Examination of Witnesses (Questions 40-59)
DEPARTMENT FOR
BUSINESS, ENTERPRISE
AND REGULATORY
REFORM AND
HM REVENUE AND
CUSTOMS
20 FEBRUARY 2008
Q40 Mr Bacon: Most of the time most
of the cost is incurred in trying to find the person to interview?
Mr Kohli: That is correct.
Q41 Mr Bacon: When I first saw Yes,
Minister—and by the way you can get the whole set at
a Virgin Megastore for £25 for the boxed set of all six series,
which is very worthwhile—Hacker says to the Permanent Secretary
in the first episode: "Ah, yes, we came across each other
in the Public Accounts Committee and I gave you a pretty tough
time and you answered the questions". The Permanent Secretary
replies, "I am glad you thought so"! I am now working
my way through from episode one just to see where I have gone
wrong. When I first heard that it was called the Department of
Administrative Affairs, and this was years ago, I thought it was
a joke. Of course I realised that there was then a Civil Service
Department. You are saying you spent a lot of money on expensive
consultants trying to hunt down recently dead care home owners
so that you could talk to their successors?
Mr Kohli: No. We spent time trying
to find out for the key obligations, for the ones that were likely
to be the most expensive, and in this particular case I think
they abandoned that search and they decided that it would be sensible
to ask CSCI to do an estimate, which felt like a sensible way
forward.
Q42 Mr Bacon: Which is indicative
and not statistically reliable.
Mr Kohli: Exactly, but first of
all we had to work out what the different regulatory requirements
were. There were 20,000 of them, as my colleagues have said. Establishing
that list in itself was a challenge. Then finding businesses affected
by each of those requirements was a challenge. Then asking them
how much it cost them, particularly as some of this work was being
done over the Christmas period, was also a challenge. I am fairly
confident that they did an enormous amount of work to come up
with indicative estimates.
Q43 Mr Bacon: The £17 million
for these consultants was the money that was spent on PwC and
KPMG, was it? How much was spent on each?
Mr Sargent: It was a little over
£10 million on PwC and £7 million on KPMG.
Q44 Mr Bacon: That was over the period
of those nine months? I just want to focus on the costs. It was
roughly £2 million a month or slightly under in total, divided
between the two in the ratio 10:7?
Mr Sargent: What you have to do
is remember that there were 700 people on this project. You will
remember earlier I mentioned that there were 700 in the consultancy
phase and about 300 in the government.
Q45 Mr Bacon: I would like to know
how much time was spent on it. I would like a detailed breakdown
of the £17 million and where it went. [3]One
of the things you said, Mr Sargent, struck me as very interesting.
You said that most businesses face the same costs to do the same
kind of action. It strikes me that that is true for the same kinds
of business but it is fundamentally not true for small businesses
compared with large business, which is presumably why KPMG broke
down the results for each area by business size. It says in 2.13
on page 18: "... administrative burdens are likely to be
higher for smaller businesses in relative terms, when compared
to the resources available. The Standard Cost Model allows for
such segmentation but such differences were not taken into account
in the BRE/PwC measurement exercise..." Why not when it is
so fundamental?
Mr Sargent: First of all, let
me say this. When you go from sector to sector, there are businesses
which are generally within a certain size. If you are in the nuclear
industry, by definition—
Q46 Mr Bacon: My question is about
small businesses.
Mr Sargent: What I am trying to
say is that 77% of businesses that were interviewed were small
businesses. That is the first answer, and so by definition most
of the people when asked what it cost them fell within that category.
Therefore, the indication of where the costs were going to come
from came from that part of the business community.
Q47 Mr Bacon: What do you call small
for these purposes?
Mr Sargent: That is 50 or less.
Q48 Mr Bacon: Nevertheless, there
is a big difference. I have a hotel owner in my constituency who
complained to me once that he could be spending two days a week
filling in paperwork. He is a member of the Federation of Small
Businesses. We all understand that for a large business, even
a business of 40 or 50 employees, it is a cost to the business;
it is a bore; and you make less profit. You could employ several
people full time on all this paperwork and the faffage they have
to deal with. You do it, and it is a cost of doing business and
you get on with it. For a business of 12 people, eight of whom
spend most of their time cleaning hotel rooms and the other guy
is running the bar, it is down to the business owner. He is in
there at midnight on a Friday night trying to keep up with all
this. There is an enormous difference, is there not?
Mr Sargent: Absolutely, and this
is why I believe that the process we have gone through for administration
costs, which is a very tangible area, means that if we can strip
a quarter of his or her time, by definition that person will be
able to sell the hotel rooms better or improve the service or
something like that. I think you have highlighted the fact that
the benefit we can achieve is normally in time; most of the cost
is in people's time. Sometimes it is external advisers but normally
it is people's time.
Q49 Mr Bacon: And repetition, being
asked for the same information repeatedly.
Mr Sargent: Yes. Again, if you
look across at the 700 initiatives or measures that have come
out of departments, quite a lot of them are using very simple
pragmatic ideas: "can we do away with this" or "have
we already got the information". This is generally the process.
This is why I quite like the administration burdens project because
it is incredibly tangible and it is about people's time generally
and the most valuable time tends to be that of the owner-manager.
Q50 Mr Mitchell: I become confused.
I get the feeling we are venturing in other land of fairy tales
and mythology and abnormal psychology. Would you agree, Mr Sargent,
that whatever the regulatory framework, business would complain
about it?
Mr Sargent: The instinct is to
worry about the fact that if something is taking you away from
the job you are doing, it is not necessarily adding value to either
your business or the economy, so you start with that instinct.
Q51 Mr Mitchell: Anything, and that
includes the wife, the family, the bicycle or the car?
Mr Sargent: I think I would want
to spend my time with the wife.
Q52 Mr Mitchell: They are all burdens,
are they not? The point is here you have an unverified enormous
cloud of perpetual complaints which could never be satisfied because
business would have to face either the trial lawyers in the States
or proper regulation, and Government wants to show that it is
doing something and so we invent this taskforce and this procedure
and then it conjures up targets and gains out of the air. So it
is all mythology.
Mr Sargent: Can I give you a different
perspective which I personally believe in? We all want to live
in a regulated society. None of us wants to go and get food poisoning
or none of us want to have competitors who have advantages which
we are not able to compete against and so forth. So we did 16
or 19 focus groups using Ipsos MORI again, funnily enough, to
get under the skin of red tape. The instinct people start with
is: if I did not have red tape, my life would be easier. You then
say, "Let us get specific about it. Do you not want to have
a situation where your consumers are confident in your product
and therefore will buy it as opposed to shying away from it?"
As soon as you get under the skin, there are virtually no businesses
that have a problem with regulation. They generally have a problem
with the manner in which it is being implemented and sometimes
they do not understand why it is the way it is or what they have
to fill out the forms, et cetera.
Q53 Mr Mitchell: Two points arise
from that. Table 15 on page 23 shows that whatever you have done,
business does not understand it and does not know you have done
it. There you are. So you are obviously not getting through and
you are not producing any great effect or any gratitude on the
part of business.
Mr Sargent: We did not get through
at the point because we had just started. I would like to feel
that when the NAO does a survey this year, which presumably they
are in the process of doing at the moment, those numbers will
look better. Then when they do it next year and the year after,
people will become more and more aware. My job in this particular
environment I am in is to make sure that they know because we
know from the Dutch that people do not find out unless you try
to help to point it out. You are quite correct in highlighting
the fact that that is a challenge.
Q54 Mr Mitchell: You are labouring
away to no great effect in terms of the notice point, which is
always hovering around 10% or below. Let me put another point.
One man's burdens and regulations is another person's consumer
protection or employee protection, or whatever. What evidence
to you take to evaluate the effects of removing regulations or
implementing them more gently or softly on consumer protection
and worker protection?
Mr Sargent: We have a very good
rapport, and we have done a joint study recently with the National
Consumer Council in which there are many products. Let me take
financial products. If you buy a financial product, you will get
quite a few pieces of paper that come with it when you buy an
insurance policy or a mortgage or anything. Few people can understand
and absorb those five or 10 pages that come with it. It does not
necessary protect you. The law is there to protect you but the
manner in which it is being implemented does not necessarily get
you there. Where we are coming from is: is there a more effective
way of communicating to the vulnerable and the people who could
be exploited? We think there is. Quite a lot of our work will
result in two things: a less costly way of achieving giving people
those protections—
Q55 Mr Mitchell: But reducing the
degree of paperwork?
Mr Sargent: Absolutely.
Q56 Mr Mitchell: Let me move on to
Europe. As a devout Euro-sceptic—it is a matter of religion
really rather than anything else—I believe that most of
the regulations that business complains about come from Europe
of course and malevolently are implemented here and brass plated
or copper plated, whatever you call it, whereas in Europe they
are not implemented at all. Could you give us an assessment of
what proportion of regulations complained of come from European
and are therefore inevitable forced on us?
Mr Sargent: I have not got a specific
example of the number or the amount. Let me talk you through what
we did look at and what was looked at through a review which was
completed about a year and a half ago and that was the concept
of gold plating. One of the things that emerged was, and this
was not the first time that this had been noted, that the amount
of gold plating, so to speak, was not significant. There was some
gold plating; in about 10 areas which were identified. Recommendations
were made on this in the report and they are currently working
their way through the system now. I would like to feel that if
we were talking this time next year, most of the recommendations
of that report to take away the gold plating will have been done.
Q57 Mr Mitchell: Do departments consult
with you? If you are going to be effective, you need to know what
is being done before it is done and to say: "this is going
to work", "that is not going to work", "business
is not going to accept that". Does that process happen and
does it happen on European competition?
Mr Sargent: Consultation?
Q58 Mr Mitchell: Yes, with the department?
Mr Sargent: It does. The big change
that has happened in Europe in this past 12 months is that they
fundamentally are following the agenda we have now put in place.
Q59 Mr Mitchell: They are just being
nice to us so that we will pass the Treaty, are they not?
Mr Sargent: They have found 90
things in the past 12 months which they can simplify and make
easier. They have established a 25% target just like we have and
are setting about using the impact assessment tools like we are.
I would like to feel that we are getting Europe to be in a better
place as a result of the example we have set them.
Chairman: I am afraid we have to stop
there for a division.
The Committee suspended from 4.29 pm to 4.35 pm
for a division in the House
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