House of Commons - Public Accounts

Select Committee on Public Accounts Minutes of Evidence

Memorandum from the Institute of Chartered Accountants of England and Wales (ICAEW)

Business opinion should be the central consideration in measuring the effectiveness of the Administrative Burdens Reductions Programme. ICAEW research indicates that businesses do not yet perceive significant savings from this programme.

1. ICAEW

The ICAEW has over 130,000 members worldwide, including over 50,000 who work in a direct business capacity. Our membership includes Financial Directors and Chief Executives across all sectors of the UK economy, from large multinationals to SMEs, including micro businesses. Working as employers, investment specialists and business advisers, our members possess a unique understanding of the impact and extent of the UK regulatory burden. The ICAEW 2007 Enterprise Survey, which polled over 1,000 respondents from businesses across every sector of the economy, provides an authoritative basis for research and presents several insights into business opinion on the delivery of the administration burdens reduction programme.

2. BACKGROUND

The government is currently committed to reducing the net administrative burdens faced by business and the third sector by £3.5 billion by 2010 and reducing public sector data burdens by 30% during the same period. Against this target, the ICAEW 2007 Enterprise Survey indicated that the cost of new administrative burdens from July 2006 to June 2007 totalled £10.2 billion, a significant increase on the previous years.[6]

In his evidence to the Regulatory Reform Committee on 29 January 2008, William Sargeant, Executive Chair of the BRE, suggested that the progress of the Departmental Simplification Plans demonstrated the impact of the effort to reduce administration burdens. Government has identified over 700 different simplification measures across 19 different government departments and agencies. It claims to have already delivered on over 270, reducing costs faced by business and charities by over £800 million a year.[7] In addition, a new Impact Assessment (IA) form has been introduced which, for the first time, commits departments to post implementation reviews of the actual impact on business. The Institute welcomes these measures and looks forward to both public and Parliamentary scrutiny of the first of the new reviews of "actual cost".

3. BUSINESS OPINION

The ICAEW believes that genuine measurement of the success of the Administration Burdens Reduction Programme must include reference to business satisfaction levels. Chart 37 (below), from the 2007 Enterprise Survey, shows that more Chartered Accountants believe the regulatory environment has deteriorated rather than improved since 2006. However, the extent and scale of that negative feeling has decreased since 2006. These findings suggest that the programme is not yet fulfilling its full potential, but is delivering modest positive impact.

Chart 37: Perceived Change in Regulatory Burderns Over the Past Year

Imbalance between needs of
regulation and encouragement
of enterprise

Timing and scheduling of
compliance deadlines

Level of regulatory advice and
support from Govt. and
other agencies

4. ICAEW KEY CONCERNS

(i) Inconsistency of Impact Assessment quality

The ICAEW believes that the quality and scope of IAs is currently too variable. We support the use of thorough independent academic analysis, as displayed in the Pensions Bill IA. However, IAs too often fail to identify the full costs of a proposal and more specifically where the major impact will fall across the business spectrum. In addition, full IAs often take place too late in the legislative process. For example, the core principle behind the Community Infrastructure Levy (CIL) proposal was never costed or subject to an adequate impact assessment. The CIL IA states that "the details of the proposal are subject to consultation with stakeholders and will be set out in secondary legislation. A further fully costed impact assessment will be carried out as the details are settled".

(ii) Greater clarity needed in administration reductions reporting

The BERR Delivering simplification plans report published in December 2007 identified a total administrative burdens savings for SMEs of £139.1 million of which £97.2 million related to simplification of the licensing regime following a measurement exercise. Excluding this one sector specific measure, the saving is only £42 million, less than 1% of the £9.1 billion burden falling on SMEs as measured by the 2007 Enterprise survey, although the saving is significantly higher for larger businesses.

(iii) EU administration burdens and "Gold-plating"

Analysis varies as to the exact proportion of the total regulatory burden on business accounted for by EU directives introduced into UK law. However, the consensus is that the proportion lies between 40% and 50% of total UK burdens. In parallel to the necessary enactment of directives, the UK business environment has suffered from the gold-plating of legislation. We would recommend that a system of greater transparency and scrutiny be considered to highlight gold-plating where it exists.

5. ICAEW RECOMMENDATIONS TO INCREASE PROGRAMME EFFECTIVENESS

The ICAEW supports the better regulation agenda, predicated on a number of beliefs based upon our member research and the expertise of our members and staff. At principles level the Institute believes that:

(i) reducing the annual cost of new regulation impacting on business should be a priority of the better regulation agenda;

(ii) reducing the impact on the smallest businesses should be the primary focus within that priority;

(iii) better regulation for small business will also invariably lead to better regulation for other sizes of business; and

(i) Departmental administrative burden targets reporting

The government has published the administrative burdens targets for each department to 2010. Greater focus on departments' achievements of targets is required. Part of this focus should be more regular and public publication and departmental comparison of progress in achieving targets.

(ii) Continuity of exemptions

There is a need for greater consistency in the use of exemptions across government. For example, to be exempted from the stakeholder pensions legislation a business needs less than 5 employees. In other cases legislation provides for differing or no exemptions at all, forcing business to analyse legislation individually for specific and unique exemptions. Greater consistency is required. In an initial consultation, as part of the EU administration burdens programme, the European Commission has suggested that micro-entities (basically business with less than 10 employees which meet turnover and assets tests) should be exempted from the application of accounting directives. The ICAEW recommends that a "Micro-entities Test" be applied to all new UK legislation, demanding that departments describe why micro-entities should not exempted from administrative burdens, if such is the case.

(iii) Coordination with EU simplification

The government should commit to adopting EU simplification measures. The EU has committed to reducing regulatory burdens on business as part of its commitment to the Lisbon competitive agenda. The European Commission is currently measuring the administrative burden across the EU in 13 priority areas. The study will also look at how member states have implemented directives, whether there has been any unnecessary "gold plating". The UK should commit to giving serious consideration to implementing the key simplification proposals as well as the conclusions of the report regarding the extent of UK gold-plating.

February 2008

6 2007 Enterprise Survey Report: link http://www.icaew.com/index.cfm?route=152108; p 37. Back

7 Delivery simplification plans, HM Government, December 2007. Back

8 ICAEW research and policy papers available at www.icaew.com/enterprise Back



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