Memorandum submitted by the EEF
SUMMARY
— The current economic downturn strengthens
rather than weakens the case for reducing the regulatory burden
faced by businesses.
— The regulatory response to the financial
crisis must be targeted and proportionate. There remains a strong
case for risk-based regulation in many circumstances.
— A more strategic and coordinated approach
to better regulation is required. Regulatory budgets overseen
by an independent body should be introduced.
— Regulatory Impact Assessments need to
be more consistent, based on more realistic assumptions and take
account of the cumulative impact of regulation.
— Better regulation appears to be a low
priority for the European Commission, which is responsible for
the majority legislation affecting UK businesses.
ABOUT EEF
1. EEF is the representative voice of manufacturing,
engineering and technology-based businesses with a membership
of 6,000 companies employing around 800,000 people.
A large part of our representational work focuses on the issues
that make a difference to the productivity and competitiveness
of UK manufacturing, including regulation, investment, innovation
and tax issues.
IMPLICATIONS OF
THE ECONOMIC
DOWNTURN
2. The current economic downturn strengthens
rather than weakens the case for reducing the regulatory burden.
A 2007 EEF survey[45]
showed that a fifth of companies thought that the regulatory burden
was one of the three main barriers to growth facing their business.
And in specific areas, such as health and safety and tax compliance,
a majority of companies had seen an increase in the cost and management
time spent dealing with regulation and compliance.
3. Manufacturers are currently facing extremely
difficult trading conditions that are set to last well into this
year. It is essential, therefore, that companies are not faced
with additional cost burdens as they cope with the rapidly deteriorating
economic outlook. It is particularly important that no additional
regulatory requirements are introduced that might impact on the
flexibility of their operations. Departments across government
must seriously consider the merits of forthcoming regulation on
businesses and delay those regulations which might negatively
impact on companies' flexibility.
4. The regulatory response to the financial
crisis must be targeted and proportionate. Government must avoid
over-generalising and assuming that regulatory oversight must
be increased in all areas of the economy. There remains a strong
case for risk-based regulation in many circumstances. For example,
the proposed risk-based auditing of compliance with the forthcoming
Carbon Reduction Commitment is vital to ensure that the cost of
the scheme does not outweigh the benefits.
THE REGULATORY
REFORM AGENDA
5. In addition to minimising the flow of
new regulations in the short term, there is a growing need for
a more coordinated approach to better regulation across government.
Indeed, there is scope for more far-reaching reform of the regulatory
framework. To date regulatory reform has been piecemeal, characterised
by range of isolated measures—eg guidance on consultations
and changes to the Regulatory Impact Assessment (RIA) process.
But there is no sense of an overall strategy. The introduction
of regulatory budgets, and an independent body to oversee them,
would help deliver a more robust, consistent, and strategic approach
to regulation across government.
6. EEF strongly supports the principle of
regulatory budgets outlined in the BERR's 2008 consultation
document. A framework that provides a structured means of ensuring
the flow of regulation is manageable and the cost burden minimised
would begin to address businesses' growing concerns about regulation.
However, an independent body with oversight of the total regulatory
budget and responsible for ensuring departmental compliance would
be essential to ensuring that the system is robust, credible and
delivers real benefit to businesses.
7. A failure to commit to the introduction
of regulatory budgets in the near future would be a major missed
opportunity at a time when businesses would really benefit from
less onerous, better quality and more consistent regulation.
IMPROVING THE
QUALITY OF
REGULATION
8. In addition, there are a number of ways
in which the existing regulatory framework in the UK could be
improved. Perhaps most important, is improving the quality of
RIAs and ensuring they fully capture the cost of business compliance
with new regulations.
9. RIAs underpin the proposed system of
regulatory budgets. While the framework for RIAs has evolved in
recent years, there remains a need for more realistic assumptions
and consistency across departments.
10. The RIA process would benefit from greater
engagement with businesses to ensure the full extent of costs
is captured as accurately as possible. For example, the RIA completed
prior to introduction of the EU Emissions Trading Scheme significantly
underestimated the administrative burden of participation.
11. RIAs are based on assessing the cost
of regulation on a policy-by-policy basis and there is no mechanism
to take into account the cumulative impact of regulations on business.
A framework for better managing the total regulatory burden is
urgently needed.
12. Other aspects of the regulatory framework
which should be reviewed include the adequacy of (1) incentives
for senior officials to deliver regulatory reform and (2) reviews
of how regulation is working once it has been implemented.
EUROPEAN DIMENSION
13. The regulatory burden faced by UK businesses
is to an increasing extent dictated by the EU where the majority
of legislation now originates. EEF is concerned that meaningful
regulatory reform is a lower priority for European Commission
(EC) than it is for UK government. Unless this is addressed any
reforms implemented in the UK will have limited impact.
14. EEF is concerned by the EC's approach
to assessing the impact of regulation is too often based upon
the theory of what should happen in a perfect world, rather than
upon what will happen in practice. The Artificial Optical Radiations
Directive (2006/25EC) illustrates the point. Despite no evidence
of a significant problem that needs to be tackled, or any demonstrable
health and safety benefits, implementation of the Directive would
impose significant burdens on businesses and is due to be implemented
by April 2010. This is just one example of an endemic problem,
especially in health and safety legislation.
15. EEF is also concerned to note how "simplification"
is used in practice by the EC. There appears to be a mechanistic
approach whereby replacing two directives with one is automatically
regarded as simplification, regardless of whether the requirements
on businesses have increased or decreased. Again health and safety
provides an example. There are proposals to replace two directives
(1990/269/EEC and 1990/270/EEC) with one musculoskeletal disorders
directive and this is being presented by the EC as simplification.
However, the indications are that the new directive would contain
all of the requirements of its predecessors and more. It would
therefore be better regulation in name only; businesses would
experience an increase in regulatory requirements.
CONCLUSION
16. The regulatory reform agenda is now
more important than ever. Manufacturers are facing extremely difficult
trading conditions that are likely to persist well into this.
Government must make every effort to ensure that the burden of
regulation and the costs it imposes on business are kept to an
absolute minimum. There remains a strong case for risk-based regulation
in many circumstances and any regulatory response to the financial
crisis must be targeted and proportionate.
17. To take the reform agenda forward, the
immediate focus should be on improving the quality of regulation
by refining impact assessments. To deliver significant and enduring
benefits, more ambitious reforms are required. In particular,
regulatory budgets overseen by an independent body should be introduced
and UK government must champion the cause of better regulation
in Europe.
March 2009
45 EEF (2007) Blurred Vision. Back
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