House of Commons - Themes and Trends in Regulatory Reform

Themes and Trends in Regulatory Reform - Regulatory Reform Committee Contents

3 GOING FORWARD: DESIGN AND COMPLIANCE

Improving the design of regulation and guidance

43. As well as evaluating the lessons of the financial crisis, our inquiry sought opinion on the design of new regulation and on whether Government Departments as a whole understand business sufficiently to design effective regulation. To assist us we requested a briefing paper from the NAO. The paper reviewed available research, including the NAO's own business survey, and focused on approaches to employment and health and safety law by the Department for Business, Innovation and Skills (DBIS) and the Health and Safety Executive (HSE). There were a number of key findings:

design of new regulations.

44. The paper revealed that some 40% of businesses did not understand the purpose of regulation, and only just over one third of businesses felt that complying with regulations was straightforward or easy.[89] DBIS research suggests that low-risk businesses could save up to £140 million per year if, instead of paying third parties for basic health and safety support, one in five of them turned to the HSE, local government, or other government sources for advice.[90] In the NAO survey, two thirds of businesses agreed that finding guidance and advice on how to comply was burdensome.[91]

45. The Anderson Review[92] on improving guidance to small and medium-sized enterprises, which has received broad welcome,[93] reached similar conclusions to the NAO report on the complexity and difficulty of understanding guidance and the consequences, as well as on the desirability of limiting Government disclaimers in guidance. In the areas of health and safety and employment focused on by the NAO, it recommended an insured helpline on employment and health and safety regulations with free access for one year from the point of first contact.[94] The Minister told us that the pilot helpline had been started up in June 2009 and will run to early 2011.[95] We shall be interested to hear how well it works. Lack of sufficient guidance is not the only problem, however. One of our witnesses commented that the HSE has been good at targeting risk industries but not so good at succinctness in guidance, with too much that is too long.[96] He summed up the problem with a hearsay story from a farmer: "89 pages is all very well, but I've got cows to milk!".

46. There is a further problem with guidance and advice from regulators—that regulators are perceived as being reluctant to stick their necks out to help businesses with advice on how to comply and unwilling to have "without prejudice" discussions that help a business seek advice without fearing enforcement action.[97] Andrew Tyrtania said:

Clive Davenport of the FSB put it this way:

The Minister was sympathetic to this difficulty, although understandably he indicated that blanket immunity would be a problem.[100] Nevertheless, we believe that there could be greater scope for regulators to give helpful guidance on whether in broad terms activities constitute a compliance problem.

47. We welcome the BRE's work on perceptions of guidance and the Government's acceptance of most of the recommendations in the Anderson Review. We urge the Government to push forward quickly with implementing those recommendations and with further means of promoting and sharing guidance best practice that address the problems we have outlined. Although we appreciate that there might be resource implications and legal constraints, we recommend that the Government encourage regulators and enforcement bodies to be more willing to answer questions from their regulated organisations and consider creative ways to permit without prejudice or off the record discussions on compliance.

Collaborative working and sharing best practice

48. Our recommendations on improvements to guidance include the need for more sharing of best practice. Our previous report also mentioned the need for improvements in such activity and recommended that the BRE be more actively involved in it.[101] Since then, the Hampton implementation reviews[102] have demonstrated further means for regulators to learn from each other and we are pleased that further Hampton implementation reviews are being worked on. Consumer Focus stressed the importance of such projects in its 'Rating Regulators' report.[103] In a different though related area, we commend the LBRO's "Trading Places" initiative on which both the ACCA and ABI expressed positive views in the informal part of our oral evidence session with them.

49. There is more scope for joint working between regulators. CAB gave positive feedback on current DBIS initiatives,[104] but recommended further collaboration.[105] The TUC observed that there remain blocks to enforcement officers reporting on breaches of the law in areas outside of their own jurisdiction.[106]

50. We welcome the "Trading Places" initiative and the Hampton implementation reviews published to date, and look forward to the further Hampton implementation reviews due for publication this year or early next year. We encourage regulators and the BRE to explore opportunities for joint working including—where appropriate and subject to legal advice—in reporting of infringements outside of their particular jurisdiction.

Impact assessments and post-implementation review

51. Criticisms of impact assessments (IAs) remain, and Jitinder Kohli accepted that while progress had been made, "we are on a journey."[107] The small firms impact test part of impact assessments has been revised,[108] but problems persist with:

Reliability of figures, particularly in EU IAs[109]
Validation by affected businesses and the need for incentives for business to involve themselves thoroughly in such validation[110]
Assessment of competition impacts[111]
Variations in quality[112]
Insufficient evidential and cost/benefit analysis[113]
Lack of implementation plans.[114]

As PricewaterhouseCoopers said:

115

The Minister told us that introducing publication of impact assessments allowed for greater transparency and therefore greater challenge to the costings that they contain.[116] However, experience suggests that there will remain a need for earlier and better engagement with business in the initial cost assessment process.

52. Lack of post-implementation review is a related problem referred to by parliamentary committees[117] and by our witnesses in the inquiry.[118] In its 2009 IA report, the NAO found that the proportion of IAs that included an implementation plan dropped from 74% to 20% between 2006 and 2008.[119] We are pleased, therefore, that the new impact assessment template incorporates a requirement to indicate when post-implementation review will take place and that the Minister indicated he believed in greater scrutiny of this type.[120] Jitinder Kohli of the BRE indicated that it would be the default position from now on[121] and subject to there being a proportionate and properly timed approach to reviews we welcome that.

53. We recommend that the BRE seek ways further to improve consistency and quality of IAs including through more thorough and proactive business validation. We welcome the Minister's statement that post-implementation review will be the norm. The BRE should monitor compliance with departmental commitments to conduct them.

Legislative flow

54. Despite a small improvement in perception of regulation as observed in the NAO survey,[122] there is concern that the regulatory reform agenda and the administrative burdens reduction programme in particular are not delivering results sufficiently quickly. The ACCA said: "At the strategic level the UK's regulatory reform programme is world-class. In practice, however, there is much room for improvement."[123]

55. A major source of complaint was the cumulative impact of legislation,[124] which was recognised by Sir William Sargent as a challenge.[125] PricewaterhouseCoopers said: "UK businesses are not of the view that regulation per se is a bad thing…However, what many businesses do contend is that the aggregate cost of complying with all regulation is too high and increasingly, putting UK firms at a competitive disadvantage." It added that: "One of the difficulties surrounding the debate on regulation is that there is no agreed measure or authoritative benchmark of the aggregate cost of regulation on business…" It observed also that, "…the business community, through a body such as the CBI, should be incentivised to produce accurate costing information."[126]

56. In a written statement to the House of Commons on 2 April 2009 the Government announced that it would not be implementing a system of regulatory budgets as previously consulted on.[127] In our evidence session with the Minister, he explained the Government's reasoning, which was that whilst a compelling case can be made for introducing regulatory budgets the timing is not right at present.[128] The tasks of monitoring cumulative burdens and assessing cost-benefit analyses at the overall Government level will therefore fall to its plan for strengthening regulatory management as embodied in the external Regulatory Policy Committee and the National Economic Council's Better Regulation sub-committee announced on the same date. At the time of going to press, the NEC sub-committee should have had its first meeting but the Regulatory Policy Committee was yet to meet. The Minister told us that it was scheduled to meet over the summer.[129] He also indicated that the Government will for the first time publish cumulative figures for the costs and benefits of regulation in the autumn.[130]

57. We asked the Minister about the planned membership and manner of working of the Regulatory Policy Committee. He said:

131

The Minister indicated that the Regulatory Policy Committee will be publishing its opinions on proposed regulatory measures as a means of holding Departments to account. As he put it, "if the Government chooses not to follow its advice then clearly the politicians will have to justify those decisions."[132] We welcome the Minister's statement of that position and we note the proposed terms of reference for the Regulatory Policy Committee set out in his letter to the Committee Chairman of 13 July 2009.

58. The Government should expedite the setting up and rapid entry into full operation of the new regulatory committees announced on 2 April 2009, together with publication of cumulative regulatory costs and benefits in accordance with its stated intention, and with terms of reference that will permit a full contribution to the regulatory evaluation process. In accordance with our recommendations on greater consumer involvement, the external Regulatory Policy Committee's membership should allow for a voice for sectors other than solely the business sector and for consumer and end user interests.

59. The external Regulatory Policy Committee should take measures to validate impact assessments and cost-benefit analyses with input from affected parties and should be given means to provide such parties with incentives to offer properly quantified advice. The BRE should support it in that work.

European Legislation

60. In our previous report we recommended that the BRE prioritise how to increase its influence in achieving regulatory reform at EU level and that it undertake a feasibility study of where it would like such reform to be from the UK perspective and how to get there.[133] The Government's response referred only to existing policy but did not accept the specific recommendations.

61. There was overwhelming evidence in the present inquiry that there remains substantial need for improvement in relation to matters of European regulatory reform, especially in the area of EU impact assessments and their integration with UK implementation IAs.[134] Sir William Sargent agreed in evidence to us that the EU is not as advanced as the UK on impact assessments.[135] The Environment Agency said there is a need for: "A more strategic and ambitious approach to improving the effectiveness of regulation at source, mainly in Europe" and argued for "a change in approach particularly at a European level and [ensuring] that transposition of EU laws effectively communicates the outcomes being sought."[136] (We heard from the Agency last year how last-minute legislative revisions by the European Parliament can create difficulties.)[137]

62. We were encouraged that Tim Ambler of the London Business School described UK gold-plating[138] of EU legislation as something of a myth,[139] although he remains of the view that there is over-elaboration (meaning counterproductively long explanation) of EU directives—a view that ties in with the quotation cited earlier that 89 pages do not milk cows.[140] In his paper to us he and Francis Chittenden argued that "the importance of Brussels as main regulator should be recognised and UK systems designed to deal with that...".[141] And in their joint British Chambers of Commerce publication, 'Worlds Apart: The EU and British Regulatory Systems,'[142] they argue for an effective UK IA system for EU-sourced legislation in which the UK preliminary IA appears immediately after publication of the Commission's annual legislative programme and not later than the first EU draft IA, so that EU legislation is challenged early enough [for the challenge] to be effective."[143]

63. We mentioned the arguments for better linkage between EU and UK IA processes in our previous report.[144] It seems to us that it must make sense to try to deal with any issues of EU over-regulation through earlier UK impact assessment input in the EU process and a more co-ordinated approach, and we put that view to the Minister, who agreed that influencing legislation from its inception is key.[145]

64. To assist in maximising objective but effective challenge to EU-sourced legislation, we recommend that the BRE: (a) revisit the recommendations in our previous report regarding a feasibility study on EU regulatory reform objectives and the need to increase BRE influence on EU regulatory reform (including by means of a permanent representation in Brussels) and as a matter of urgency (b) explore means of improving and bringing forward in time the UK's input into EU impact assessments.

88 Such uncertainty can lead to over-compliance or under-compliance-over-compliance being the "regulatory creep" spoken of by Rick Haythornthwaite (Q61 and also the RRAC paper; 'Response with Responsibility') Back

89 Ev 2, paragraph 3. Back

90 Ev 4, paragraph 9(i) and Better Regulation Executive, 'Improving Outcomes from Health and Safety, August 2008' Back

91 See Ev 2 Back

92 http://www.berr.gov.uk/whatwedo/bre/reviewing-regulation/The%20Anderson%20Review/page45278.html Back

93 See, for example, Ev 106, Ev 138, Ev 80 Back

94 Anderson Review, Recommendation 2; It also proposed that enforcement bodies refrain from punishment or sanction in cases where organisations have reasonably followed their advice Back

95 Q143 Back

96 12 May informal session Back

97 The North East Chamber of Commerce added that regulators should not be allowed to change advice retrospectively. See Ev 200 Back

98 Ev 142, paragraph 3.2 Back

99 Q69 [Mr Davenport] Back