Reducing the cost of complying with regulations: The delivery of the Administrative Burdens Reduction Programme, 2007

Executive Summary

National Audit Office Value for Money Report

1. In March 2005 the Government accepted the Better Regulation Task Forces Less is More Report[Footnote 1] which set out eight recommendations for reducing the burdens on business of complying with regulation. In May 2005 the Government began implementing the recommendations through the Administrative Burdens Reduction Programme. It has measured the administrative burdens imposed on businesses and set targets to reduce these by 2010. Central Government departments and their agencies are implementing the Programme and have published plans setting out how reductions will be achieved.
    
2. The Governments aim is to improve the UK business environment by: ensuring that regulation is used only when necessary; simplifying and removing unnecessary regulations; and making sure that EU law is not gold-plated when transposed into UK law. The ultimate objective is to achieve a faster rate of productivity growth in the UK.[Footnote 2] Reducing the administrative burdens of complying with regulation is one part of these reforms and the Government believes that burdens should be as low as they can be without jeopardising regulatory policy objectives. The Governments rationale for the Programme is that reducing administrative burdens and removing unnecessary regulations should help promote innovation and improve businesses productivity.
    
3. The National Audit Office (NAO) will report to Parliament on the achievements of the Programme, and examine the extent to which it is delivering its intended objectives. The real test of the Programme is the extent to which it delivers meaningful improvements for businesses. The NAO will, therefore, conduct an annual survey to track businesses perceptions of the burden of regulation and the impact of departmental initiatives to reduce administrative burdens.
    
4. This years examination focuses on the Better Regulation Executive (BRE), which is responsible for co-ordinating the Programme, and the four departments that are responsible for 75 per cent of the total administrative burden: Communities and Local Government (CLG); the former Department of Trade and Industry (DTI); HM Revenue & Customs (HMRC), and the Health and Safety Executive (HSE). We have focused on actions taken in the five areas that impose the largest administrative burdens: Planning Law; Employment Law; Company Law; Tax Law, and Health and Safety Law.
    
5. On 28 June 2007, the Prime Minister announced the establishment of the Department for Business, Enterprise and Regulatory Reform (BERR). The new Department brings together functions from the former Department of Trade and Industry, including responsibilities for enterprise, business relations, regional development, fair markets and energy policy. However, this report covers the period before 28 June and, therefore, refers to the Department of Trade and Industry. The Better Regulation Executive, which was previously part of the Cabinet Office, has moved to the BERR and will retain its cross-government role promoting better regulation across the business, public and voluntary sectors.
    
6. This report sets out the context and rationale for the Programme (Part 1); explains the measurement of administrative burdens and reduction targets (Part 2); examines how four departments are seeking to identify and deliver reductions (Part 3); and considers how outcomes will be assessed (Part 4). This is the first in a series of annual reports that will track Government progress until 2010 and evaluate the outcomes. Our scope and methodology are set out in detail in Appendix 1.
   

   
   Main observations
   

   Reducing administrative burdens: context and rationale (Part 1)
   
   

7. Regulation has long been a concern for business in the UK and there have been numerous Government initiatives to cut red tape. The Administrative Burdens Reduction Programme is different to previous initiatives as the Government has estimated, for the first time, the burden on business of complying with the information obligations created by regulations. By setting targets and monitoring progress, it has also established a means of holding departments to account for delivering reductions in regulatory burdens on business. Our analysis demonstrates that:
    
   • the Government decided to implement the Programme following a review of a similar exercise undertaken by the Dutch Government. The Government believed that reducing administrative burdens offered potential benefits for the UK economy because businesses could use resources spent on complying with regulation to increase their productivity instead;
      
   • the Better Regulation Task Force estimated that implementing the recommendations in the Less is More report could lead to an increase in UK GDP by up to 16 billion for an investment of 35 million. This estimate was based on approximate calculations of how the Dutch economy might respond to reductions in administrative burdens. The outcomes of the Dutch initiative had not been assessed at the time the Less is More report was published; and
      
   • the NAOs 2007 survey of businesses showed that the majority of respondents understand the purpose of regulation. 60 per cent agreed, however, that the overall level of regulation is an obstacle to their success and nearly half rated a reduction in costs as very important. Business concerns focused on the complexity of regulations and 67 per cent did not believe that the Government understands business well enough to regulate.
      

   Measuring administrative burdens (Part 2)
   
   

8. Between September 2005 and May 2006, the Government used a method, known as the Standard Cost Model, to ask businesses how much time they spent meeting the information obligations of regulations. This allowed the Government to estimate the aggregate administrative burdens imposed on business. The results showed that the administrative burden of regulations in the UK was just under 20 billion as at May 2005. It is important to note that:
    
   • the calculations of administrative burdens are estimates and must be treated with caution as they are indicative and not statistically reliable. The figures do, however, provide an indication of which areas of regulation impose the highest administrative burdens and provide a baseline for assessing if reductions are achieved;
      
   • in preparation for the measurement exercise, departments systematically mapped their regulations that impose administrative burdens on business. They also considered which businesses were affected by these regulations. This information was recorded in databases and provides departments with an opportunity to carry out a wider assessment of the impact of regulations;
      
   • the Programme focuses specifically on regulations that impose information obligations, and thus administrative burdens, on businesses. It, therefore, covers only one element of the total cost to business of complying with regulation;[Footnote 3] and
      
   • the Government spent 17 million on consultancy fees to undertake the measurement exercises. Other departmental costs were either not systematically recorded or not recorded at all.
      
9. Eighteen departments and agencies have committed to reducing administrative burdens on business by at least 25 per cent[Footnote 4] by May 2010. Due to the specialist nature of tax regulation, the Chancellor of the Exchequer set separate targets for HMRC to: reduce the cost to business of complying with tax forms by 10 per cent, and the cost to compliant businesses of complying with audits and inspections by at least 15 per cent by 2010-11. If all these targets are achieved, they represent total potential aggregate savings for business of approximately 4 billion. Our analysis shows that:
    
   • in setting reduction targets, the Government followed the precedent set by the Dutch and Danish Governments that have both adopted targets to reduce administrative burdens by 25 per cent. The Dutch and Danish targets were based on political decisions. The UK targets are part of a pragmatic approach to focus efforts within departments on reducing burdens, while not jeopardising regulatory policy aims. The targets are not based on a calculation of the desired or achievable level of reductions;
      
   • setting targets has provided a new focus and impetus to Government efforts to reduce the administrative burdens of regulation;
      
   • there is a risk that businesses will not notice a meaningful impact from the initiatives to reduce administrative burdens, which places doubt on the extent to which the Programme will deliver its stated objectives; and
      
   • the targets are for a net reduction in administrative burdens. Departments should, therefore, estimate the administrative burdens imposed by regulations introduced between May 2005 and May 2007 in order to update their baselines. In May 2007, the BRE introduced a new Impact Assessment process[Footnote 5], which includes a requirement for departments to record the estimated administrative burdens of new, or changes to, regulations.
      

   Identifying and delivering reductions (Part 3)
   
   

10. In December 2006, 19 departments and agencies published Simplification Plans that outline some 500 proposed measures to reduce administrative burdens. The Plans also include initiatives to deregulate, and to consolidate and rationalise regulations. HMRC has drawn up an equivalent action plan for delivering its targets. The measures could potentially reduce administrative burdens by some 2 billion. The four departments in our sample had identified measures which, if delivered, would achieve reductions of between four and 18 per cent of their baselines. Analysis of departments plans showed that:
     
    • all four departments were committed to identifying possible reductions. The first round of plans drew heavily on on-going initiatives to simplify regulation;
       
    • departments have focused on achieving reductions for regulations that impose the highest administrative burdens; and
       
    • the type of regulation, whether it is international or domestic, will influence the ability of departments to deliver reductions. For example, DTI is responsible for much domestic regulation and is starting to claim cost reductions immediately. HSE, on the other hand, is responsible for much legislation originating in the EU and therefore expects to deliver impacts over a longer time-frame.
    
    
11. The real test of the Programme is the extent to which it delivers meaningful impacts for businesses. The experience in the Netherlands showed that the reductions achieved by the Dutch Government have not been noticed in full by businesses. Reports from Denmark show that although some businesses are aware of the Danish Governments achieved reductions, for most businesses the reductions have still not been noticeable. It is important to note that:
     
    • the NAO survey showed that the administrative tasks covered in the measurement exercises were not always cited by businesses as the most burdensome aspects of complying with regulation. Businesses rated the following activities as particularly burdensome: keeping up-to-date with changes in existing regulations; the time it takes to go through the whole process of complying; the lack of information about which regulations apply; and finding information and guidance. These are aspects of complying with regulation that businesses find irritating irritation factors but that are not necessarily costly in monetary terms;
       
    • departments have recognised that delivering impacts for business will require them to address the aspects of regulation that businesses find particularly burdensome. The four departments are seeking to reduce quantified administrative burdens but are also focusing on irritation factors. Departments are, therefore, seeking to use the Programme to deliver wider improvements in the regulatory environment; and
       
    • there has been little consideration of how reductions in administrative burdens may affect businesses of different sizes. Calculations of administrative burdens, except in the tax area, were carried out at an aggregate level.
    
    
12. Departments with Simplification Plans will update these annually until 2010. HMRC will also update its action plan on a regular basis. In 2007, departments face the triple challenge of implementing their proposed measures; identifying additional reductions that will achieve further progress towards their targets; and ensuring that these initiatives make a real difference for businesses. We evaluated if the four departments were developing adequate processes to deliver their commitments and found that:
     
    • each department has established processes for consulting with business to identify what type of measures are likely to deliver a real difference;
       
    • each department has put in place governance arrangements to monitor delivery against deadlines and targets; and
       
    • departments have been proactive in establishing processes to deliver the Programme, and frameworks are now in place. Our Report next year will examine if departments are using these to deliver proposed reduction measures.
    
    

    Evaluating and communicating outcomes (Part 4)
    
    

13. The Government will measure progress towards the net reduction targets by calculating changes against the administrative burden baselines established by the measurement exercises. In May 2007, the BRE released guidance that provides a framework for departments to use when calculating reductions. We found that:
     
    • departments are responsible for calculating their own achieved reductions in administrative burdens and have started to consider how to use the BREs framework. HMRC has already developed its own method for costing reductions that is consistent with how the Standard Cost Model was applied to estimate administrative burdens in the tax area. It remains to be seen with what level of consistency the framework will be interpreted and applied across Government;
       
    • the limitations of the original measurement exercises, and the need to consider the burdens of regulation more widely, mean that progress towards the targets should not be used as the sole measure of success. The four departments are developing, but have not yet established, indicators to evaluate the impact of their initiatives to address the irritation factors that were not quantified in the measurement exercise;
       
    • departments with Simplification Plans will use these to report progress. The BRE will co-ordinate and report on cross-Government progress in delivering reductions. HMRC has established separate reporting arrangements; and
       
    • it is essential to communicate changes in the regulatory regime to businesses. The BRE and departments are developing strategies to communicate changes and achieved reductions to businesses.
    
    
14. The Government is implementing the Programme as part of a wider package of measures to reduce the burden of regulation and, over the longer-term, improve the productivity of the UK economy. Our main observations are that:
     
    • the benefit to businesses of achieving the 25 per cent administrative burdens target is uncertain. As the Government has not measured the total cost of complying with regulation, the relative importance of administrative burdens is not known. It is important, therefore, that departments are not driven exclusively by the need to meet this target;
       
    • the effect of the level of regulation on productivity has not been conclusively established. In January 2007 a cross-departmental group was established to examine the relationship between regulation and productivity; and
       
    • the Programme may deliver beneficial outcomes other than those intended, including a better understanding among policy officials of the regulatory regime and how it affects business. The BRE and departments are also using the need to achieve a net reduction target as a means of improving their understanding of the impact of new regulations on business.

    Recommendations
    
    

15. In autumn 2007, departments will publish a second round of plans to identify initiatives to reduce the burdens on business of complying with regulation. Appendix 2 sets out the NAOs advice for the development on these plans, and our recommendations focus on the steps that departments and the BRE should take to improve the chances of the Programme delivering its intended objectives.
    
    

16. For departments:
    
    

    1. To identify the measures that are likely to make a real difference, departments should seek to work more directly with businesses and consider any useful qualitative information collected in the measurement exercises. Developing a thorough understanding of business concerns is the key to delivering real impacts for business.
        
    2. Departments need to ensure that they have robust internal processes in place to deliver projects to reduce regulatory burdens in the main areas of legislation. In the short-term, departments should use project management techniques to manage discrete projects, and ensure that central Better Regulation teams are empowered to co-ordinate departmental progress and prioritise delivery. In the longer-term, departments should integrate the consideration of the costs, as well as the benefits, of regulation into departmental decision-making in a more systematic way.
        
    3. Departments should supplement their estimates of reductions in administrative burdens with a broader suite of indicators to evaluate non-quantifiable improvements in the regulatory environment. Departments should develop a series of indicators to evaluate the impact of their initiatives to address non-quantified irritation factors and improve the wider business environment. This might, if practical, include a mix of internal measures and external indicators that capture business perspectives and actions, including segmentation between different sizes, sectors and ages of businesses.
       
       

       For the Better Regulation Executive:
       
       

    4. The BRE should prioritise and encourage cross-Government work to explore the link between the level of regulation and productivity. It should also consider how the overall impact of the Administrative Burdens Reduction Programme on UK businesses productivity will be assessed.
        
    5. The BRE should maintain its co-ordinating role until May 2010. This will involve working with departments to encourage consistency in approaches and maintaining an impetus to delivery. The BRE should also provide a forum to encourage collaboration and learning between departments and, where appropriate, joint initiatives.
        
    6. The BRE should build on the work already done by the DTI and develop a methodology for assessing the total cumulative cost to business of regulation, as recommended by the Less is More report. This would make it possible to assess how large a percentage of the total cost is made up of administrative burdens and the likely impact of reductions in these. The BRE should use this information to evaluate if the costs involved in identifying and delivering reductions are leading to worthwhile outcomes and benefits.
       
       

       For the BRE and departments:
       
       

    7. The BRE and departments need to improve how they communicate with businesses. 
       
    8.  
       • Businesses need information about changes to the regulatory environment. The BRE and the departments directly involved in implementing the Less is More recommendations [Footnote 6], should, where practical, extend the use of Common Commencement Dates to include changes resulting from the Administrative Burdens Reduction Programme, as well as the introduction of new regulations.
          
       • The BRE and departments should continue to use and improve existing arrangements for communicating with business. They should also consider forming better links with trade and sector organisations and how to use established fora to communicate directly with businesses.

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    1.  [back from footnote 1] The Better Regulation Task Force was put on a permanent footing on 1 January 2006 and is now called the Better Regulation Commission. The full title of the report is: Regulation Less is More. Reducing Burdens, Improving Outcomes.
    2.  [back from footnote 2] Budget 2005, Chapter 3, Meeting the Productivity Challenge.
    3.  [back from footnote 3] Research in Sweden has estimated that administrative burdens represent up to one quarter of the total cost of complying with regulations. Further information on this research is in Appendix 3.
    4.  [back from footnote 4] For example, the Cabinet Office has agreed a reduction target of 35 per cent.
    5.  [back from footnote 5] Impact Assessments should be used by policy officials to challenge the need for new regulations and ensure that the most cost effective method of implementation is chosen.
    6.  [back from footnote 6] This excludes HMRC whose administrative burdens changes go through the Budget and Finance Bill process.