Conclusions and recommendations
1.The Government’s limited progress, so far, towards its target of reducing regulatory costs to business by £10 billion relies, ironically, on the imposition of a new regulation requiring larger retailers to charge customers 5p for plastic bags. Since the start of this Parliament, the Government reports that it has reduced regulatory costs to business by an estimated £885 million, which is the net position after taking account of £1.56 billion savings and £0.68 billion of new costs. However, a single new regulation (the requirement for larger retailers to charge 5p for single-use plastic bags) accounts for £1.02 billion of the claimed ‘savings’. While the Better Regulation Executive’s rules classify the plastic bag charge as a saving to business because it brings additional revenue to retailers, it is of course a regulation imposed on business, rather than the sort of deregulation that one would expect to be behind reported savings. Without the plastic bag charge, performance against the Business Impact Target (the Target) would show a net additional cost to business rather than a reduction.
Recommendation: The Better Regulation Executive should consider whether it is appropriate to include regulations imposed on business as contributing towards the target and, given the limited progress so far, set out by the end of 2016 interim targets for savings to be achieved and what steps it intends to take to achieve the target.
2.The credibility of the Target is undermined by its failure to reflect the full range of administrative and regulatory costs that businesses incur. The Government does not always make it clear in its public announcements that there is a range of important exclusions from what is counted against the Target. As a result of these exclusions, the Target does not closely reflect the compliance costs that businesses face. For example, it does not include the expected £4.1 billion cost in the same period of the National Living Wage. This £4.1 billion is part of an estimated £8.3 billion of expected costs to business from regulations implemented since 2015 but is not being counted towards the Target. The Target also excludes all regulations originating from the EU and any that relate to fees and charges that regulators apply to cover the cost of enforcement. Tax administration, which businesses repeatedly cite as one of the most burdensome areas of compliance, is also outside the scope of the Target.
Recommendation: We look to the Better Regulation Executive to tell us how they will develop a more comprehensive picture of the overall compliance costs that government places on the business community and who it will involve in this task.
3.Departments do not know how much it costs the business community to comply with their existing regulations. The Better Regulation Executive has not undertaken a comprehensive review of departments’ existing regulations since 2005. Many departments only partially understand how the regulations for which they are responsible affect businesses and of where regulatory costs could most effectively be reduced. Five of the 14 departments with regulatory responsibility within the scope of the Target currently have no plans to quantify the costs and benefits for business of their existing regulations. Without a comprehensive catalogue of the regulations that affect businesses, the Government cannot effectively decide which regulations to prioritise for removal or amendment. It also cannot know how ambitious its Target is in relation to the overall costs incurred by businesses as a result of its regulation.
Recommendation: As a matter of urgency, departments and regulators, with the support of the Better Regulation Executive, should set out how they intend to improve their understanding of the effects of the existing regulation for which they are responsible.
4.Once departments have implemented a regulatory decision, they do not do enough to monitor and evaluate its impact. The Better Regulation Executive, since 2010, has been advising departments to carry out post-implementation reviews after five years to assess whether the expected costs and benefits of a regulation have been realised. Departments are now required to do so by the Small Business, Enterprise and Employment Act 2015. However, of the 83 regulatory decisions within the scope of the target that departments made in 2011, for which reviews are due during 2016, only two reviews have been submitted to the Regulatory Policy Committee for scrutiny. Departments frequently fail to plan for evaluation when making regulatory decisions. Of the 10 impact assessments this Parliament that the National Audit Office examined, none included plans for how departments would carry out post-implementation reviews.
Recommendation: The Better Regulation Executive should set out how it will ensure that departments include adequate plans for monitoring and evaluation in their impact assessments and implement these plans once the regulation is in place.
5.Departments do not do enough to measure the wider costs and benefits to society of their regulatory activity. Departments and regulators are expected to prepare impact assessments for regulatory decisions, outlining the expected costs and benefits to society as a whole, including to business, consumers, employees and the environment. The Regulatory Policy Committee found that only a third of the impact assessments it examined in 2014 contained rigorous assessments of the wider costs and benefits to society. However, the Committee does not have the power to rate an impact assessment as unfit for purpose on the grounds of inadequate consideration of wider impacts.
Recommendation: The Better Regulation Executive should publish in its annual report estimates of the wider costs and benefits of regulatory decisions and provide details of each department’s and regulator’s performance in assessing these.
6.The Better Regulation Executive’s rules for assessing and validating the expected impact of a regulation are the same, regardless of the scale of the regulation’s impact. The Better Regulation Executive, through its rules and processes, has established a complex bureaucracy across Whitehall that diverts departments’ resources away from potentially more productive efforts to reduce regulation. Over 90% of the £10 billion regulatory cost reductions claimed during the period 2010–2015 were achieved through just 10 regulatory changes. The profile so far this Parliament is similar. Of the 95 regulations that the Regulatory Policy Committee has scrutinised during this Parliament, 64 of them have an individual expected net impact of less than £5 million.
Recommendation: The Better Regulation Executive should inform the Committee by the end of 2016 how it plans to change the rules to allow a more proportionate approach where significantly more effort can be applied to the assessment and validation of the small number of regulations with the greatest impact.
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10 October 2016