Posted on November 28, 2016 by Richard Davis
Government aims to achieve its Business Impact Target by cutting £10 billion from businesses’ regulatory costs. Do businesses notice any difference? Are departments too bogged down with the bureaucracy resulting from the government’s complex accounting rules to be effective deregulators? Is the government’s focus on business costs at the expense of consumer and environmental protection? With claims of ‘Alice in Wonderland’ accounting from the Public Accounts Committee (PAC), there’s a need for transparency, evaluation and better prioritisation.
Government believes that businesses are over-regulated and that this is hampering growth and productivity – which is why the Better Regulation Executive is trying to reduce the cost of regulation on businesses and achieve a £10 billion Business Impact Target. The previous government estimated that it reduced regulatory costs for businesses by £10 billion during the 2010–2015 Parliament (over 90% of which was due to 10 changes, including changing the inflation index used to increase pension benefits). Our report The Business Impact Target: cutting the cost of regulation examines whether the government’s approach is delivering value for money.
It’s in the bag: progress towards achieving the Business Impact Target
Government claimed a net cut of £0.9 billion from business’s regulatory costs in the first year of this Parliament, based on estimates of the impact of any regulations introduced, amended or removed. Most regulatory changes had little or no impact on business: two-thirds of the changes introduced so far had an impact of less than £5 million. Four decisions contributed most to the Target. Introducing standardised packaging for tobacco products and banning psychoactive substances in the UK had placed additional costs on business, while protection of essential supplies to insolvent businesses reduced business costs. But the impact of these measures was dwarfed by the introduction of a 5p charge for single-use plastic bags, which, government has claimed, results in a reduced cost to business of over £1 billion due largely to the additional revenue they will receive.
The requirement for larger retailers to charge for plastic bags has resulted in one of the most dramatic and quickest behavioural change in recent history, reducing the number of plastic bags in use by an estimated 84% in the first six months. But is it deregulation? Members of the PAC questioned this rationale during a hearing in July (opens as pdf). One MP stated that “we imposed [this regulation] on business to do something they were not previously doing, we are claiming £1 billion towards our Target. That is like something out of Alice in Wonderland.” Meg Hillier, PAC Chair, described the government’s accounting approach as “inventive” and the classification of the plastic bag regulation as regulation “but not as we know it”.
And what if initial estimates of savings or costs prove to be inaccurate? Departments are required to calculate the estimated cost or savings to business for any new or amended regulation they introduce. They do so following strict and complex rules set by the Better Regulation Executive. Once these savings have been validated, they become set in stone regardless of any new data that may emerge once the regulation has been introduced. In the case of plastic bags, recent estimates suggest that plastic bag use has fallen even more sharply than the Department for Environment, Food and Rural Affairs (Defra) had anticipated. This means that retailers will not receive as big a plastic bag windfall as had been anticipated.
The government estimates now that gross proceeds from the plastic bag charge were £52.8 million for the first six months. A rough calculation suggests that the proceeds over a five year period at that rate would be some £500 million, roughly half of the amount claimed against the Target. And yet the Better Regulation Executive has no intention of revising its claims because of concerns that departments would game the system by only providing evidence that supports business cost reductions.
At present the administrative and regulatory costs to businesses are not known, and the impact of changes is not evaluated. The 136-page Better Regulation Framework Manual contains only three sentences about the value of ongoing monitoring in a regulatory context This is one of the reasons we have published the guidance, Performance measurement by regulators.
Beyond business: regulation and wider stakeholders
Controlling regulation makes sense if it leads to more productivity and growth. But regulation can be required to protect the public and the environment. The government needs to reduce regulation in an intelligent, focused and prioritised way.
So how can the balance between removing unnecessary regulation and protecting wider stakeholder interests be achieved? The answer lies in understanding businesses’ experiences, which means working with them, monitoring the impact and being transparent and open.
According to half of the departments we spoke to for the report, efforts to achieve the Target sometimes led to conflicts with other departmental policy objectives. In particular, although wider societal costs and benefits of regulation are supposed to be considered when making regulatory decisions, in about two-thirds of decisions they are not taken into account fully.
“The costs and benefits of protecting and enhancing the natural environment are rarely given proper consideration”, a charity told us.
“Many of the laws and practices which help disabled people require action from public authorities, employers and others. All too often the government has characterised this as red tape, and made changes under the Red Tape Challenge which increase the problems of disabled people”, according to a member of the House of Lords Select Committee report investigating the impact of the Equality Act 2010 on disabled people.
Is the government’s approach to achieving the Target value for money?
We found that the BRE has done good work in raising the profile, across Whitehall, of regulatory costs imposed on business. But the government’s measure excludes over £8 billion in costs to businesses during this Parliament so far, many times greater than the £0.9 billion of savings it includes.
Limitations in the approach means the scope of the Target is open to manipulation and may not reflect a realistic business‑centred view of regulatory costs. In the last Parliament, nearly half (46%) of the 951 regulations independently scrutinised by the Regulatory Policy Committee were not included in the Target and the value of exclusions has been even greater so far this Parliament.
Against the £0.9 billion claimed net reduction in costs to business, decisions outside the scope of the Target are expected to increase the net cost to business by £8.3 billion. For example, the National Living Wage is expected to add costs of £4.1 billion to business, and increases in the National Minimum Wage to add £3.1 billion of costs.
Moreover, departments do not do enough to appraise the wider impacts of their decisions, or to evaluate their effects. This harms the credibility of claimed savings and reduces opportunities to learn from past experience. Until robust evidence is available to show that the government’s efforts are improving regulation overall, the government will not be in a position to demonstrate that its efforts are providing value for money.
I look forward to your comments on this issue and invite you to contact us to discuss it further.
About the author: Richard Davis is the Manager for the NAO’s value for money work on Defra and has recently completed two studies on the Rural Payments Agency’s Common Agricultural Policy Delivery Programme. As well as his work on the Business Impact Target, he has produced reports on subjects ranging from smart meters to the MOD’s major projects portfolio. He has been at the NAO since 2008 and was previously Research Director in the Social Research Institute at Ipsos MORI.
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