Memorandum submitted by the Business Services
Association
INTRODUCTION
1. The BSA—Business Services Association—is
the trade body that represents companies, and their advisors,
delivering outsourced and business services across the public
and private sectors.
2. BSA members are involved across the full
range of public service provision—including health, education,
waste management, defence, the Olympics and housing. They are
also specialist providers of services such as building maintenance,
engineering, communications and catering in the private sector.
A list of members is attached to this document in the Appendix.
3. Regulatory reform is critical to BSA
members and has an integral role in shaping the market for outsourced
services. For instance, as workplace and market regulation increase,
the rules governing such things as employment and training of
staff, health and safety compliance, property management, energy
management and accounting standards become more complex. A client
can outsource the meeting of these requirements to a specialist
outsourced service provider. This can be more cost effective and
can improve the overall product or service. Good providers also
ensure these requirements are met further down the supply chain.
4. We therefore welcome this opportunity
to submit evidence to the Regulatory Reform Committee on themes
and trends in regulatory reforms.
5. The submission makes the following key
points:
— Regulators could do more to understand
the specific nature of this industry as it operates across the
public and private sectors.
— Regulation must ensure a level playing
field can operate.
— Interventionist and superfluous regulation
causes unintended consequences that often lead to further regulation.
— It is vital business has the flexibility
to innovate and respond to difficult economic conditions.
Regulators could do more to understand the specific
nature of this industry as it operates across the public and private
sectors
6. Good regulation protects consumers and
service users and creates efficient markets. To do this it must
be industry specific. The Julius Review, commissioned by the then
Secretary of State for BERR, John Hutton M.P., in 2008, was an
important milestone in improving the understanding and scope of
the outsourcing industry as it operates in the public sector.
However, many of the companies that make up the "public services
industry" also operate in the private sector.
7. The BSA believes the market would benefit
if the regulators understood the unique challenges faced by this
dynamic and growing sector. The outsourcing industry is evolving
rapidly. New players are entering the market and new markets are
opening up, for instance in welfare to work programmes and the
education sector. The government should be engaging with industry
specific bodies to help understand the changing business environment.
8. In addition to formal regulation, the
industry is subject to informal regulations and "rules of
the game" that exist when operating in the public sector.
For instance, those that have emerged from the Public Services
Forum, such as access to training and unions. These informal rules
must be taken into account when determining regulatory burdens
on the industry.
Regulation must ensure a level playing field can
operate
9. A major concern of the outsourced services
industry when competing for contracts with in-house bidding teams
is that of competitive neutrality. When the government creates
a mixed economy by allowing public, private and voluntary organisations
to compete, then competitive neutrality policy insists that the
government should not discriminate between operators with different
ownership structures.
10. Where providers compete with an unfair
advantage, public spending will be redirected away from the most
efficient producers, resulting in a decline in social savings.
The beneficiaries of unfair competitions will win a disproportionate
number of tenders, undermining the credibility of the process
and leading to less competitive markets. And if private and voluntary
providers are not convinced of the fairness and sustainability
of public service markets, then they will be averse to innovating
with new technologies and new service models.
11. Public enterprises should be subject
to the same regulatory environment as their private and voluntary
sector competitors, including laws on environmental regulation,
health & safety regulation and anti-competition practices.
12. For example, in the UK healthcare sector,
independent providers are inspected routinely by the Healthcare
Commission, whereas it is only obliged to undertake an annual
assessment of NHS organisations, which might not include an inspection.
Around 10-20% of inspections of the independent sector are unannounced.
In addition, NHS organisations do not pay for inspection whereas
private providers do, although the Commission is looking at changes
to this system.
Interventionist and superfluous regulation causes
unintended consequences that often lead to further regulation
13. Creating an efficient and effective
regulatory system is a constant challenge for the government.
The scope of economic and social objectives underlying regulations
necessarily results in complexity. However, minimising the costs
and complexities of regulation is also an important objective.
Such a task is difficult given the numerous sources of regulations—various
departments and different orders of government. We support the
government's actions to reduce the regulatory burden and the strengthening
of impact assessments.
14. However, we are concerned about the
government's tendency to respond to policy problems by implementing
new regulations and putting regulations into law. This happens
when the government needs to be seen to be doing something. Top
down management like this can create unnecessary bureaucracy,
stifle innovation and local initiative, create perverse incentives,
demotivate front line staff and drive the best talent and innovations
away from overregulated businesses into less regulated ones.
15. For instance, in the waste management
sector regulatory changes have driven the need to develop expensive
new facilities and this in turn has led to a consolidation of
providers of waste management services. As a result there are
now relatively few suppliers of waste disposal and treatment—eight
to nine suppliers manage at least 78% of municipal waste by weight.
Excessive regulation also creates barriers to market entry, especially
SMEs. Superfluous product testing regulations can disincentivise
companies to invest in innovation and new technologies to the
detriment of the service user.
16. We need to be sure regulations properly
deliver on the tasks of protecting service users and investors,
appropriately regulating the markets and instilling confidence
in users of and participants in those markets. Regulation must
be proportionate, consistent and transparent. For instance, there
are some changes to regulations that do not undergo legislative
scrutiny such as retention of employment and changes to pension
codes. The government must ensure these processes are transparent.
17. Any regulation has consequences, some
can be unintended and can make the regulation self-defeating by
creating undesirable outcomes. These unintended consequences can
worsen a situation somewhere else and often require more regulation.
For example, stringent regulation of new sources of air pollution
may aggravate pollution problems by perpetuating the life of old,
dirty sources. If government closely monitors the release of information,
there may be less information produced to the possible detriment
of consumers.
18. Unintended consequences can occur when
departments have conflicting targets and objectives. The government's
proposal to introduce regulatory budgets may add to this if departments
have not sufficiently taken ownership over cross-cutting issues
such as climate change.
19. Interventionist regulations almost always
have unintended consequences, sometimes creating problems more
serious and more complex than those they are meant to correct.
They can also cross the line from market maintenance to market
manipulation. The moral hazard of interventionist regulation is
that people will take ever-greater risks when they believe that
the government will swoop in and rescue them at the last minute.
Such rescues assure the "survival of the unfittest"
and can lead to uncompetitive markets.
20. What makes the situation even worse
is when interventionist regulation is coupled with inadequate
time to consult with those affected by the regulation or with
those in a position to provide serious consideration of the issues.
Consultation is a critical part of the exercise to help ensure
unintended consequences are exposed and ameliorated.
21. The right way to deal with a problem
is to repeal the law that caused the problem in the first place,
not to add another layer of regulations on top. Because those
regulations too will have unintended consequences.
It is vital business has the flexibility to innovate
and respond to difficult economic conditions
22. The current financial crisis has yet
to run its course. It is vital business has the flexibility to
innovate and respond to changing economic conditions. This includes
workforce flexibility. The flexibility of the labour market has
been central to the success of the UK economy and its low rate
of unemployment over recent times and any interference with it,
through the advance of unnecessary regulation, must be seen as
a threat to economic prosperity.
23. BSA members face considerable restrictions
in terms of workforce flexibility when operating in the public
sector. For instance, Agenda for Change, Retention of Employment
and TUPE restrict employers' ability to be flexible with terms
and conditions. The reality of this is balancing employment requirements
and maximising the efficiency of production of a labour force.
Agenda for Change is a good example where its introduction absolutely
counters the basic output of innovation which is to produce a
more efficient result and service for clients. The job evaluation
scheme has worked in exactly the same way in Local Authority contracts.
24. The impending Agency Workers Directive
could have a significantly detrimental impact on business. The
current arrangements are beneficial to many people who choose
to work flexibly. In a survey of agency temps 80% suggested they
were satisfied with their arrangements.[35]
A majority of employees choose agency work for positive reasons[36]
such as it providing them with greater flexibility, choice in
their working activities, and a route into a permanent position.
Agency work is used by students, new mothers returning to work
and those with children, for example, to their benefit and to
suit their requirements from a job.
25. Legislators and unions have also concentrated
unreasonably on companies being able to easily terminate agency
workers contracts, but the fact that people can leave with very
little notice can be a benefit to some individuals. The flexibility
that agency workers enjoy should mean different treatment. If
not, it means employment terms do not recognise the commitment
of permanent staff. Flexible positions are needed and wanted by
workers; they exist because of a mutual benefit to the individual
and employers and should not be jeopardised.
26. 58% of employers surveyed believe that
the EU legislation would lead to a "significant" cut
in the use of temporary workers,[37]
meaning a huge number of placements could be put at risk. Lawmakers
must be careful not to confuse concerns about "vulnerable"
workers with changing the arrangements regarding agency workers.
27. While no precise assessment of costs
can be made until the details of the Directive and domestic legislation
are fully drafted, the BSA considers that the new arrangements
will inevitably result in increased costs to business and have
a knock on effect on the wider economy.
28. The rise in benefits for agency workers
will obviously cause a direct increase in costs, but compliance
with the new rules will also add a further layer of expense to
business and eventually the taxpayer. For example, it will be
necessary for businesses to "compare" the work of a
new agency temp to that of a full time member of staff.[38]
29. New regulations could create labour
market distortions whereby employers terminate temporary workers'
contracts before the 12 week period to avoid the rules becoming
effective. Alternatively, recruitment agencies might take on former
"temps" as permanent members of staff to be subcontracted
to user firms; but this will still involve increased costs which
will have to be passed on. Another possible scenario is that businesses
send jobs abroad to cheaper and more flexible markets.
30. The proposed Directive will force employers
to be much more cautious towards business expansion and less able
to manage changes in demand, and this will have a knock on effect
for the wider economy. As a HM Treasury study itself said, "badly
designed EPL (employment protection legislation) can impose excessive
costs on employers and deter them from offering jobs where the
returns from creating the job are too low in relation to the expected
cost".[39]
31. Another cause of inflexibility is that
of planning regulations. For example, there is a growing demand
for Energy from Waste/Incineration capacity which is unlikely
to be satisfied in the foreseeable future due to the length of
time it takes to erect a facility.
32. The UK government is unique in its literal
adherence to EU procurement directives such as Competitive Dialogue.
No other EU state implements the directives so strictly. In light
of economic pressures the government must look at ways it can
reduce these unnecessary and disproportionate compliance rules.
This is essential in order to ensure the market for outsourced
services remains competitive and achieves value for money for
the benefit of service users and taxpayers.
35 REC/BMG 360°Ttracking Survey 2006. Back
36
The Recruitment and Employment Confederation Tracking Survey 2007. Back
37
2007, CBI/Pertemps Annual Employment Trends Survey. Back
38
CBI Brief: Temporary and Agency Workers-CBI Response, February
2008. Back
39
HM Treasury, EMU Study: EMU and Labour Market Flexibility,
2003. Back
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