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The noble Lord, Lord Howard of Rising, will not have heard a direct answer to his question because I do not think there is one. However, we are attempting to achieve, and we are beginning to achieve, a practical and hard-nosed approach to tackling real problems with regulatory burdens that exist for people out there in the real world, rather than theoretical burdens that the noble Lord seems to think can be solved by a massive expansion in bureaucracy and a rather heavy-handed approach to quantification.
Lord Howard of Rising: Perhaps I can start by trying to take away some confusion for the noble Viscount, Lord Bledisloe. I accept that Clause 1 goes wider than pure regulation. I am hoping that that will be changed at a later stage.
Viscount Bledisloe: Could the noble Lord expand on that extremely cryptic answer? Is he saying that he intends to replace the word “regulation” with “legislation” when he returns with an amendment?
Lord Howard of Rising: The intention is to introduce an amendment to insert the word “regulatory” between the words “reduce” and “burdens” at the beginning of Clause 1.
Lord Bassam of Brighton: What does the noble Lord mean by “regulatory” in that context?
Lord Howard of Rising: The same as in Clause 2. The point is that Ministers already have very substantial power, as the Minister pointed out, to reduce the regulatory burden and they are simply not using it. To try to get them to use that power they must have some form of compulsion. If they do not have it, they will not use it. It is very simple and I cannot believe that the Minister cannot understand that and, ultimately, agree with me. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Howard of Rising moved Amendment No. 32:
If a Minister of the Crown is unable to estimate the average burden in time or cost imposed on persons or businesses affected by a regulation he has introduced, he shall make an order to remove or reduce that regulation.”
The noble Lord said: This amendment looks at the process of assessing the impact of regulations. The regulatory impact assessments that accompany pieces of legislation laid before either House are a useful tool for forecasting where the costs and impacts of policy changes will fall in future. I see from the Cabinet Office website that as at June 2005, there was 100 per cent compliance by government departments
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The effects of regulation are what matter. Using the device to measure subsequent performance against the original intention will show whether the legislation is having the intended effect. The purpose of the amendment is to put a duty on Ministers to examine the impact of regulations after their introduction. If the assessment is unable to estimate the effect of the regulation, clearly there is no point in the regulation and it has to be removed automatically.
I understand that since 2003, the National Audit Office has carried out independent evaluations of regulatory impact assessments. On page 32 of its last report, the Evaluation of Regulatory Impact Assessment Compendium Report 2004-05, it stated that nine out of 10 regulatory impact assessments in its sample,
- “complex monitoring procedures were sometimes in place but these were not reflected in the regulatory impact assessments”.
Will the Minister say whether the National Audit Office’s recommendation that regulatory impact assessments should describe the monitoring process in more detail is being complied with? It is pointless to create regulations and not to examine properly whether they are achieving what was intended. I beg to move.
Lord McKenzie of Luton: We understand the thrust of where the noble Lord is coming from with this amendment. I hope, as my first task in this Bill, I can persuade him that his approach is flawed and that what is already in process effectively meets what he seeks to achieve.
The noble Lord is effectively saying that regulations which the Government are unable to measure in terms of time and cost should either be removed or reduced. That position seems to have no regard to possible evidence of the benefits of introducing the regulation. If we accepted that, the noble Lord could find that important protections for consumers and other groups could be removed. That is why the Government require regulatory impact assessment for new regulations, including consideration of non-regulatory options. All regulatory proposals must be accompanied by a regulatory impact assessment, and major proposals are scrutinised and require approval by the Panel for Regulatory Accountability. The purpose of RIAs and PRA scrutiny is to ensure that the costs and consequences of regulatory proposals are reasonable and proportionate to the benefits. Exemptions for any group or sector, including small businesses, are considered on a case-by-case basis, with Ministers making their decision transparent through the RIA/PRA process.
One of the key principles of better regulation is light-touch implementation of policy proposals. The amendment runs counter to that principle, adding an
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On the cost of business, charities and voluntary organisation complying with existing regulations, no UK Government have understood what the estimates of the administrative costs are until now, as my noble friend has just outlined. As part of one of the most ambitious regulatory reform agendas in the world, the Government have faced up to the challenge of identifying and measuring the total administrative costs placed on businesses, charities and voluntary organisations by existing government regulation.
Noble Lords have just heard that each department will publish detailed information later this year on both the administrative costs of complying with government regulation, and their plans for reducing these costs and other regulatory burdens. The Government will set stretching but achievable targets for reducing each department’s administrative costs over time. To put such an amendment in the Bill would be too prescriptive, giving no regard to important protection the regulation may exist to provide. It would not take account of what the Government are already delivering on measurement of administrative costs on the regulated, an approach wholeheartedly supported by the business community:
“We are encouraged that the effort to plan and then implement reductions in administrative burdens is already underway, through a nationwide survey to establish how much time and money businesses must expend to demonstrate compliance, and to identify which regulations impose the greatest burdens”.
Those are not my words, but those of key representatives of business in a letter to the Government earlier this year.
While it seems a sensible amendment on a prima facie basis, it would cause uncertainty within the regulatory environment. This Government have for the first time completed an exercise to identify and measure the administrative costs of government regulations on business, charities and voluntary organisations. We will set meaningful targets for reducing those costs, and recognise that everything on the statute book, whether originating from this or other administrative legislative output, has been measured in terms of time and cost. Each government department has identified its existing stock of regulations through the administrative burdens reductions exercise, evidence that will indicate where the costs are, so that they can then take action to reduce them.
In summary, I welcome the noble Lord’s intent with this amendment, but do not agree that it is an effective way of achieving the right outcome. I invite him to withdraw it.
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7.15 pm
Baroness Carnegy of Lour: The Minister has given a long and interesting reply. My noble friend was asking a simple question: will the Government look at individual regulations to see whether they have worked? In other words, he is asking for post-legislative scrutiny. If it has not worked, my noble friend suggests that that regulation is no good and should be withdrawn. It is a fairly simple question. The amendment may be the wrong way to ask it—I see that—but do the Government mean to look at regulations, see whether they have operated as they expected and report on them?
Lord McKenzie of Luton: To start with, I do not think that is what the amendment asks. I understand the thrust of what was asked when the amendment was moved. The approach being taken is a continual review of regulation. When a regulation has been introduced with an impact assessment, part of the ongoing departmental process will be to keep burdens, costs and regulation under review.
Lord Howard of Rising: I thank the Minister for his thoughtful and constructive approach. I shall reflect on it between now and Report. In the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Wilcox moved Amendment No. 33:
(1) Where an order made under section 1 has as its purpose the reduction (as opposed to the removal) of any burden, or overall burdens, the Minister of the Crown must consider whether a total exemption for small businesses from a such burden or burdens is appropriate.
(2) If the Minister does not consider such exemption appropriate, he must submit a report to Parliament at the same time as the draft order is laid before Parliament explaining the reasons why he has come to this conclusion.
(3) For the purpose of this section “small businesses” refers to businesses that fall within the criteria of a small group as set out in section 249(3) of the Companies Act 1985 (c. 6) (qualification of group as small or medium-sized).”
The noble Baroness said: Small businesses are vital to the UK economy. There are about 3.8 million in the UK, of which 1.6 million are sole traders. They account for 99 per cent of UK firms, generate more than half the total UK turnover and employ 56 per cent of the private sector workforce. Regulations can have a disproportionately large impact on small businesses because they usually do not employ a regulatory specialist and the costs of, for example, employment regulation are absorbed across fewer employees.
The National Audit Office report goes on to say that,
“Departments must therefore pay particular attention to the potential impact of their proposed regulations on small businesses”.
The amendment seeks to put this recommendation in statutory form. When using this order-making power to reduce burdens, a Minister should always consider
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As far as I am aware, when preparing its regulatory impact assessments, current practice is for the relevant department to consult the small business section of the DTI, to get its agreement on its impact assessment on small businesses. The National Audit Office report of March 2005, on page 21, said that, in four cases out of eight in the sample, the small business section had not been given enough time to produce a considered response. Can the Minister confirm whether this unsatisfactory state of affairs has been rectified?
The report went on to cite an example of where small businesses have not been properly considered. The Department of Health seemed to have been a major offender:
“The SBS told us that the Department of Health did not enter into negotiation and asked the SBS not to provide comments for the RIA for the National Care Standards Commission Fees and Frequencies of Inspection 2003-04”.
It cited the example of the regulations regarding the recovery of NHS treatment costs. The Department of Health identified that one of the effects of this regulation would be an increase in insurance premiums. According to the National Audit Office, the department made no attempt while preparing the RIA to calculate the increase in premium for an average small business or to assess whether it will be disproportionately affected.
So, there we have it—clear evidence from an independent source that small businesses can and will get overlooked. We need to take the opportunity that this Bill presents to put something in concrete that will reassure the small business community that they will not get overlooked. I beg to move.
Baroness Sharples: I support my noble friend. Some 28 years ago the noble Lord, Lord Ezra, among others, and I spoke of the problems of small business—they had many. What has changed? Burdens on small businesses have increased substantially since then, especially the paperwork, which, most unfairly, requires hours of work. I hope the Government will ease the many burdens imposed on small businesses by exempting them from many of these proposed regulations.
Lord McKenzie of Luton: While the tabling of this new clause indicates that the Opposition are as eager as we are to help small businesses, the amendment is not required and therefore the Government cannot support it.
One of the main policy objectives at the heart of this Bill is that orders made under the power in Clause 1 will help to reduce regulatory burdens, including burdens on small businesses. The proposed new clause is therefore unnecessary. All regulatory proposals must be accompanied by a RIA, and major proposals are scrutinised and require approval by the Panel for Regulatory Accountability (PRA).
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The purpose of RIAs and PRA scrutiny is to ensure that the costs and consequences of regulatory proposals are reasonable and proportionate to the benefits. Exemptions for any group or sector are considered on a case-by-case basis, with Ministers making transparent their decision through the RIA/PRA process, as we have just discussed.
One of the key principles of better regulation is light-touch implementation of policy proposals. This amendment runs counter to that principle, as did the previous one. RIAs already consider the impact of any regulation on small and medium enterprises and are subject to scrutiny by officials within the Better Regulation Executive. The chair of the Small Business Council, Julie Kenny, is invited to attend meetings of the PRA. That seeks to ensure that small businesses have a voice on the committee and that the regulatory proposals scrutinised take full account of the impact on small businesses.
The Government are already reducing regulatory burdens on small businesses. For example, we are exempting nearly 900,000 companies from audit requirements on their accounts as a result of raising the annual turnover threshold from £1 million to£5.6 million, saving companies at least £94 million a year. We have introduced regulation updates: a one-page “see at a glance” look at new regulations which enable an SME to decide whether a new regulation will affect it, without having to wade through a lengthy document, saving time and money. We have introduced a 12-week minimum implementation period for new regulation, giving implementation guidelines to SMEs, to enable them to prepare for new regulation at least three months before it is due to come into effect.
The DTI simplification plan alone identifies how it will reduce the burdens on businesses by more than £1 billion over the lifetime of its five-year programme.
The Company Law Reform Bill, the heart of which is deregulation, will deliver savings to businesses of some £250 million a year. That includes an estimated annual saving of £100 million for small businesses.
The requirement in the Bill for consultation on any proposed order will also allow those affected by any proposals to have an opportunity to put their case to the Government. The Government will take these views into account before a draft order and explanatory document are laid before Parliament. The explanatory document must give details of the consultation, representations received and any changes made as a result of those representations. Those representations from small and medium enterprises, as with other representations, will of course be reflected in this explanatory document. There is a clear overlap between what this amendment would require and what is already required by the Bill in the explanatory document.
This Bill is about reducing and removing unnecessary burdens, not increasing them. The amendment will make the procedure more onerous, diverting valuable resources away from actually delivering the necessary reductions in red tape that businesses, the public and the voluntary sector are crying out for.
Small businesses are the backbone of the UK economy—we share a view on that. There are a record
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The Bill has widespread support, including from the Federation of Small Businesses and the Small Business Council. It is difficult to see how the proposed new clause would add anything to the mechanisms this Government have already put in place to support small businesses. Small business, as defined, is in danger of putting a straitjacket on the approach which the Government would take on this, because the definition of “small or medium-sized enterprise” may differ according to the requirement of the particular regulation. A Companies Act definition may be appropriate if one is considering exemption from audit or from some other more detailed requirement of financial reporting. It is not necessarily always the key test for other requirements. To put such a straitjacket in the Bill is unhelpful. On the basis of the evidence provided, I therefore urge the noble Baroness opposite to withdraw this amendment.
Baroness Wilcox: I have listened to the Minister's reply. I am very pleased that the small business organisations he referred to seem to have confidence in the Government’s approach. I do not have that much confidence. I have run a small business and know how often these things sound wonderful on paper but can take an awful lot of time to do. Anything that goes near a government department always seems to take a lot more time.
I am delighted that the Minister has now joined us and has given the noble Lord, Lord Bassam, a slight breather as he seemed to be batting totally on his own. It is very nice to have him here. He will know that many of the previous amendments centred on the fact that we want provisions in statutory form.
We, like the Government, are very keen that this Bill is an improvement on the 2001 Act. That sounded good, too, in its time, but we are worried that there is not enough force behind it. If the Minister is staying with us, he will see more amendments like this where we are trying to get more robust and tougher legislation to call departments to account and to get them to Parliament—so that it forces their hands.
I will read very carefully the Minister’s response to this amendment. For the moment, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Bassam of Brighton: Given the nature of the following business, I suggest that the Committee stage begins again not before 8.30 pm. I therefore beg to move that the House do now resume.
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