MEMORANDUM TO THE HOUSE OF COMMONS REGULATORY REFORM COMMITTEE

 

 

 

 

THEMES AND TRENDS IN REGULATORY REFORM

 

 

 

 

 

SUBMITTED BY THE PARLIAMENTARY UNDER SECRETARY OF STATE, DEPARTMENT FOR BUSINESS, ENTERPRISE AND REGULATORY REFORM (JOINTLY WITH DEPARTMENT FOR CULTURE MEDIA AND SPORT)

 

 

 

 

 

 

 

 

Date: 20 February 2009

 

 

 

 

1. Executive Summary

This Memorandum is submitted to support the Regulatory Reform Committee's inquiry into "Themes and Trends in Regulatory Reform". It:

 

· summarises developments on the regulatory agenda since the Committee's report "Getting Results: the Better regulation Executive and the Impact of the Regulatory Reform Agenda (HC 474-1) of 17 July 2008;

· provides the Government's initial evidence on the specific questions in the Terms of Reference for the new inquiry.

 

 

1.1. The UK's regulatory reform agenda continues to be a world leader. The World Bank Doing Business Report 2009[1] puts the UK 6th out of 181 economies and second in the European Union for "ease of doing business".

 

1.2. The Government continues to make progress on the regulatory reform agenda:

 

· simplifying and modernising existing regulations;

· managing and improving the design of new regulations and how they are communicated; and,

· working with regulators and departments to change attitudes and approaches to regulation.

(details are in Section 2).

 

1.3. The Government has asked Lord Turner, Chairman of the FSA to make recommendations for reforming UK and international approaches to financial regulation, to ensure the future stability of the UK banking system. The review is due to be published in March 2009.

 

1.4. The Government remains committed to the regulatory reform agenda and to a risk-based approach to regulation which is informed by good evidence and risk-based assessment so that regulation is proportionate and focused on the risks which matter most.

 

1.5. In the current economic climate, it is more important than ever that regulation is well designed so that it delivers the desired outcomes as efficiently and effectively as possible. The Government's regulatory reform programme is focused on ensuring continuous improvement in the quality of regulation and the way regulators relate business to ensure compliance.

 

 

 

 

 

2. Recent Progress on Regulatory Reform

 

2.1 Since the Committee's last Inquiry, progress has been made in the following areas:

Simplifying and modernising existing regulations

2.2 In December 2008, the Government reported[2] that Departments have now delivered over 240 simplification measures, taking the total administrative burden savings to date to about £1.9bn annually. The Government is on track to achieve its target to reduce the administrative burdens faced by business, public and the third sectors by £3.4bn annually by 2010, as well as reducing public sector data burdens by 30%. BERR's Simplification Plan Summary document[3], published in December 2008, includes case studies from the business community which illustrate the real-life impact of measures which have been implemented.

 

Two major reviews of specific areas of regulation have been completed:

Health and Safety

2.3 The Government Review "Improving Outcomes from Health and Safety"[4] reported in August 2008. The review considered how the health and safety regulatory regime affects workplaces where the overall risk of injury or ill-health is relatively low, focusing in particular on low risk smaller businesses. It suggests ways to make it easier for businesses to comply with the rules, while reducing injury and ill-health and increasing public confidence in the UK's health and safety regime as a whole, and makes recommendations designed to:

 

· improve health and safety outcomes, primarily by improving information and advice, so making businesses more aware of their obligations, and making it easier for them to know what - and what not - to do in all of the regulatory areas they associate with health and safety;

· save businesses in scope almost £300 million per annum in unnecessary administrative and consultancy costs;

· increase public confidence in health and safety by further challenging inaccurate media coverage and promoting positive messages about health and safety; and,

· target overall inspection resource at workplaces where the risk of injury or ill-health is highest by encouraging further joint working between HSE and local authorities.

 

2.4 HSE's Simplification Plan shows considerable progress in reducing unnecessary burdens on business with a strong focus on information and advice. It contains a programme to tackle myths and changes in perception of health and safety. HSE is consulting on its new Strategy which would take forward work across these areas.

 

 

 

 

Planning

 

Killian-Pretty Review

 

2.5 In November 2008 Joanna Killian and David Pretty published their review[5] into unnecessary bureaucracy in the planning application process. The review was jointly commissioned by the Departments for Business Enterprise and Regulatory Reform (BERR) and Communities and Local Government (CLG) and sets out recommendations on how to make the planning process faster and more responsive and help businesses and councils save up to £300 million a year.

 

2.6 The Government response to the Killian-Pretty review will be published on 25 February 2009 and proposes an ambitious, but deliverable, programme of measures to create a planning application process which is more proportionate, that operates more efficiently and effectively and is more easily understood by all involved.

Planning Bill

 

2.7 The Planning Bill, granted Royal Assent in November 2008, will speed up the planning system and aims to save £28m a year in administrative costs. Communities will be able to give their views earlier in the planning process, reducing costly delays. A new streamlined inquiry and decision making process will speed up the examination of applications. Decisions on nationally significant infrastructure projects will be taken by a new Infrastructure Planning Commission (IPC). The IPC will consider applications against National Policy Statements which will have been scrutinised by Parliament, and will have to take a decision within 9 months.

 

Managing and improving the design of new regulations and how they are communicated

2.8 The Government has completed a consultation on whether a system of regulatory budgets could be implemented as a mechanism to better prioritise policy proposals and manage the total costs of regulation better. It will make an announcement on the way forward shortly.

 

2.9 In July 2008, the Government published a revised Code of Practice on Consultation which came into effect in November 2008[6]. Effective consultation can help to develop effective solutions, identify the full range of affected parties, minimise the risk of unexpected consequences, and discover better implementation methods. About 65 public sector organisations have now signed up to the Government's Code of Practice on Consultation, including all central government departments.

 

2.10 BERR ministers commissioned Sarah Anderson CBE to undertake an independent review of Government guidance for businesses. The Anderson Review - "The Good Guidance Guide"[7] - of guidance relating to employment and health & safety regulation published in January 2009 and makes recommendations about how government can improve the guidance available to small businesses. The key recommendations are that Government should:

 

· provide access for SMEs to a tailored, insured advice helpline on employment and health & safety regulations and provide free access for one year;

· take more responsibility for guidance through removing disclaimers around the accuracy of guidance and encouraging Government inspectors to avoid fining or prosecuting SMEs that have reasonably followed Government guidance; and,

· set out a timetable for updating its most frequently used guidance to comply with the Code of Practice on Guidance.

 

The Government will respond to the Anderson Review in due course.

 

2.11 To support the Government's March 2008 Enterprise Strategy commitment to improve the way that new and existing regulation applies to firms employing fewer than 20 people, the Small Firms Impact Test (SFIT) aspect of Impact Assessment has been revised, requiring more detailed information on the impact on small businesses.

 

2.12 From Parliamentary Session 2008-09, Departments are required to explain the impact on and consideration given to small business in the Explanatory Memoranda accompanying all Secondary Legislation laid before Parliament. This change will additionally apply to Primary Legislation coming into effect from the Parliamentary session starting 2009-10. Departments and regulators are accountable for their approach to regulating small firms through a public explanation of the thinking behind the regulation.

 

2.13 In its report, "Delivering High Quality Impact Assessments" 2009[8] on the revised Impact Assessment process, the NAO concluded that the new Impact Assessment process, introduced in April 2007, has helped to improve the standard, clarity and consistency of Impact Assessments and has resulted in increased incidence of quantification of costs and benefits in Impact Assessments. Nonetheless, there is still a wide variation between the best and worse Impact Assessments and in 2008, the NAO found fewer Impact Assessments which contained costs and benefits for a range of options or summarised an implementation plan. To address these issues, the Government is reviewing the Impact Assessment template and is strengthening the guidance and toolkit to provide more clarity to policy officials, analysts and economists within departments.

 

Working with regulators and departments to change attitudes and approaches to regulation

2.14 Government has recently begun its second phase of reviews of how effectively regulators are implementing the Hampton principles of better regulation. Five Reviews have been published to date[9]; a further 31 Hampton Implementation Reviews will be completed during the course of 2009.

 

Communications

2.15 The Government continues to actively engage with the business community. In communicating the work of the regulatory reform agenda, the Better Regulation Executive has begun a series of week-long regional visits to listen to business concerns, needs and ideas around regulation and to explain the progress that is being made.

 

2.16 Reflecting the progress that is being made on simplification, the Government's presentation, in December 2008, of the third annual set of Departmental Simplification Plans was able to focus on a substantial set of case studies showing how improvements are benefiting real businesses.

 

2.17 The Government published a report "Making it Simple, Annual Review 2008" [10] in January 2009 to summarise progress on better regulation during 2008.

 

Perception

2.18 The World Bank Doing Business Report 2009[11] puts the UK 6th out of 181 economies and second in the European Union for "ease of doing business".

 

2.19 In its report "The Administrative Burdens Reduction Programme, 2008"[12] , the National Audit Office found a small but statistically significant positive shift in businesses' perceptions about regulation. 46 per cent of businesses thought regulation was fair and proportionate, compared to 39 per cent in 2007. 70 per cent said that completing paper work was a burden, down from 74 per cent in 2007. The Government acknowledges that there is still considerable work to be done to improve business perceptions of the UK's regulatory environment.

 

Following up the Regulatory Reform Committee's recommendations

2.20 Since the Regulatory Reform Committee's last Inquiry, "Getting Results: The Better Regulation Executive the Impact of the Regulatory Reform Agenda", the Government has acted on the Committee's recommendations on the following two key themes:

 

2.21 First the Committee recommended increased scrutiny of the results of the Administrative Burden Reduction Programme and Impact Assessments. Similar recommendations were made by the National Audit Office in its report "The Administrative Burdens Reduction Programme" that the claimed savings of the programme should be subject to increased independent scrutiny.

 

2.22 In response the Government put in place an external panel to independently challenge, scrutinise and validate departments' claimed savings. This External Validation Panel first sat in October 2008 to scrutinise departments' claimed savings for December 2008 Simplification Plans. Following their review an estimated £1.7bn of gross simplifications were approved, with an additional £182m approved subject to follow up actions. The External Validation Panel members asked government to re-review the remaining simplifications to ensure they are credible and we have done this for all simplification measures worth more than £10m; an additional estimated £220m. The panel will continue to sit annually to carry out its independent scrutiny function.

 

2.23 Secondly, the Committee recommended improved communication of the successes of the regulatory reform agenda to all stakeholders.

 

2.24 In response the Government has intensified its communication to business stakeholders as described in paragraphs 2.15 to 2.17 above.

 

3. The Inquiry's Themes

What are the implications of recent economic developments for the design and delivery of the regulatory reform agenda, including risk-based regulation?

3.1 The Government remains fully committed to the regulatory reform agenda and to a risk-based approach to regulation which is informed by good evidence and risk assessment to make sure that regulation is proportionate and focused on the risks which matter most.

How might a proportionate and targeted response to improving the regulatory framework in the wake of the financial crisis be made? What lessons are there for the wide regulatory reform agenda?

3.2 On 6 October 2008 the Chancellor asked Lord Turner, Chairman of the FSA, to make recommendations for reforming UK and international approaches to financial regulation, to ensure the future stability of the UK banking system. The review will be published in March 2009.

 

3.3 The Financial Services Authority (FSA) embraces the principles of better regulation. The Financial Services and Markets Act 2000 (FSMA) requires the FSA to have regard to the principle of proportionality between burdens or restrictions imposed by its regulations and the benefits those regulations create.

 

3.4 The FSA regulates on the basis of "principles-based regulation". This moves away from prescriptive rules to a higher-level articulation of what the FSA expects firms to do which has the advantage of giving on firms flexibility to decide how best to align their business objectives and processes with the regulatory outcomes that the FSA has specified.

 

How does the Government balance the need for an effective regulatory framework - providing the necessary benefits and protections - with the commitment to improve the conditions for business success?

3.5 The UK's regulatory environment is recognised as being among the best in the world. The 2009 World Bank "Doing Business" Report[13] puts the UK 6th out of 181 economies for "ease of doing business" and second in the European Union, ahead of all major European economies.

 

3.6 The Government's public commitment to delivering the conditions for business success in Public Service Agreement (PSA) 6 is to maintain the international strengths and standing the UK has as a good place to do business and to continue to improve our domestic markets. The regulatory reform agenda supports this by working to ensure that regulation is focused on the risks and protections that matter most and that regulations are designed to deliver the desired outcomes efficiently.

 

3.7 The Better Regulation Executive is responsible for two PSA6 indicators and five of BERR's Department Strategic Objectives (DSOs) and as shown in Annex A. PSA6 Indicator 5 commits BERR/BRE to report publicly on the overall benefit/cost ratio of all incoming regulation. This indicator will be published for the first time starting in Spring 2009. PSA6 Indicator 6 covers the public reporting of delivery towards the 2010 target to reduce the Administrative Burdens on business by a net 25% by May 2010.

How could the Government improve its capability to regulate in a proportionate and effective manner?

3.8 The Government believes that to sustain continuous improvement it is necessary to continue to focus on all of the strands in its regulatory reform programme, ie:

 

· simplifying and modernising existing regulations;

· improving the design of new regulations and how they are communicated;

· changing attitudes and approaches to regulation to become more risk-based; and,

· to work both in a UK and EU context.

 

3.9 The Government sees external challenge around its approach to regulation as a powerful influence on the policy development process. In recent years it has significantly increased the transparency of the regulatory process, for example by making impact assessments more transparent and available in an online library, by revising the consultation process, by publishing a draft legislative programme and by strengthening the scrutiny of laws after they have been enacted by Parliament[14]. From Spring 2009, the Government will start to publish an annual benefit/cost ratio of its regulatory changes.

 

3.10 Many other nations seek UK guidance in designing their own approaches to regulatory reform. BRE engages closely in understanding other countries approaches to better regulation and to share best practise internationally.

 

Is there a coherent package of regulatory measures for improving the conditions for business success; and how regulatory reform initiatives fit into wider Government support?

3.11 The key elements of the Government's regulatory reform programme are summarised in Annex B. The programme, which addresses the existing stock of regulations, the flow of new regulations, the culture of departments and regulators, and has both a UK and EU focus, forms a key component of PSA6 - improving the conditions for business success. Government is also committed to reducing the administrative burden on front-line public sector workers, by 30% by 2010.

 

3.12 Recent developments in the regulatory reform programme are highlighted in Section 2 above.

 

3.13 Alongside the domestic programme Government also works within the EU to improve approaches to regulation. During 2008 the European Commission completed its administrative burden reduction measurement and in its "Third Strategic Review on Better Regulation" of January 2009 committed to adopting proposals this year that will lead to achievement of the burden reduction target of 25% by 2012. Also in January 2009, the Commission published its new Impact Assessment Guidelines. In line with the Government's submission to the Commission consultation on IA, these guidelines give greater emphasis to quantification, set out the importance of consultation (including consulting beyond the current Commission minimum standards on controversial/sensitive issues or over a holiday period). Importantly, the Commission will now carry out IA on all significant proposals, including comitology decisions (previously only initiatives in the annual work programme were subject to IA).

 

3.14 In line with UK requests, 2008 also saw agreement on a "Small Business Act for Europe" containing several better regulation elements, including the introduction of EU common commencement dates, reduction of burdens on SMEs and routinely scrutinising policies for costs and benefits on small companies.

 

4. Design of New Regulations

Does Government understand businesses sufficiently to design effective regulations? Is sufficient emphasis given to small businesses and competition issues?

4.1. The Government agrees that having a strong understanding of business is key to designing effective and efficient regulations that are intended to change business behaviour. The same is true for regulations intended to influence the third sector, the public sector or citizens.

 

4.2. The Government's Code of Practice on Consultation underlines the need for ongoing dialogue between Government and stakeholders. The formal consultation process supports this, allowing for public scrutiny, helping solicit views from interested parties (including business) and giving those who would be affected by a new policy the opportunity to express their thoughts before the policy is finalised.

4.3. About 65 public sector organisations have now signed up to the Government's Code of Practice on Consultation, including all central government departments.[15]

 

4.4. The Government has strategic engagement with business at many levels including with representative organisations such as the Confederation of British Industry (CBI), British Chambers of Commerce (BCC), Institute of Directors (IoD), and the Federation of Small Business (FSB), the Forum of Private Business and other sector trade associations.

 

4.5. The BRE's move to the Department for Business, Enterprise and Regulatory Reform has increased its synergy with Ministers and policy officials specifically responsible for small business and competition issues. Also, over 30% of BRE staff have private sector business experience.

 

4.6. The BRE engages with businesses including the use of media, website, events and stakeholder groups. BRE is currently piloting a series of week-long visits to each region of the country, where staff talk to businesses and their representative organisations, presenting to audiences, carrying out Q&A sessions, hearing from business what regulatory issues are causing them the most trouble and identifying themes and trends from across the visits to help identify areas for further action. Businesses are also encouraged suggest ways Government can simplify regulations through the better regulation website at www.betterregulation.gov.uk.

 

4.7. More widely, BERR encourages its policy officials to spend time in business through its "week in business" programme where staff are encouraged to spend week-long placements in businesses organisations.

 

Is there sufficient consideration of how regulations will be implemented, including an appropriate focus on compliance and enforcement issues?

4.8. Implementation, including compliance and enforcement issues, are a crucial part of effective policy making.

 

4.9. The Government's simplification programme is encouraging departments and regulators to pay increasing attention to the ease with which businesses can comply with regulations:

 

· The Government has committed to make information and tools to help business comply with regulations more readily available and more easily and cheaply accessible and a code of practice on guidance has been developed to help departments develop better guidance to business.

 

· Businesslink offers e-mail updates on changes to regulation. Businesses who register receive an email, prior to each Common Commencement Date, to advise them about forthcoming changes to regulations.

 

· Departments and regulators are developing tools to help businesses comply more easily with regulations, for example:

 

o BERR's Employment law Guidance Programme has produced and promoted free-to-use and legally-compliant on line tools, proforma letters and agreement forms. These are accessible via the Businesslink website (Businesslink.gov.uk) saving businesses around £400 million a year;

o HSE has developed easy-to-follow examples of how to assess risk in the workplace for 18 types of businesses including convenience stores, estate agents, dry cleaners and hairdressing salons, saving businesses about £180 million a year.

 

4.10. Following the Hampton Review the Government has encouraged regulators to support businesses with improved advice on how to comply with regulations. The Regulators' Compliance Code sets out that regulators should consider the impact of their work on economic progress.

 

4.11. The Local Better Regulation Office (LBRO) works closely with local authorities, relevant stakeholders and policy officials to improve the quality and consistency of local authority regulatory services.

 

4.12. The Regulatory Enforcement and Sanctions Act, 2008 gave LBRO a number of statutory powers including the power to advise central government. This could include advising and making proposals to Ministers about the law they set for local authorities to enforce if, for example, LBRO found that there are difficulties with the implementation of specific legislation at a local level.

 

4.13. The NAO's recent report on Impact Assessments reports an improvement in the consideration of enforcement issues in impact assessments, though notes that there is still scope for further improvement.

Annex A - Department Strategic Objectives (DSOs) and Public Service Agreements (PSAs)

 

 

BRE PSA and indicators of success

 

PSA6: Deliver the conditions for business success in the UK

 

· Indicator 5 - Benefit/Cost Ratio - including a commitment to publicly publish a benefit/cost ratio for all new government regulation, annually, starting in April 2009

· Indicator 6 - Admin Burden Reductions - where government publishes annual Simplification Plans each December to report on delivery plans and progress to-date.

 

BRE DSO and indicators of success

 

DSO 2: Ensure that all Government Departments and agencies deliver better regulation for the private, public and the third sector

 

· Administrative burdens reduction across 19 departments; a 25% reduction for the majority of departments by 2010. Includes BERR target to deliver 25% reduction in measured admin burdens by 2010

· Proportion of businesses (and voluntary sector organisations) who believe that "most regulation is fair and proportionate" in five policy areas - employment law, tax law, health and safety, planning law and company law

· Flow of regulation: total benefit/cost ratio of regulations coming forward over time

· Performance of local authority regulatory services: measured with national perception indicator

· Overall performance in the World Bank "Doing business" survey and OECD surveys of the policy environment

· Proportion of bureaucracy and red-tape which the public sector front line believes to be unnecessary

· Reduction in data stream requirements from central government to the public sector front line by 2010. Includes 30% cross-Government target to reduce burdens on front line public sector staff

 

 

 

Annex B - The Wider Regulatory Reform Programme 2008-9

		Working with departments and regulators to simplify and modernise existing regulations	Working with departments and regulators to improve the design of new regulations and how they are communicated	Working with regulators (including local authorities) and departments to change attitudes and approaches to regulation to become more risk-based
Systems Reform	Domestic	· Administrative Burdens Reduction Programme · Legislative Reform Orders · www.betterregulation.gov.uk website · Programme for reducing data requests on front line public sector workers · Independent review of Government guidance - The Anderson Review · Regulatory Budgets · Regulators access to Macrory powers	· Embedding of Impact Assessment process · Consultation Code of Practice introduced · Commitment to publish benefit cost ratio of new regulations from April 2008 · Code of Practice for Government guidance · Improved communications around new regulations introduced on Common Commencement Dates · Small business regulation · Regulatory Budgets · Business engagement in regions	· Mergers of national regulators / inspectorates · Reviews of Independent Regulators · Regulators Compliance Code · Statutory Duty on Regulators to Address Burdens · Clarifying regulatory priorities for local authorities · Working with LBRO to promote better regulation within local authority regulatory services · Retail Enforcement Pilot
EU	· 25% EU Admin burdens target	· Ongoing work to improve the Impact Assessment Process in the European Union	· Building on relationship with other members states to promote overall improvements in European regulatory reform
Intervention - specific policy areas	Domestic	· Consumer Law Review · Improving outcomes from Health & Safety Review · Support for Flanagan Review of Policing	· Ongoing engagement and challenge between Better Regulation Executive staff and departments on the development of new domestic and EU policy · Cabinet Office Panel for Regulatory Accountability (PRA) clearance of new regulations	· The Killian Pretty Review · Joint work on carbon budgets with OCC · Developing a risk-based inspection regime with Healthcare Commission
EU	· Will potentially follow from EU Admin burdens work

 

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[1] Available online at: http://www.doingbusiness.org/documents/fullreport/2009/DB09_Full_Report.pdf

[2] Available online at: http://www.berr.gov.uk/files/file49273.pdf

[3] Available online at: http://www.berr.gov.uk/files/file49273.pdf

[4] Available online at: http://www.berr.gov.uk/files/file47324.pdf

[5] Available online at: http://www.berr.gov.uk/whatwedo/bre/reviewing-regulation/Planning%20Review/page4

[6] Available online at http://www.berr.gov.uk/whatwedo/bre/consultation-guidance/page44420.html

[7] Available online at: http://www.berr.gov.uk/whatwedo/bre/reviewing-regulation/The%20Anderson%20Review

[8] Available online at: http://www.nao.org.uk/publications/0809/high_quality_impact_assessment.aspx

[9] Available online at: http://www.berr.gov.uk/whatwedo/bre/inspection-enforcement/implementing-principles/reviewing-regulators/page44054.html

[10] Available online at: http://www.berr.gov.uk/whatwedo/bre/about/page44014.html

[11] Available online at: http://www.doingbusiness.org/documents/fullreport/2009/DB09_Full_Report.pdf

[12] Available online at: http://www.nao.org.uk/whats_new/0708/0708944.aspx

[13] Available online at: http://www.doingbusiness.org/documents/fullreport/2009/DB09_Full_Report.pdf

[14] Available online at http://www.lawcom.gov.uk/docs/lc302_government_response.pdf

[15] Available online at: http://www.berr.gov.uk/whatwedo/bre/consultation-guidance/page44420.html