planning and the burdens of planning.
My time is nearly up, so I will do this quickly. The fact of the
matter is that house builders in this country have enough land
and enough permissions to build all the houses and more that we
need for at least the next five years, but they do not choose
to. Why? It is because they are not offering a service; they are
making a profit and it is not always convenient actually to build
as many houses as they want to. What they will tell you without
exception is that it is the obstacles of the planning system which
prevent them, as Mr Kohli mentioned, from building these houses.
Yet if you look at the spectacular record of local authorities
in development control over the last four years, in 2003 only
43% of major applications were issued within the target 13 weeks.
In 2006-07, the figure is 71%. The progress has been enormous.
Have we seen any recognition on the part of the house builders
of that progress? No: they whine, they moan and groan; they create
excuses about their failure to perform and blame the planning
system. My question is: are we looking at anything real here in
terms of the burden of regulation or are we looking at what is
convenient in the case of the house builders, convenient in the
case of those who have to comply with health and safety legislation,
making excuses about their failure to perform and also their resentment
of regulation. I would like an answer.
Sir Brian Bender: I think there
was a question in there. There are two points. First of all, this
exercise, as several of my colleagues have said, only focuses
on one aspect of regulation, which is the red tape, the administrative
burden of carrying it out. It is not an exact science, as a lot
of the questioning and answering has revealed so far, but to the
extent that we can remove that time that it takes businesses to
carry out those tasks, as Mr Sargent said earlier, that frees
up time to do other things and therefore inherently to be more
productive. The second point is that there is plainly a huge perception
gap, as the NAO Ipsos MORI work shows, between what we think we
are doing and what businesses are themselves perceiving. There
is no doubt that the task for the department, for the BRE, for
the Government in the period ahead is to address that perception
gap and actually get to the bottom of some of the points that
you are asking about.
Q30 Mr Bacon: Sir Brian, I am fascinated
by this because you appear to have found a way to print money.
I thought this was the prerogative of the Bank of England and
indeed of local authorities that can issue planning consent and
increase the value of an asset by 100-fold. You seem to have found
a new way of doing it. You spent £35 million and you add
£16 billion to GDP. This is absolutely brilliant. There are
lots of clever people in the Civil Service. Why has it taken you
this long to come up with this brilliant idea?
Sir Brian Bender: It came out
from the Better Regulation Task Force Report chaired by
David Arculus published a couple of years ago.
Q31 Mr Bacon: If it is that easy,
why has it taken this long? The figure of £35 million is
roughly 0.2% of £16 billion. If you can increase GDP by £16
billion this easily, you will obviously increase tax revenue by
somewhere between £3 billion and £5 billion; let us
call it £3.5 billion because it makes the maths easy. For
an investment of £35 million, you get £3.5 billion of
tax revenue; you get 100 times your money back.
Sir Brian Bender: The Dutch and
the Danes were the first to address the question of the administrative
cost of filling in forms. We followed that and the numbers follow
from this process. I can only repeat what Mr Sargent and Mr Kohli
said earlier in this respect.
Q32 Mr Bacon: This is why, I think
in common with other members of the committee, I have difficulty
in believing them, because they do not seem at an intuitive level
to make sense. You have signed off the report which includes these
amazing statistics of £35 million and £16 billion. You
have also signed up to the bit that says that it must be treated
with caution, they are indicative, they are not statistically
reliable, and the targets are not based on calculations of the
desired or achievable levels of reductions. The whole thing is
a fantasy, is it not?
Mr Kohli: Can I give you an example?
I mentioned before that there is a requirement in British law,
and indeed a requirement in European law, for every new employee
to be furnished with employment particulars when they arrive in
a job. That is a perfectly reasonable requirement and we have
no qualms with the policy. When we asked businesses how much money
it costs them to comply with this requirement, they told us that
the answer was £158 per individual, per employee. We were
surprised at that number. That seems like a very high number to
us and so we went and asked more businesses, or indeed we asked
our contractors to ask more businesses, and the average number
came back at roughly that number, so it comes out high. If we
explore a bit why that is happening, it is happening because it
appears businesses do not know what they have to do under that
legal requirement. To an extent, they go to a lawyer and seek
legal advice and very quickly £158 gets spent.
Q33 Mr Bacon: Every time a business
employs a new person they have to go to a lawyer?
Mr Kohli: I do know that in the
House of Commons, as I talked to a Minister about this previously,
there is the mechanism by which you go to the central House of
Commons HR department and you get a form that you fill in. Lots
of employers do not have that kind of process. Many employers
go and get legal advice and maybe try to write an entire contract
when they do not need to do that.
Q34 Mr Bacon: You mean rather than
go to their own HR department?
Mr Kohli: Small companies will
not have an HR department. Because they are not clear what the
law really requires, they spend more money than they need to.
My colleagues in the employment part of the new department have
put on the internet a tool which allows employers to follow this
process almost at no cost. The challenge is getting employers
to know that they can just do this rather than that they have
to do what they used to do. If we can get take-up on that particular
tool up, business will save money. Designing that tool does not
cost very much money.
Q35 Mr Bacon: That is different from
the portal mentioned in Figure 15, is it, the on-line portal in
3.11?
Mr Kohli: That is different to
the on-line portal.
Q36 Mr Bacon: While we are on the
subject of the internet and portals, why do I not ask about that
because it was one of the things I wanted to know? This is a chart
that talks about the awareness of government initiatives to reduce
administrative burdens. The question is: "Are you aware of
any of the following initiatives by Government to try and improve
regulation and reduce the current burdens on business? Government
departments are producing simplification plans". "Yes"
is about 13% and "No" appears to be about 87%. "The
Government has measured the administrative costs of regulation
and set targets for reducing them". This appears to be about
12% or less and 88% for "no", and so it goes on. "An
online portal has been set up where business can make suggestions
..." It appears that 90% do not know about that. There is
an awful long way to go, is there not, to increase the awareness
of the ways that businesses can supposedly offer advice to you
to make things simpler.
Mr Sargent: You are absolutely
right. This is the challenge. Improving something and then making
sure that the people for whom you are creating the benefit know
about it is a big challenge. Let me give an example of one of
the ways we are dealing with this. Common commencement dates we
feel is one of the most effective tools to let people to know
the changes in the new regulations—
Q37 Mr Bacon: You are saying common
commencement dates?
Mr Sargent: Yes. There are two
dates in a year, 6 April and 1 October, when a number of departments
bring into effect new laws, and it makes it easier for a smaller
firm in particular to manage it. They know that if something is
going to change, it is going to change on those dates ideally.
If we go back one or two years, the amount of people who were
aware of this was quite small. If you signed up, for example,
to Business Link, which was one of the Government's way of communicating,
the numbers were small. Ideally we think in the coming couple
of months when the next one comes up we will be able to get through
the one million businesses. That is up from probably a couple
of hundred thousand this time last year. This survey was done
around about a year ago now, if I recall correctly, at a point
at which this was all being launched and so (a) it would not surprise
me that people were unaware of it and (b) as a business person
myself, I do not necessarily go looking in the newspapers for
what it is that the Government is doing.
Q38 Mr Bacon: No. I am sure you are
too busy running the business. Mr Kohli, you mentioned 8,500 interviews.
Is that right?
Mr Kohli: Yes.
Q39 Mr Bacon: In paragraph 8 it talks
about this survey between September 2005 and May 2006, so that
is a period of nine months, and 8,500 and £17 million, which
was the cost. I do not know what the relationship is one to the
other; it sounds like £2,000 per interview. Is that right?
Mr Kohli: First of all, the £17
million number includes the exercise that my colleagues at HMRC
were responsible for. I can only speak for the exercise that we
were responsible for. A great deal of the challenge was finding
the person to interview rather than interviewing them. If I could
give you an example, I went to Belfast to go and visit the call
centre which was doing a great deal of the interviewing. On that
day they were trying to find out the cost of the requirement in
law for a registered care home owner to notify CSCI, their regulator,
when a care home owner passed away and a new care home owner arrived.
Finding the care home where this had happened was quite a challenge.
| 
