The british regulatory system – global mba brazil

THE BRITISHREGULATORY SYSTEMTIM AMBLER, FRANCIS CHITTENDENAND STEFANO IANCICH

Published by theBritish Chambers of CommerceMarch 2008

Foreword p.3

Executive Summary p.4

The British Regulatory System p.6

The EU ImpactAssessment process p.9

UK Regulatory ImpactAssessment in 2006/7 p.17

Key Findings p.27

Conclusion p.28

Recommendations p.30

The British Chambers of Commerce is thenational voice of local businesses, acting onbehalf of a network of Accredited Chambers ofCommerce across the UK.

Representing over 100,000 businesses and 5million employees, Chambers of Commerce arethe Ultimate Business Network. Lying at theheart of their local community, Chambers serveall businesses with a passion no-one else canmatch.

Editorial noteThe opinions expressed in this report are those ofthe authors and may not necessarily representthose of the British Chambers of Commerce.

AcknowledgementsKieran O’Keeffe, Policy Adviser, Regulatory Reform.Sally Low, Director of Policy and External Affairs.

The British Chambers of Commerce65 Petty FranceSt. James’s ParkLondonSW1H 9EUTel: 0207 654 5800Fax: 0207 654 5819Email: [email protected]: http://www.britishchambers.org.uk

CONTENTS

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ABOUTUS

FOREWORD

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Welcome to our sixth annual Impact Assessmentreport The British regulatory system published incollaboration with the London and ManchesterBusiness Schools. In February we released our2008 Burdens Barometer, which shows that thecumulative cost of new regulation to businesssince 1998 is now £66 billion. What is strikingabout this figure is not just its enormity, but alsothat 71 per cent of it is EU sourced. EU ImpactAssessments still tend to be highly conceptualand it is questionable whether they influencepolicy. Furthermore, few Directives orRegulations have Impact Assessments.

However, it would be too easy to lay the blameat the door of the European Commission forwhom Impact Assessment is an important tool,but one with which they will struggle withoutthe support of member states who must berelied upon to conduct their own parallel ImpactAssessments. Without this, the Commission haslittle or no data on which to base their ownanalysis while member states will miss a keyopportunity to influence EU policy.

The Government has invested heavily in the UKImpact Assessment. However, their focus hasbeen on the UK end of the legislation by whichtime it is too late to influence the Brussels stagewhich drives the whole process. We know from

this year’s research that too often officials are

focused on transposition as the moment at

which to conduct an Impact Assessment. To

have real influence then a partial UK Impact

Assessment should emerge immediately after

the Commission makes a legislative proposal.

The Government must be fully engaged with

policy making in Brussels and shine a spotlight

on new legislation at the formative stage. At

present the EU and UK Impact Assessment

systems are totally disconnected. The

Government must establish a coherent linkage

between the two if they are to make good on

their commitment to provide a lighter regulatory

environment for our members.

David Frost

Director General

British Chambers of Commerce

This is the sixth annual report examining how theUK regulatory system works in practice andwhether it follows the Government’s ownguidelines. In the last decade, regulation hasbecome a major UK industry. Tens of thousandsare employed not in commerce to grow GDP butto interfere in that process. Each regulation has apurpose and many contribute to national wellbeing but “better regulation” in practice hascome to mean “more regulation”. The ImpactAssessment system designed to control thevolume may have improved quality at themargins but the original purpose of RegulatoryImpact Assessments ((R)IAs), namelychallenging the need for the regulation and theserious consideration of alternatives, has notbeen met. The National Audit Office has reachedsimilar conclusions.

The British regulatory and the solar systemshave something in common: government,politicians, Brussels, business people and criticsare revolving around the same ideal but are notnecessarily on the same planet. Occasionally theGovernment planet passes close to that of thecritics and some small reforms take place. In thisreport we note them but also continue to drawattention to the areas where further reform isneeded. We credit government, and the BetterRegulation Executive in particular, with greaterefforts to accommodate British business, such ascommon commencement dates twice yearly. Wealso acknowledge that British business is notuniversally consistent in its demands especiallywhen regulation protects them fromcompetition. A new Impact Assessment systemcame into effect after the period of this reportand we will judge that next time. Meanwhile, theregulatory system of 2006/7 must be judged bythe guidelines with which it was supposed to beconforming.

The weaknesses of the UK and the EU ImpactAssessment systems are compounded by thelack of synchronisation between them which isdocumented in this paper. It is not enough topublish the first UK Impact Assessments, whichare ostensibly for consultation, after thedecisions have been made in the EU.

Despite expressed concern with the total volumeof regulation, their pace of introduction, asmeasured by (R)IAs, has continued to increase.About 130 regulations per annum weregenerated in the first four years of this

government. The number has increasedprogressively to about 350 in the year coveredby this report, the year to 30th June 2007. Thecumulative burden on British business since 1998is, according to the (R)IAs themselves, £66bn., ofwhich 70 per cent arises from EU sourcedregulation (73 per cent last year). In terms of thenumber of regulations, the EU accounts for onlyabout 35 per cent. The financial cost shown bythe (R)IAs is only part of the burden; keepingtrack of changing legislation through the forestof legislative paper is a major burden in itself.Small wonder so many firms do not bother to doso and that those who do bother grumble aboutthe burden of so doing.

At the same time, some reductions arebeginning to arise from reform and weacknowledge that regulation is not solely afinancial matter: social and environmentalbenefits can also be enhanced.

This expansion of regulation may help explainthe worsening overall control of the process and,one suspects but this is beyond the purview ofthis paper, effectiveness. “Command Papers” arethe official lists of new regulations. As the JulyPaper was issued late, for the second yearrunning, it has not been possible to find about 15per cent of (R)IAs. Since the whole point of(R)IAs is to make regulation transparent, thiseconomy with their availability illustrates thesystemic failure. For over ten years, theGovernment has had no overall control systemfor regulations although a database is plannedfor 2008. It has since transpired that some(R)IAs listed in the Command Paper are not(R)IAs at all. In short, the 2007 data are socompromised that we are holding over ourdetailed audit until we can obtain clarification intime for next year’s analysis. As a postscript, wehave discovered that 79 per cent of the majorPost Implementation Reviews that should havebeen published by the end of 2007, have notbeen.

The comparison of EU and UK ImpactAssessments leads to a simple conclusion: theEU very rarely employs IAs, and even more rarelyquantifies them thoroughly but, when it does so,the system works very well. Conversely, the UKgoes through the motions with all Directives andRegulations but so superficially that the systemdoes not work. The specific findings from ourresearch are documented in the report.

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EXECUTIVESUMMARY

It is curious, with hindsight, how much attentionhas been given to perfecting the UK domesticsystem, in theory, with so little regard to the EUwhich has been the source of the heaviestburdens on business.

The report documents the progress made on lastyear’s recommendations and consolidates theremaining and new recommendations as follows:

RECOMMENDATIONS

1. When, in an area with EU competence,a Minister signs off a new UK-onlyregulation in the IA, in relation to anarea with EU competence, he or sheshould explain why it is needed in theUK but not in the rest of Europe.

2. UK government should switch itsattention from the domestic IAagenda towards having an effectiveUK IA system for EU sourcedlegislation. Having Regulations (or“Laws” under the new Treaty) ratherthan Directives would help but that,together with the EU IA system areout of UK hands. The UK IA systemneeds to be synchronised with the EUWorkplan so that EU legislation iseffectively challenged in time to haveany effect. In other words, an earlyprovisional IA and consultation withBritish business should take place, andbe recorded, as soon as the Directiveis proposed. That first provisional IAshould be preserved for the audit trail.

3. The BRE should extend the proposedImpact Assessment database toensure that all relevant EU legislationthat should have UK ImpactAssessments are included with thedates and versions of the EU and UKImpact Assessments as they areproduced (the “audit trail”).

4. Ministers should insist on due PostImplementation Reviews beingcompleted and published for allregulations placing significant burdenson British business, i.e. all thoseappearing in the British Chambers ofCommerce’s Burdens Barometer threeyears previously.

5. We will not try readers’ patience byrepeating last year’s recommendationsbut simply invite all those seriouslyinterested in reforming and improvingthe UK’s regulatory system to providebetter alternatives, explain why thoserecommendations are wrong orunaffordable or even, if all else fails,implement them. This would make apleasant change from avoidinguncomfortable truths.

6. One exception is that parliamentariansshould take responsibility forlegislation. MPs now have the powerto block poor and/or redundantregulation but they do not use it. Tocomplain of excessive regulationwhilst failing to use the powers theyhave to resolve the matter is not

acceptable.

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EXECUTIVESUMMARY

This year’s report begins with a brief review ofprevious recommendations and where they nowstand. We then focus on the EU ImpactAssessment process before turning to the UK.

This year we have sought to examine the PostImplementation Reviews which should have beencompleted by now. Our experience may not surpriseseasoned Whitehall watchers. We also tested howwell the UK Impact Assessment process meshedwith the EU for the Directives of 2005. Theweaknesses of the UK and the EU ImpactAssessment systems are compounded by the lack ofsynchronisation between them. It is not enough topublish the first UK Impact Assessments, which areostensibly for consultation, after the decisions havebeen made in Brussels. Finally, this report lists themain findings, draws conclusions and summarisesour recommendations.

PROGRESS SINCE LAST YEARWe list last year’s recommendations and note whereprogress, or otherwise, has taken place.

1. EU Regulations and UK StatutoryInstruments should both be divided into twocategories: laws and administrative orders.

With the de facto approval of the EuropeanUnion Treaty we can expect that part of therecommendation to come into effect, namelythat the word “regulation” will not be usedby Brussels in these two senses. The logichas yet to dawn in Whitehall where StatutoryInstruments are similarly confused (less than20 per cent are regulations). It has beensuggested that regulatory SIs should bedistinguished by differently coloured paper.That small step would doubtless requireprimary legislation.

2. Parliamentary challenge should be focusedon proposed new laws informed byExplanatory Memoranda and ImpactAssessments combined into singledocuments. Explanatory Memoranda shouldbe replaced by one page summaries of(R)IAs prepared by the independent expert(see 5 below).

The justification for retaining both anExplanatory Memorandum (EM) and anImpact Assessment (IA) for each regulationis unconvincing. Both explain the regulationand the need for it. Steps have been taken to

reduce the length of IAs and to focus thembut since all the redundant verbiage can nowbe transferred to the EM, we may be notbetter off. We will report on these new IAsnext year.

3. The UK bodies monitoring and advising onregulation should be consolidated to justone independent unit, either as part of theNAO or an equivalent body, answerable to aremodelled Regulatory Reform Committeeof the House of Commons.

Some changes here but nothing so radical asour recommendation. The Better RegulationTask Force (BRTF), briefly then known as theBetter Regulation Commission, was a satellitein government’s reflected sunshine but notinfluential enough to make waves, still lesstides. It has been replaced by the Risk andRegulatory Advisory Committee (R&RAC)which has a more reflective role in the senseof commenting on the whole system afterregulations have been enacted rather thanwhen they are being formulated. Critics talkof horses and stable doors but that may beunfair. The regulatory culture of Whitehalland government needs to change and thismay help achieve it. Meanwhile somemembers of the BRTF/BRC have moved toadvising HM Opposition. Given theirlaudatory approval of the status quo, evenripples would be surprising.

The thrust of last year’s report was that MPsshould step up and take responsibility forregulation which present arrangements allowthem to do. The Regulatory ReformCommittee (created 2006) should be thefocus of that but early signs are notencouraging. So little has been attempted,Opposition MPs have not bothered to turn upfor meetings.1 It can only get better.

4. The other UK Parliamentary committeesshould be rationalised to give clearauthority to the one with primaryresponsibility.

The principle of having one effectiveregulatory review body rather than theineffective six Parliamentary committeesnoted last year and two external governmentcommittees, has made no progress. We donot challenge the need for an internal

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1 Jean Eaglesham, “Freshwar on red tape elicits hintof déjà vu”, Financial Times,9 December 2007

management group, namely the BetterRegulation Executive, and for the post factoaudit function provided by the National AuditOffice. It is only the number ofsupernumerary committees and their limitedcontribution which is in question.

5. Generalised consultation should be partiallyreplaced by forensic testing of the (R)IA byan independent expert employing targetedconsultation as needed.

Consultation can be a useful means ofachieving the goals for Impact Assessmentor, at the least, improving regulatoryeffectiveness and/or reducing the burden butit more often is not. The process is biasedboth by selective listening by the civilservants and the Regulators being able tofocus on the new regulation while consulteeshave businesses to run. Accordingly, and thisis compounded by the volume of regulation,we find increasing scepticism about whetherconsultees’ views significantly changeproposals. Confirmation bias2 can reduceconsultation to a sterile expression of viewsthat pass by unheard.

We therefore proposed that the process,which is quite wasteful, should be partiallyreplaced by real challenge by an individualwith sufficient expertise to propose realisticalternatives. The EU use a similar system. Webelieve this option is better than, in theinterests of objectivity, removing the ImpactAssessment process from departmentsaltogether. Proper publicity for IAs shouldalways encourage representations to bemade but formal consultation should only beemployed when it is efficient and effectivefrom the business sector’s perspective. Weacknowledge that the UK government is nowgiving more time for consultation but thisdoes not solve the underlying problem.

No progress has been made and we regretthe conclusion that confirmatory bias andsubjectivity continue to undermine ImpactAssessment at both EU and UK levels. Webuild on this recommendation towards theend of this report.

6. The EU and member state ImpactAssessments should be synchronised both asto timing, data provision and methodology,e.g. the Standard Cost Model should beharmonised across the EU to provide bestpractice and comparative data. (R)IAs on EUlegislation should be in good time forconsultation or independent challenge (see 5above) to influence EU, as well as UK,legislation.

No progress here either but we modify thisrecommendation in the light of this year’sanalysis below.

7. Data on costs and benefits in EU ImpactAssessments should be based upon national(R)IAs. National (R)IAs are prepared to informnegotiations with the Commission, and thesefigures should be aggregated at the level ofthe EU economy and included in the EU IAs.

As 6 above.

8. The BRE should have stronger qualitycontrol over (R)IAs sourced both from theEU and UK legislation.

If anything the BRE has distanced itself fromthis function, pointing out that it is the job ofdepartments to quality control their own(R)IAs. The HMRC does well in this respect.So where should the buck stop? The word“Executive” implies a hands-on role; theproposed new database (see below) providesthe opportunity for the BRE to intervenewhen an IA is not up to standard.

9. UK civil servants should support theCommission and press for EU Regulations inplace of Directives wherever possible inorder to simplify legislation and give effectto the single market.

This recommendation runs into misplacednationalism. Some believe we should show ourindependence by different transposition ofDirectives. The scope for that is increasinglylimited as the EU makes Directives moreprecise and polices them better. In any case,those differences run counter to the singlemarket which the UK supports and createsconsiderable extra complexity, confusion andpaper. Directives were introduced to fudge lackof agreement between national politicians. Thisfudge is unhelpful.

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2 Vibert F, The Itch toRegulate: Confirmation Biasand the EC’s New System ofImpact Assessment(European Policy Forum,London, 2005)

10. All new regulations should haveperformance criteria, e.g. extent ofimplementation, costs and benefits andsunset clauses, or at least fixed reviewdates after which the regulation wouldlapse if the formal review is not laidbefore parliament.

The new Impact Assessment guidance asksfor more specific performance criteria butwhether this will result in actual improvementremains to be seen. So far as the rest of therecommendation is concerned, the IAguidance notes (p.5) only require “The dateat which a review would be undertaken toestablish the actual costs and benefits of thepolicy and to see whether it has achieved/isachieving the desired effects. It is often agood idea to review a policy change afterthree years but this will depend on thepolicy.”

11. The ministerial sign-off on (R)IAs shouldstate explicitly the basis for his or herjudgement which should also state that thecosts and benefits are being judged onbehalf of UK citizens as a whole.

The reason for this recommendation is that anumber of regulations save costs forgovernment at the expense of business, i.e.they are quasi taxation. Under the current rules,a minister can legitimately sign off a regulationthat is good for the Exchequer but bad for theUK as a whole. There is no requirement on theminister to explain his or her rationale, still lessjustify it. No progress has been made.

12. The BRE should maintain a web-based (R)IAdatabase keyed to Bills/Acts, StatutoryInstruments, earlier partial (R)IAs as well asEU legislation and IAs. It should be thesource of Command Papers and be a publicaccess point for (R)IAs.

Whilst it may not go quite so far as hereproposed, BRE at last accepts that it shouldget a grip on recording IAs and maintain acentral website of summaries with links tothe actual IAs on departmental websites. Thesite should be operational in 2008. We wouldurge that this is backdated to include all(R)IAs and would be prepared to provide acopy of our database for that purpose.

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BACKGROUNDThe Commission’s integrated Impact Assessmentsystem was introduced in 2003 based on theWhite Paper on European Governance of July20013 and the Better Lawmaking Action Plan ofJune 20024. The formalised and integrated ImpactAssessment process was “to improve the qualityand coherence of the policy development processby focusing on all major policy initiativespresented in the annual policy strategy or in thework programme of the Commission”.5

The strategic direction of the Impact Assessmentsystem was also influenced by the Göteborgstrategy of 2001, which linked the policy ofSustainable Development (i.e. meeting the needsof present generations without jeopardising theneeds of future generations) to the BetterRegulation debate. Based on these two principles,the benefits of Impact Assessments are not limitedto moderating the burden on business but also toassessing alternative policy options and their likelypositive and negative impacts in all relevantspheres.

Although the Commission’s IA system wasdeveloped “after examining establishedprocedures in Member States and other OECDcountries,”6 there are a number of importantdifferences between the Commission’s IA systemand those of most countries, concerning inparticular the scope of application and thefocus. While most countries (e.g. UK) apply IAsonly to new primary and/or secondarylegislation, the Commission’s system is broaderand also extends to other, non-legislative policyproposals. In addition, whereas most countriestend to focus their assessments primarily oneconomic impacts (in particular the costs of newregulation), the Commission emphasises anapproach that is balanced across the economic,social and environmental dimensions, andresponds not only to the demands of BetterRegulation, but also to those of SustainableDevelopment.7 These features make theCommission’s IA system difficult to comparewith most national IA systems.

The Commission’s IA system has been subjectedto a number of revisions such as the 2005replacement of “Preliminary ImpactAssessments” with “Roadmaps”. A full IA wouldbe required for all the items included in theCommission’s Legislative and Work Programme(CLWP). New IA Guidelines8 were also published

in June 2005 which highlighted the need toensure early coordination within theCommission, openness to input of externalstakeholders, commitment to the Lisbon andSustainable Development Strategies and ageneral improvement in the quality of policyproposals. March 2006 saw the Guidelinesfurther up-dated to include the composition ofInter-Service Steering Groups and theintroduction of the assessment of administrativecosts. New requirements for executivesummaries, providing a recommended lengthand an obligation to translate these into all EUlanguages, were also introduced. Finally, inNovember 2006, the Commission announced anexhaustive plan to measure and reduceadministrative costs in the European Union.9

We have reviewed the quality of IAs since theirintroduction in 2003 but only to a limited extentdue to their slow and sporadic introduction inpractice. Last year we concluded that the overallperformance of the Commission’s IA system , “ispatchy, and further substantial improvement isneeded before Impact Assessment can genuinelyoffer the prospect of promoting better regulation”.10

SAMPLE OF IAs USED FOR ANALYSISThis year we have screened 55 out of the 85 IAsidentified for the year to June 2007 of which 20 IAswere randomly chosen for a more in-depth qualityassessment. The largest number (eight) came fromTREN DG, followed by ENTR (seven). 25 IAs wereprepared for Communications, 16 for proposedDirectives, 10 for Regulations, four for Decisions andone for a Progress Report (Enlargement Strategyand Main Challenges 2006 – 2007, DG ELARG).As we reported last year,11 the availability ofcompleted and planned IAs and the existence ofa central EU website that is updated regularlyand contains copies of all IAs, is much moreefficient and open than the 2006/7 UK system.

Of the 85 IAs listed on the EuropeanCommission’s website:

� 38 were published between July andDecember 2006;

� 45 were published between January andJune 2007;12

� one was not available online (Europeangrouping of territorial co-operation (EGTC),DG REGIO);

� one was only available in French.

9

3 See European Governance,a White Paper, COM(2001)428 final

4 Action plan "Simplifyingand improving the regulatoryenvironment", COM(2002)278 final

5 Communication on ImpactAssessment, COM(2002) 276final

6 Commission Staff WorkingPaper, Impact Assessment:Next Steps – In support ofcompetitiveness andsustainable development.SEC(2004)1377

7 See The EvaluationPartnership, “Evaluation of theCommission’s ImpactAssessment System”, 2007

8 European CommissionImpact Assessment GuidelinesSEC (2005) 791

9 Action Programme forReducing AdministrativeBurden in the EuropeanUnion, COM(2007) 23 final

10 T Ambler, F Chittendenand Deming Xiao, “TheBurden of Regulation: Who iswatching out for us inEurope?” (British Chambers ofCommerce, London, 2007);

11 http://ec.europa.eu/governance/impact, 05/12/2007

12 ibid

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QUANTIFICATION OF IASTable 1 summarises the costs and benefitsidentified by the 55 IAs in this analysis. Onlyseven out of 15 DGs quantified costs andbenefits in their IAs. Furthermore, closerexamination shows that such data can only betaken as a broad reference rather than carefulestimates of the anticipated costs and benefitsof proposed policies.

DG Environment (ENV) estimated the mostsignificant costs to business, contributing nearly70 per cent of business costs while DG INFSOaccounted for nearly 40 per cent of EUgovernment costs. In terms of benefits, DGINFSO contributed nearly 95 per cent of totalbenefits to business while DG TREN contributednearly 67 per cent of total benefits to EUgovernment.

The benefits to business are heavily influencedby Council Regulation on the establishment ofthe “ARTEMIS Joint Undertaking” to implement aJoint Technology Initiative in EmbeddedComputing Systems.. On the economic andtechnological side, the aim is to launch aninitiative to realise Europe’s potential in thefuture markets for intelligent products, processes

and services and achieve world leadership inembedded technologies. On the policy side, theaims are to create a single, Europe-wide R&Dprogramme that is industrially driven, to put inplace a new mechanism able to combine, for thefirst time, national, EU and private funding andto ramp up R&D investment in Europe. TheCommission claims in the IA that the proposedoption to implement a “Joint TechnologyInitiative” will achieve gains of at least €14.7bnper year in reduced system design anddevelopment costs by 2015, equivalent to atleast 55k person/years of effort compared to the“business-as-usual” scenario13. The net presentvalue of these gains in 2006 is estimated at€109bn. The huge benefits estimated in theproposal should be subjected to a rigorous PostImplementation Review to validate theassumptions on which these numbers are based(e.g. total worldwide R&D should increase byaround 170 per cent over the next ten years,expenditure on embedded software R&D ispredicted to increase by 225 per cent, from€58bn in 2002 to €132bn by 2015.) and whetherthe proposed initiative has a realistic chance ofachieving the stated objectives.14 The tableomits DGs with no IAs in our sample.

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13 Source: Summary of theImpact Assesssment on theestablishment of the“ARTEMIS JointUndertaking” to implementa joint Technology Initiativein Embedded Computingsystems {COM (2007) 243final}, {SEC (2007) 582}.

14 Software IntensiveSystems in the Future,IDATE/TNO, 2005.

Table 1: Costs and Benefits Quantified in IAs

CCoossttss ttoo EEUU BBeenneeffiittss ttoo EEUU CCoossttss ttoo EEUU BBeenneeffiittss ttoo EEUUbbuussiinneessss ((€€mm)) bbuussiinneessss ((€€mm)) ggoovveerrnnmmeenntt ((€€mm)) ggoovveerrnnmmeenntt ((€€mm))

DDGG One-off Recurring One-off Recurring One-off Recurring One-off Recurring

EENNTTRR 160 20

EENNVV 4678 165 362 930 242 54

IINNFFSSOO 1600 125 14700 1160

JJLLSS 5

MMAARRKKTT 790

RREEGGIIOO 15

SSAANNCCOO 59 15

TTAAXXUUDD 40

TTRREENN 500 3375 240 969 10 1700

TToottaall 66777788 33554400 336655 1155222222 33114433 228822 22554444 4400

Table 2. shows the extent to which different DGssought to quantify costs and benefits. Overall,the process still seems to be dominated byqualitative data with the majority of IAs failing toidentify the relevant costs and benefits.

Based on this analysis, a random sample of 20 IAs was chosen for an in-depth qualityassessment. Table 3 summarises the compositionof the sample by DG and legal instrument.

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Table 2: Quantification of Costs and Benefits

Costs to EU business Benefit to EU business

Q NNQQ NS NA Q NNQQ NS NA

7 38 4 11 4 45 0 11

12% 6633%% 7% 18% 7% 7755%% 0% 18%

Costs to EU government Benefit to EU government

Q NNQQ NS NA Q NNQQ NS NA

19 34 0 7 4 43 0 13

32% 5577%% 0% 11% 7% 7722%% 0% 21%

Table 3: Composition of the sample by DG and legal instrument

DG Legal instrument Total

Directive Regulation Communication Decision

ENTR 1 3 1 1 6

TREN 1 1 2

SANCO 2 2

RTD 1 1

DEV 2 2

EMPL 1 1

FISH 1 1

INFSO 1 1

JLS 1 1 2

TAXUD 1 1

TRADE 1 1

Total 44 5 8 3 2200

Q Quantified and figures provided including zerocosts/benefits

NQ Not Quantified

NS Not quantified but stated to be insignificant

NA Not available or not discussed

15 EUR Lex: Directivesadopted: 141 in 2006 and 76in 2007 although the lattermay be incomplete.

16 EUR Lex: 2052 in 2006;and 1708 in 2007.

17 Deming Xiao, RegulatoryImpact Assessment in theEU and UK, MBADissertation, ManchesterBusiness School, January2007

18 Our random sample of20 IAs contained fourprepared for Directives,leading to a generous pro-rata estimate (4/20*85=17)of about 20 Directivesissued in the year.

19 Chanyeon Hwang, AStudy of EU Regulations,MBA Dissertation,Manchester BusinessSchool, January 2005

20 About 2,000Regulations are issued perannum of which 97.5 percent are AdministrativeOrders- therefore it can beestimated that (2.5 per cent*2000 Regulations) 50 wereRegulations that shouldhave been subject to ImpactAssessment.

21 This compares with 23per cent (26 per cent ofprimary UK legislation and17 per cent of secondary,calculated by # pages)according to David Stephen,(Regulation by Brussels?The Myths and TheChallenges, EuropeanMovement Policy Paper 2,November 2004) but heomits EU Regulations whichrequire no UK legislation.Taking those into accounthis figures match the 35 percent quite closely.

We are baffled by the Brussels decision processconcerning whether an IA should be produced.Our sample is just under 25 per cent of all IAsand may not be representative but even so, 55 per cent apply to administrative orders, i.e.items which are not really Directives orRegulations at all. At the same time, Brusselsonly rarely applies IAs to Directives orRegulations. In previous years we were advisedthat this was because the process was juststarting up but after four years we would expectmore progress.

Directives are approved at a rate of about 10015

and Regulations at a rate of 2,00016 per annum.For example, in 2004 121 Directives were passedof which 89 (73 per cent) had UK (R)IAs17 andtherefore should have had EU IAs. So assumingabout 75 per cent of Directives are burdensomefor business – because they had UK ImpactAssessments – 75 should have EU ImpactAssessments compared with an estimated 2018

that used the process in 2006/7 based on oursample. In the case of Regulations, about 97.5per cent19 are administrative orders and not“Regulations”, in the UK sense of the word orlaws, at all. In other words, about 5020

regulations should have had EU IAs but, in oursample, only about 21 actually have them.

On this arithmetic, we should expect 75+50 =125 UK (R)IAs per annum to be drawn up for EUsourced legislation which ties up reasonably wellwith the 35 per cent21 of (R)IAs in our databasewhich claim to have EU origin. On the otherhand, as we will see later, some UK (R)IAs thatshould exist for EU legislation do not appear todo so. In other words, the extent to which theUK system is missing the EU legislation where itshould apply, is far from clear. Our thirdrecommendation will suggest a simpleadministrative arrangement to close the gap.

As the Commission’s approach to the IA systemrelies on achieving balance across economic,social and environmental issues, our startingpoint was to analyse the extent to which theseprinciples were embedded in the IAs. Figure 1summarises the result.

The screening of our sample showed that 18 (90per cent) of the IAs identified at least oneeconomic impact (either on businesses or publicadministration), 14 (70 per cent) identified a

social impact and 10 (50 per cent) identified anenvironmental impact. Overall, 9 (45 per cent) ofthe sample of 20 IAs identified impacts in allthree dimensions, 5 (25 per cent) in twodimensions, and 5 (25 per cent) in only one. Inone case the IA did not identify any impacts atall. This relates to a Communication from theCommission to the European Parliament, theCouncil and the Committee of the Regions“Towards a general policy on the “Fight againstCyber crime, COM (2006)2667 final”. Despite thenon-legislative nature of the instrument and itsstrategic purpose, the document reported thatthe general policy options were assessed on thebasis of the following criteria:

� Social impacts

� Economic impacts

� Costs for public administration

� Degree of coherence with policy objectives

� Added value and respect for the subsidiarityprinciple

� Feasibility

But we could find no evidence of this analysis inthe ten page IA, the purpose of which remainsobscure.

Table 4 shows the extent to which the impacts inthe three different dimensions were quantified.

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EnvironmentalSocialEconomic

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Percentage of IAs

Figure 1: Analysis of economic, social andenvironmental impacts

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ASSESSMENT PROCESS

22 COM (2001)370,12.09.2001.

23 Proposal for a CouncilDirective: amendingDirective 92/81/EEC andDirective 92/82/EEC tointroduce special taxarrangements for diesel fuelused for commercialpurposes and to align theexcise duties on petrol anddiesel fuel (COM (2002) 410of 24.07.2002).

The quantification of costs and benefits is rarelyadopted in a systematic way. Although we couldfind a quantification of the economic dimension inseven out of 18 IAs (with varying levels in depth ofanalysis), there was no evidence of quantification inthe social and environmental dimensions. The socialimpacts identified in the different IAs included, forexample, employment, mobility, improvements inhuman health, better relationships betweenadministrations in different Member States as well asbetween citizens and administrations.

The environmental objectives were still more vagueand related especially to noise, air pollution orwaste disposal. While the main challenge for aproper quantification of the economic dimensionseems related to a lack of data, especially atMember State level, the lack of adequatemethodologies and unclear outcomes may also beresponsible for the lack of quantification in IAsrelating to social and environmental dimensions.Also the use of available data varied widely.

At one end of the spectrum, quantitative data wasfed into sophisticated modelling and simulationtools, and the uncertainties and sensitivitiesunderlying this analysis were described in detail inan exhaustive technical IA report. This is the case,for example, for the proposal amending Directive2003/96/EC as regards the “adjustment of specialtax arrangements for gas oil used as motor fuel forcommercial purposes and the coordination oftaxation of unleaded petrol and gas oil used asmotor fuel, COM (2007)52 final”. The White Paperon Transport “European transport policy for 2010:time to decide”,22 noted that with the roadtransport sector now fully opened up tocompetition, the absence of harmonised fuel taxesseemed increasingly to be an obstacle to thesmooth functioning of the internal market. It

stressed the need to make the tax system moreconsistent by proposing uniform taxation forcommercial road transport fuel in order tocomplete the internal market. An initial proposalrelating to the harmonisation of the taxation oncommercial diesel was presented in 2002.23 Thisproposal was withdrawn following the screening oflegislative proposals pending before the Legislatorat that time. However, the Commission alsoannounced its intention of reconsidering the needfor a legislative solution in the light of the results ofa comprehensive Impact Assessment. An IA wastherefore prepared to analyse the impact ofdifferent options. It was based to a large extent onthe quantitative results obtained for 19 EUcountries with the Tremove models and for 25 EUcountries with the Poles and Transtools models.The following aspects were examined: impact onprices, on transport demand and fuel consumption,on industries (distortions of competition,administrative costs…) and the budgetary impacts.

During the course of the Impact Assessment, theCommission decided to modify the options firstexamined based on the results of these analyses.Concerning the rates of taxation to beimplemented, for instance, the Commissionservices did not follow the suggestion made bysome hauliers to approximate the rate at thelowest level possible. Economic simulationsillustrated that such a change would havecontradicted environmental considerations:lowering the rate would encourage consumptionand therefore be against the fulfilment of Kyotoobjectives. In addition, this option could have ledto significant negative budgetary impacts onMember States which would have to becompensated by increases in other taxes, andwhich might possibly create more economicdistortions. This is an example of an EU IAprepared with the intention of properlyevaluating the options available to regulators.

In contrast, at the other end of the spectrum,conclusions were frequently drawn, and solutionswere often proposed, based on qualitative and/orincomplete quantitative evidence. For example inthe Communication from the Commission to theCouncil and the European Parliament “A policy toreduce unwanted by-catches and eliminatediscards in European fisheries”, COM(2007) 136final, where the effects of different options werecompared using vague qualitative data (e.g.positive, high, negligible…).

Table 4: Quantification of impact of IAs

Quantification Type of impact

Environ-Economic Social mental

Number of IAs quantifying impacts 7 0 0

Total IAs identifying these impacts 18 14 10

per cent of IAs quantifying the identified impacts 3399%% 00%% 00%%

24 http://ec.europa.eu/governance/impact,05/12/2007

25 "Towards a reinforcedculture of consultation anddialogue – General principlesand minimum standards forconsultation of interestedparties by the Commission"(COM (2002)704 final.

14

THE EU IMPACT

ASSESSMENT PROCESS

The new Action Programme for ReducingAdministrative Burdens in the European Union24

states that “… the reduction of the administrativeburden (AB), sometimes referred to as red tapeor bureaucracy costs, is one crucial componentwith which a more conducive environment forbusiness can be put in place, without loweringthe level of existing or the ambition of newpolicies in the area of environmental, consumeror health protection“. The same document alsoreports that “… Studies carried out by theCentral Planning Bureau (CPB) of theNetherlands indicate that the administrativeburden as a proportion of GDP varies from 6.8 per cent in Greece, Hungary and the BalticStates to 1.5 per cent in the UK and Sweden. It isby all means not the case that this burden isgenerally lower in those countries that enjoyhigher GDP levels. Moreover, for a group ofcountries with still relatively harmonisedstandards of legislation these differences raisequestions about inefficiencies andimplementation”. The Action Plan emphasisesthe centrality of Impact Assessment and theStandard Cost Model to reduce theadministrative burden of regulation in the EU by25 per cent.

ADMINISTRATIVE BURDENSWe turn now to consider administrative burdens(Table 5 below). The quantification ofadministrative burdens through the adoption ofthe Standard Cost Model, has been an EUrequirement since March 2006, when theupdated IA Guidelines were published. TheCommission’s claim to reduce the administrativeburden of regulation in the EU by 25 per cent, isundermined without quantified data and aconsistent methodology.

Of the four IAs providing quantitativeinformation, two stated that the proposal willnot produce administrative burdens while theremaining two quantified administrative costs onthe basis of rough estimations. For instance, inthe proposal for a “Regulation of the EuropeanParliament and of the council amendingRegulation No 11 concerning the abolition ofdiscrimination in transport rates and conditions,COM (2007)90 final”, “… figures from themeasurement of administrative burdens in TheNetherlands have been extrapolated to the EU-level based on the relative percentage of GDP(World Bank data, 2005) and the countrydistribution list developed by Kox (2005) inorder to correct the extrapolated figuresaccording to different estimated levels ofadministrative burdens in different MemberStates.” This is a very high level analysis basedupon data that is conveniently available, but it isunlikely to produce even reasonableapproximations of the actual ABs incurredacross the EU.

It seems unlikely that the EU objective for a 25per cent reduction in administrative burden caneven be quantified, still less achieved, given theevidence from this sample of IAs.

CONSULTATIONThe Guidelines require that for publicconsultations in the context of ImpactAssessment work, the minimum standards forconsultation, as laid down in the relevantCommission Communication of 2002,25 beapplied. This includes that “the Commissionshould strive to allow at least 8 weeks forreception of responses to written publicconsultations”, and “when defining the targetgroup(s) in a consultation process, theCommission should ensure that relevant partieshave an opportunity to express their opinions.”

Table 5: Quantification of administrative burden inIAs Administrative burden

Number of IAs

Quantified 4

Not quantified but figuresstated to be insignificant 2

Not quantified 7

Not discussed 4

Stated to be Not applicable 3

Total 20

Table 6: Type of consultation

Type of Consultation Number of IAs % of IAs

Open 2 10%

Targeted 10 50%

Both 5 25%

No Consultation 3 15%

Total 20 100%

Almost all IAs make reference to someconsultation, either open to all interested parties2 (10 per cent), targeted at specific stakeholdergroups 10 (50 per cent), or a combination ofboth 5 (25 per cent). However, it is also clearthat not all of these consultations were actuallystaged for the IA and/or proposal itself; somereferred to consultations that were undertaken ina wider policy context. One such example is theproposal for a directive of the EuropeanParliament and of the Council on “The protectionof the environment through criminal law, COM(2007)51 final”. Although several studies werelaunched to compare criminal and administrativepenalties in Member States’ environmental lawsand different public conferences and workshopshad been held since November 2003, no formalconsultation was conducted on the specificproposal. For three of the 20 IAs examined wecould not find evidence of any kind ofstakeholder consultation and in one caseextensive consultation was claimed in the IAwithout mentioning the interest groups involved.

However, we also found good consultationpractice such as for the regulatory proposal ofthe European Parliament and the Council on“Common rules concerning road transportoperators, COM (2007) 263 final”, wherestakeholder consultation was assisted by anindependent expert, who contributed by puttingall the comments received into an economicperspective. Similarly, for the Communication on“Renewed Market Strategy, COM (2007) 183final”, where, after a mix of open and targetedconsultations, a revised IA specified how theconsultation process helped to improve theformulation of the proposal (e.g. a refocusedsection on problem definition, more informationon the specific needs of Small and Medium-sizedEnterprises (SMEs) and concrete examples ofrecent business cases which highlightedmethodological difficulties inherent in trying tomodel the precise macro-economic impact ofthe proposal).

Overall a transparent and effective consultationprocess requires early involvement withstakeholders. Sufficient time is required forcomment and contributions on framing theissues and the selection of relevant options.Other important aspects, for example, are thatthe use of open consultation (in particular onlinesurveys using ‘closed’ questions) may lead tooversimplification of the issues and should not

be used only because of tight deadlinesassociated with a proposal. Finally a transparentconsultation process must ensure thatstakeholders are adequately informed about theuse made of their contributions through a clearexplanation in the revised IA.26

The final step in this stage of the research was toconsider the extent to which ImpactAssessments examined relevant options in aproportionate manner, including the options of‘no EU policy’, ‘no policy change’ and alternativeinstruments. A summary of the results is shownin Table 7, below.

Table 7, shows that overall, most IAs identifiedbetween two and five policy options. The IA thatdid not identify any options at all related to thecommunication from the Commission to theCouncil and the European Parliament “Proposalfor a EU Code of Conduct on Division of Labourin Development Policy, COM (2007)72 final”which presents operational principles that shouldguide EU donors regarding the nationality ofemployees used in cooperative ventures. Sincethis was an advisory code rather than a Directiveor Regulation, the absence of options isreasonable.

As noted above, it is hard to appreciate why IAs,and the scarce resources consumed, should bedevoted to Communications and administrativeorders.

CONCLUSIONSIt would appear that the IA system can work welland does so in a minority of cases. However, themajority of IAs are unlikely to have a positiveeffect on the quality of the proposal. Lack ofrelevant data and adequate methodologies andunclear outcomes are major problems.

15

THE EU IMPACT

ASSESSMENT PROCESS

26 Action plan "Simplifyingand improving theregulatory environment",COM(2002) 278 final

Table 7: Number of options presented

Number of options presented Number of IAs % of IAs

0 1 5%

1 or 2 2 10%

3 or 4 13 65%

5 or more 4 20%

Total 20 100%

The new Action Programme for ReducingAdministrative Burdens in the European Unionemphasises the centrality of Impact Assessmentand the Standard Cost Model (SCM) to reducethe administrative burden of regulation in the EUby 25 per cent. However, the SCM methodologystill presents several weaknesses that in partexplain why a reduction in administrativeburdens could be achieved but not perceived bybusiness, as the Dutch experience

demonstrates.27 The possibility that a very small

number of firms will be sampled for each

regulation, and the potential use of one broad

category of small firms (1-49 employees) without

separating out the “0” employee and micro-

businesses could render the data meaningless

and make the tracking of the changing level of

administrative burdens over time a misleading

exercise.

16

THE EU IMPACT

ASSESSMENT PROCESS

27 See World Bank, “GroupReview of the DutchAdministrative BurdenReduction Program”, 2006

17

UK REGULATORY IMPACT

ASSESSMENT IN 2006/7

OVERVIEWThe number of regulations, (R)IAs produced bygovernment departments has grown steadilyfrom about 130 in the late 1990s to about 360for the year to 30th June 2007.28 We cannot beprecise about the last year because it onlybecame apparent from the June 2007 CommandPaper, which lists (R)IAs, which was againpublished late, that some 90 (25 per cent) hadnot been captured by our sweeping of alldepartmental websites. We understand thatsome of those in the Command Paper are not(R)IAs at all.

The publication in late January 2008 meant thatwe were not aware of the shortfall until after ourdetailed analysis had been completed.Accordingly we cannot publish the annual tablesthis year but aim to publish both 2006/7 and2007/8 next year, assuming that the BRE andgovernment departments ensure prompt andcomplete publication on their websites. Tosuggest we did not look hard enough is noexcuse as the whole point of (R)IAs is that theyare readily and easily accessible to explain andjustify the new regulations. Since a CommandPaper only has to list what has already beenpublished, being unable to do so for nearlyseven months reflects the lack of importancegovernment gives to the regulatory process.

We found 142 out of the 193 (R)IAs listed in theCommand Paper to end December 2006. A finalRIA was not prepared in 21 cases where thedepartments stated that such regulation will nothave a financial impact on business/government,in which cases we do not understand why theyappeared in the Command paper. We have beenunable to find another 29 (R)IAs either becauseit was stated by the department that no onlinecopy is available, or because the web-link wasnot functioning, e.g. The Specified Diseases(Notification and Slaughter) Order 2006 SI2006/2166 – DEFRA.

The search for the (R)IAs was more difficult thisyear than on previous occasions, as the highnumber of unidentified (R)IAs demonstrate. Inthe Command Paper to December 2006 most ofthe original links to departmental websites werenot working, mainly because of departmental re-organisation and/or updating of the web-pages.Another challenge is the lack of commonstructure in the organisation and display of therelevant information. Few departments have awell organised website for (R)IAs. In some cases

the search engines did not work properly, and inmany cases, the lack of specification of the typeof (R)IA on the website (initial, partial, full andfinal) added complexity to our task.

HM Revenue and Customs is, as in previousyears, the department with the best designedwebsite. A clear link to better regulation in thehome page, and separation of partial and final(R)IAs, grouped by year simplified our searchenormously. A common policy, aimed atharmonising the relevant information across alldepartments, would be helpful. The BetterRegulation Executive is probably the right bodyto implement this innovation. This unit used tomake all (R)IAs available on its website, butsubsequently withdrew from that activity. Theynow aim a partial return to a central databasebut indicate no plans to standardisedepartmental (R)IA websites which implies thatthe difficulties in obtaining (R)IAs will remain.

Of the 245 final (R)IAs found in 2006/7, 89arose from EU Directives or Regulations,equivalent to 36 per cent of the total. UK driven(R)IAs still form the majority. The FoodStandards Agency and DEFRA seem to deal witha greater number of EU Directives orRegulations, respectively with 87 per cent and53 per cent of the share of (R)IAs produced byeach department.

One-off costs and benefits to businessamounted respectively to £1.3bn and £30.8mwhile recurring costs and benefits to business£712.1m and, surprisingly, £2.2bn, respectively.Almost half of the benefits to business areaccounted for by “The gambling (operatinglicence and single-machine permit fees)regulations 2006” where DCMS claimed that “Aconservative estimate based on projections froma range of consultancy studies suggested thatthe new regulatory regime could lead to anincrease in net consumer expenditure oncommercial gambling of £1,000m a year over afive-year period beginning in 2004/05”. Therewas no data to support these claims in the final(R)IA nor any explanation of where thisadditional expenditure would come from. Unlessthere is a great increase in consumer earningsand/or borrowings directly attributed to the newgambling regulations, the claimed amount seemsdubious. Net consumer expenditure is, in anycase, not an appropriate measure of businessbenefit, since costs need to be deducted. Asensitivity analysis should have been used to test

28 T Ambler, F Chittendenand Deming Xiao, “Who iswatching out for us inEurope?” (British Chambersof Commerce, London,2007);

18



the robustness of the assumptions behind suchnumbers. 2006/7 saw no significant change overprevious years in terms of the quantification ofcosts and benefits.

QUALITY OF (R)IAsTo analyse their quality, we reviewed 100 (R)IAs,50 from each six month period. Table 8 showsthe composition of the sample for in-depthanalysis by department.

General outcomes are usually defined in (R)IAs,but not always expressed, as required, in termsof clear objectives and/or SMART29 (Specific;Measurable; Achievable; Relevant and Time-bound) targets. This means that PostImplementation Reviews will be compromised.

The “Statutory decommissioning scheme foroffshore renewable energy installations underthe Energy Act 2004” has as its objective “toreduce, to an acceptable level, the risk thatdevelopers default on the decommissioning oftheir OREIs30 … without hindering thedevelopment of the offshore renewable energysector.” What does acceptable level of riskmean? Can this level of risk be measured andmonitored to evaluate the intended outcomes?

Prior to this proposal, OREI developers had tosubmit a decommissioning programme to TheCrown Estate (effectively the landlord of theseabed) under the current terms of the lease.However “… As no decommissioning of an OREIin the UK has taken place yet, it is difficult toevaluate how effective the current policy hasbeen (i.e. to rely on Governmental consentconditions and The Crown Estate leaseconditions requiring developers todecommission their offshore installations) inminimising the risk and consequences of defaulton decommissioning. It was however believed tobe likely that it will prove ineffective inminimising this risk because of the inherentweakness of the current private contractbetween the developer and The Crown Estate”.One of the major weaknesses of the privatecontract relates, according to BERR, to the factthat it could take years before the courts reach averdict, which may not be favourable, and legalcosts could prove substantial. But, given thevagueness of the new regulation, that problemremains. This is a classic example of where thelegislators, i.e. MPs, should have stepped in toinsist that the regulation was either properlyjustified or rejected.

ALTERNATIVESAlthough 87 per cent of the (R)IAs included a“do nothing” option, we found no (R)IA wherethis was the final decision. The same conclusionwas reached by the National Audit Office,although they did find one example but thatarose from a Private Member’s Bill where theinstinct of the department was to thwart it. TheNAO report noted that “It is possible that thecase for ‘do nothing’ was considered anddiscounted earlier in the policy developmentprocess, although we were not able to identifyany Partial (R)IAs in the Department of Health orthe Department for Communities and LocalGovernment which had reached this conclusion.”

Other alternatives, such as self or co-regulation,rules of conduct, economic instruments,information and education, guidelines andvoluntary approaches are rarely given anyserious consideration.

“Delivering Housing and Regeneration:Communities England and the future of socialhousing regulation” aims to improve theregulation of social housing (social rented andlow cost home ownership) in England, focusing

29 The Green Book,“Appraisal and Evaluation inCentral Government”, HMTreasury, 2003.

30 Offshore renewableenergy installations

Table 8: (R)IAs by department

Department Number of (R)IAs

DCA Department for Constitutional Affairs 2

DCMS Department for Culture, Media and Sport 6

DEFRA Department for Environment, Food and Rural Affairs 26

DT Department for Transport 8

BERR Department for Business Enterprise & Regulatory Reform 8

DWP Department for Work and Pensions 3

FSA Food Standards Agency 11

HMT HM Treasury 5

HO Home Office 11

HMRC Revenue and Customs 20

Total 100

19



on empowering and protecting tenants, ensuringcontinued provision of high quality socialhousing, and expanding the availability of choicebetween suppliers, with the intention to reducethe level of unnecessary regulation andbureaucracy. Positive aspects include the needfor a common set of rules across the regulatorydomain and the establishment of anindependent regulator. However, it is not clearwhat the regulatory goals are, or how they willbe achieved. The result is a poor range of policyoptions with self-regulation and co-regulationbeing inadequately considered.

Since Social Housing cannot be left to themarket (by definition) the case for an economicRegulator is good. Social Housing is subsidiseddirectly or indirectly by the taxpayers in twoways:

� by funding the gap between market andaffordable rents;

� by paying the reduced rents for those onbenefit.

The Regulator could assess the former needsand ensure fair rental agreements and practiceson a quasi market basis whilst leaving otherresponsibilities like social, consumer issues andaudit to the existing auditors. The Regulatorshould also answer to Parliament, notGovernment, reporting measured progresstoward pre-agreed goals.31

THE EVIDENCE BASEThe fundamental objective of (R)IAs is to ensurepolicy formulation is based on tangible, andpreferably quantified, evidence. A professionalanalysis of costs and benefits is at the heart ofImpact Assessment. Ministers are required to

certify that the benefits of the proposal justifythe costs associated with implementation. AsTable 9 illustrates, the evidence base in oursample was often poor.

(R)IAs were analysed according to the followingcriteria:

� Figures quantified, including where costs and/ or benefits are found to be small or zero.

� Not quantified but claimed to be insignificant.

� Not quantified although it looks as if theyshould have been.

� Quantification not even discussed.

� Not applicable. In these cases we cannot seewhy (R)IAs were compiled at all.

Departments quantified cost and benefits withdiffering intensity. In particular, HMRC rankedvery highly in terms of quantification of costs tobusiness with only 5 per cent of (R)IAs without aquantification of identified costs. On the otherhand, the Department for Work and Pensionsranked the lowest with two out of the three(R)IAs lacking quantification of identified coststo business.

For benefits to business, DEFRA scored highestbut still with 31 per cent lacking quantification,i.e. significant benefits were claimed in the(R)IAs but these were not quantified. At theother end of the spectrum, HMT claimed, in five(R)IAs, significant benefits but they were notquantified.

The Home Office and HMRC ranked highly interms of quantification of costs to Governmentwith respectively only two (18 per cent) andthree (15 per cent) without quantification ofidentified costs.

31 Tim Ambler, HousingRegulation Conference(National HousingFederation, 5 September2007)

Table 9: Evidence based assessment

NUMBER OF (R)IAs

Costs to Benefits to Costs to Benefits to Benefits toBusiness Business Government Government Consumers

Quantified 39 18 35 23 5

Not quantified but figures stated to be insignificant 37 10 32 5 2

Not quantified 19 52 19 62 60

Not discussed 0 6 3 4 2

Not applicable 5 14 11 6 31

Totals 100 100 100 100 100

20



Considering the benefits to Government, DCMSscored highest with only one third of their sixwithout quantification. At the other end of thespectrum, HMT did not quantify any potentialbenefit to Government for four out of five (R)IAsconsidered. For example, the “Independence forStatistics” (R)IA sets out the options for reformfollowing the Government’s review of the (non-statutory) Framework for National Statistics,32

which currently underpins the statistical systemin the UK. The preferred option proposes thecreation of a new, independent board, with astatutory responsibility for ensuring the qualityand comprehensiveness of official statistics.Several benefits to Government were identifiedbut only qualitatively (e.g. “special fundingarrangements outside the normal SpendingReview process would have the benefit ofreinforcing independence from Ministers, while atthe same time ensuring adequate safeguards toencourage efficiency, secure value for moneyand control public spending”).

Very few (R)IAs quantified costs and benefits forall the proposed options. A particularly badexample is Tackling Managed Service Companiesin the 2006 Pre-Budget Report. The policyobjective of the Government was to preventManaged Service Company schemes being usedto disguise employment income, so avoidingpaying the appropriate level of Income Tax andNational Insurance contributions.

The decision of how to achieve this policyobjective was restricted to two options. The firstreferred to investing more resources in enforcingthe Intermediaries legislation without placingnew compliance costs on business. The secondconsisted of defining MSCs and taxing asemployees those using them. The latter waschosen as the preferred option with expectedone-off and recurring costs to businessrespectively of £9.2m and £11.05m. The (R)IAhas no evidence to justify this choice.

The Home Office “Corporate Manslaughter andCorporate Homicide: a Regulatory ImpactAssessment of the Government’s Bill” providesno quantification. The media has well rehearsedthe failings of current regulation but the HomeOffice admits in this (R)IA that it is not a reliablesolution, and no alternative is fully considered.

THE IMPACT ON SMEsThe extent to which burdens impactdisproportionately on smaller businesses shouldbe a key concern for Government, as thecreation and continuance of smaller businessesis acknowledged to be essential for productivitygrowth.33 The Institute of Chartered Accountantsin England and Wales has estimated that 69 percent of the burden of regulation falls on smallbusinesses.34 NatWest’s quarterly Small BusinessSurvey claimed, in September 2003, that:“Where a business proprietor works on theirown, they spend on average 8.9 hours permonth dealing with government regulations andpaperwork, whereas a firm with 50-250employees, staff and advisers spend an average79.7 person hours per month on compliance.This clearly indicates that the burden of red tapefalls disproportionately on the smallestbusinesses, as they spend 8.9 hours per personcompared with only 1.2 hours per person in thelargest firms dealing with paperwork.”35

The higher costs in respect of both theadministration and policy consequences ofregulation is not well understood by civilservants or Ministers36. Evidence of this lack ofunderstanding may be seen from the fact that, in2005/6 only 8 per cent of (R)IAs identifyadditional costs of regulation for small firms.

Some of the reasons why small firms incurhigher policy costs of regulation, as well ashigher administrative costs are as follows:

1. There are fixed costs associated with mostregulatory change e.g. searching for andassessing the appropriateness of newequipment to comply with a regulation (suchas the ‘Work at Height’ rules). Smallbusinesses have fewer economies of scaleover which to spread these costs.

2. For similar reasons, new equipment andassets tend to be more expensive for smalloperators per unit of output. Small firms alsotend to have to acquire multi-purposeequipment as they have to compete on thebasis of flexibility and service.

3. Small firms incur higher costs of capital thanlarger businesses. Thus all forms ofinvestment expenditure are more expensivefor smaller firms.

32 Framework for NationalStatistics, Office for NationalStatistics, 2000, availablefrom www.statistics.gov.uk/about/national_statistics/documentation.asp

33 Philip Hampton,“Reducing administrativeburdens: effectiveinspection andenforcement”, 2005

34 Enterprise Survey 2004,Institute of CharteredAccountants in England andWales, November 2004.

35 SBRC/Natwest survey ofsmall businesses, 2004

36 Chittenden F andAmbler T, 2007,Government Regulation andSmall Firms: a role for theComprehensive SpendingReview?, in Talbot C andBaker M (eds), TheAlternative ComprehensiveSpending Review,Manchester University Press.

4. Small firms do not have in house regulatoryexpertise such as a health and safety officer.Consequently new regulations require theattention of the owners to understand andmake decisions about the appropriateresponse. Thus regulatory change constrainsor exhausts the supply of generalmanagement talent more quickly in smallfirms than in larger businesses.

5. If the owners feel unable to cope with theadditional volume or complexity ofregulatory work they will have to recruitexternal advisers, often consultants, who willprobably be relatively expensive. Consultantsmay also exhibit a tendency to advise clientsto over-comply, at the margin, in order toreduce the professional indemnity risks thatconsultants face.

6. Because small firms’ profits are smaller andmore volatile than large firms, smallbusinesses are less likely to be able to offsetthe costs of regulation against tax. Even inyears when the costs can be used to reducetax charges, the applicable tax rate will tendto be lower than for large firms. Thus smallbusiness owners incur a higher proportion ofthe net costs of regulation than do largercompanies.

7. Finally, small scale of operations means thathuman and physical assets are less easilydivisible than in larger firms. For example,where a small business with two machinesthat are utilised 24 hours per day faces a 10per cent reduction in output, becauseregulations require that certain potentiallytoxic substances have to be removed fromthe manufacturing process, it will have topurchase a new machine that can only beoperated at 20 per cent capacity in theshort-term. A company with 20 machines willsimply purchase two new items of plant bothof which can immediately operate at fullcapacity.

Table 10 (below) shows that only one in 100(R)IAs quantified the additional burden ofregulation on small businesses. This is in defianceof the Government’s own guidelines. As many as64 per cent claimed no additional burden whichis anomalous, given published research.

For example, the “Voluntary front of packsignposting scheme for certain pre-packed foodssold through retail outlets in the UK” is intendedto encourage consumers to make healthierchoices; and to encourage industry to expandthe range of healthier foods available in the UK.The Food Standards Agency states that “… costsarising from changes in product choices arelikely, based on current market trends, to bedirectly offset by opportunities for businesses tomeet emerging demand elsewhere for healthierproducts. However it is acknowledged that incertain food sectors some smaller businessesmay find this more of a challenge.” Potentialcosts of introducing a signpost labelling schemeare associated with changes to product labelling.Responses from the Consultation carried out bythe FSA indicated that “… a small number ofsmall firms which do not routinely providenutrition labelling on their products may find theadditional costs associated with nutritionalanalysis an issue.” However, the FSA claimed itwas not possible to be clear about theseadditional costs and the consequent effect onthe competitive landscape. Since the newregulations are aimed at large brands and largecompanies, it would have been simpler and moreeffective to have exempted SMEs. This does notseem to have been considered.

UK (R)IA CONCLUSIONS(R)IAs continue to be ineffective in challengingregulatory intervention mainly because thepolitical decision to regulate had already beentaken before the process began.37 It would bebetter if ministers confined themselves toidentifying the problems to be solved anddesisted from providing solutions. Whitehall has

21



37 Evaluation of RegulatoryImpact Assessments 2006-07, Report by theComptroller and AuditorGeneral, HC 606 Session2006-2007, 11 July 2007.

Table 10: Quantification of the impact of regulationon small business

Additional Cost to SMEs Number of (R)IAs

Quantified 1

Not quantified but figures stated to be insignificant 64

Not quantified 24

Not discussed 2

Not applicable 9

Total 100

22

developed an increasing urge to regulateeverything even though regulation withoutimplementation achieves nothing. Under-agedrinking is a case in point. Ministers respond topublic concern by proposing new regulationswithout recognising that the existing regulationsprovide the necessary legal framework if onlythey were implemented. New regulations providethe illusion of action.

The choice of policy instrument tends to bebased more on habit and institutional culturethan on a rational analysis of the suitability ofdifferent tools to addressing the identified policyproblem38. One suggestion promotes an earlyinvolvement of all key internal and externalstakeholders including not only Ministers butalso, for example, policy makers, the BetterRegulation Executive, departmental experts andparliamentarians as a catalyst for radical changeof habit and institutional culture39.

The new IA guidance from 2007, including thesummary front sheet may improve thequantification of costs and benefits and theEnterprise Directorate’s Small Firms Impact Testguidance is a useful guide. However, as ourreview of (R)IAs has shown, few departmentshave a sufficient understanding of the economicimpact of regulation on Small Firms. Unless theEnterprise Directorate is given sufficientresources to educate departments in this respect(a role for which the NAO have praised theEnterprise Directorate), a task that will takemany years, government will continue to failsmall firms in the area of regulation.

POST IMPLEMENTATION REVIEWSPost Implementation Reviews wererecommended by the Better Regulation TaskForce40 and are now required by the (R)IAguidelines and the Treasury Green Book (2003)in order to monitor performance of regulationagainst initial assumptions. To assess the extentto which government departments haveconducted Post Implementation Reviews weselected all (R)IAs up to 2004 with estimatedrecurring costs to business greater then £10mand/or one-off costs to business greater than£20m. (R)IAs were also included if claimedbenefits to business were greater than £250m.

Given that these (R)IAs identified the greatestcosts and benefits to business, it might havebeen expected that Post ImplementationReviews would have been conducted after three

years to determine if the regulations wereachieving their objectives and whether therewere any opportunities to reduce the costsincurred by businesses.

An email with the appropriate list of their (R)IAswas sent to each department at the beginning ofNovember 2007. By the end of December 2007,just six out of the 16 departments had replieddespite two follow up emails and phone calls.Three other departments acknowledged ourrequest for information, but did not providedetails of any PIRs conducted.

Post Implementation Reviews are not beingconducted and some of the reasons giveninclude:

� Monitoring the situation informally/ we havehad an unpublished internal review.

� The EU is reviewing the situation

� “… there was no requirement to completesuch reviews at that time” (Not true)

� “… the implementation period is a lengthyone and is not yet complete”

� “… minor administrative corrections weremade by amending regulation”

� “… because that (R)IA was superseded by amore recent one” (in which case was theearlier one either right or necessary?)

� “… any Impact Assessment on theeffectiveness/impacts of those measuresshould be carried out on a European widebasis and as such by the EuropeanCommission”.

� Review in hand and will be published later.

So far as we can determine from the very limitedinformation made available it would appear thatat least 79 per cent of Post ImplementationReviews that should have been completed haveeither not been conducted or published.

The tendency to pass the buck for PostImplementation Review to the EuropeanCommission when the source of legislationoriginates in the EU41, has some justification but,however well it may be working for the EU as awhole, we should be told how well it is workingfor the UK. One cannot expect the Commissionto provide that information.

The rapid increases in the quantity andcomplexity of regulation in most OECD countries



38 M.Radaelli, F.DeFrancesco, “Regulatoryquality in Europe”, 2007

39 Haythornthwaite R.,Keynote speech to CBRconference, September2007

40 Better Regulation TaskForce, Less is more –Reducing Burdens,Improving Outcomes, March2005

41 The Green Book,“Appraisal and Evaluation inCentral Government”, HMTreasury, 2003

since the 1970s have produced impressive gainsin some areas of economic and social well-being,but too often the results of regulation have beendisappointing. As noted by other researchersdramatic regulatory failures tend to producecalls for more regulation, with little assessmentof the underlying reason for failures.42

Some countries like Australia are routinely usingcomplementary strategies to better manage Post Implementation Reviews.43 Tools likesunsetting (a process in which new laws orsubordinate regulations are given automaticexpiry dates upon adoption) and staged repeal(existing regulations are given “sunset” dates viaex-post policy action) tend to reduce radicallythe average age of regulatory structure and, atleast theoretically, ensure regular review andreform of the stock of regulations. A recentOECD study44 reviewed the use of sunsetting inseveral Australian states and concluded that ithas substantially reduced the overall number ofregulations in force, removed much redundantregulation from the statute book andencouraged the updating and rewriting of muchthat remained. The encouragement ofsunsetting has long been part of UK (R)IAguidance but only five examples (less than 0.5per cent) can be found from 2000 to 2003.

SYNCHRONISING EU AND UK IA SYSTEMSTo examine how well the UK (R)IA systemmeshed with that of the EU we needed to givetime for EU Directives to be transposed into UKlaw. Accordingly we chose 2005 as the baseyear during which 87 Directives were adopted. 45

UK Departments are required to carry outImpact Assessment on EU proposals that wouldhave force in the UK or require implementationin the UK, similarly to the UK Government’s ownproposals.46

The screening of all 2005 Directives suggeststhat 55 out of 87 (63 per cent) Directives couldpotentially impose costs and/or benefits onbusinesses despite the fact that the text of theDirectives usually does not explicitly mention thefinancial consequences of their adoption. Thiscompares with the 73 per cent mentioned earlier.Our UK sources were the BCC database, UKdepartment websites and the OPSI website.47

For 43 of these 55 Directives, we found a full orfinal (R)IA. For two of the remaining Directives(2005/44 and 2005/47) the enforcement date is2008, but that is no reason why an (R)IA should

not have been prepared. In one case (Directive2005/33) only an informal costs and benefitssummary was prepared, while for another two(Directives 2005/16, 2005/77) the (R)IAs werenot prepared as the departments claimed thatthe resulting costs would be insignificant. Inaddition, we analysed Directive (2005/66) whichwas due to be enforced in the UK on the 15th

December 2007 but no evidence of consultationor a partial (R)IA were found. For the remainingsix Directives (2005/39, 2005/40, 2005/41,2005/43, 2005/81, 2005/91), we could not findthe associated (R)IAs.

We considered a sample of 28 Directivesrandomly chosen from the 43 in the BCCdatabase. The sample covers 6 departmentsincluding the three larger producers ofregulation (DEFRA, DfT and BERR).

As mentioned, it usually takes two years for aproposal to become a Directive. As the Directivesare dated 2005, most of the proposals wereoriginated in 2003. The Commission committeditself only gradually to carrying out ImpactAssessment for all major legislative and policyinitiatives since 2003 and, see above, the greatmajority of Directives still do not have IAs. Weconsidered two more Directives where IAs wereavailable to analyse how the EU ImpactAssessment influenced the regulatory process thusmaking a 34 per cent sample of 30 Directives.

We could find no evidence that partial ImpactAssessments were prepared during thenegotiation stage and could not find any partial(R)IAs for 28 of the 30 Directives analysed in ourstudy. In addition it is hard to be sure how muchconsultation is conducted by the EU as they aredifferent types, formal and informal, and theconsultations are not fully recorded. The co-decision procedure guidelines 2005recommends the use of (R)IAs and formalconsultation to inform the UK negotiation linebefore the first reading of the proposal in theEuropean Parliament and examination in theCouncil of Ministers.

The BRE recommends that when theCommission issues formal proposals for newlegislation or for amendments to existinglegislation, a clear set of priorities and issuesthat may cause most difficulty should beidentified, and the development of robustarguments should be incorporated into a partial

23



42 See OECD, “RegulatoryPolicies in OECD Countries”,2002

43 Ibid.

44 Report by the PublicManagement Service of theOECD on Regulatory ImpactAssessment in New SouthWales, Report No 18/51,January 1999

45 Website: http://eur-lex.europa.eu/, 15/09/2007

46 Website:http://bre.berr.gov.uk/regulation/ria/toolkit/eu_negotiations.asp, 15/12/2007

47 Website:http://www.opsi.gov.uk/stat.htm, 15/09/2007

(R)IA based on consultation. As this partial (R)IAis mainly dependent on formal consultationcarried out by the departments at an early stageof the proposal, we sought to identify when thefirst consultation took place. For 11 of the 30Directives considered, we could not find anyevidence of consultation. For a further 9Directives no specific date was found although,for 5 of these, early stage consultations wereclaimed in the final (R)IA but without evidenceof that early involvement. For the remaining 10Directives, departments were involved at anearly stage of development of the EU proposalalthough in one case (Directive 2005/64) theconsultation referred to the amendingDirective.

Screening of the 11 Directives withoutconsultation suggests that when a Directiveintroduces amendments to existing legislation,the engagement of stakeholders through aconsultation process is rare. This may bejustified by the modest impact of theamendments such as the Commission Directive2005/79/EC relating to plastic materials andarticles intended to come into contact withfood which was implemented in the UK via thePlastic Materials and Articles in Contact withFood (England) (No.2) Regulations 2006. TheEU legislation aims to update restrictions onthe use of certain substances in themanufacture of food contact plastics accordingto the latest research. A Directive would notseem to be an appropriate vehicle for thispurpose.

We need to distinguish consultation betweenthe Commission and UK departments, whichpresumably is almost always the case, andconsultation with British business interestseither directly by the Commission or viadepartments. For six of the 30 Directives, UKdepartments explicitly mentioned that theirnegotiating position was successfullyconsidered during the draft of the proposal butin only two of those six cases was a partial(R)IA prepared (Directive 2005/59 andDirective 2005/69). In other cases, partial(R)IAs may have been prepared but laterremoved when the final (R)IAs were prepared.This is a weakness in the UK audit trail.

Early consultation at the negotiation stagetogether, with a robust UK partial ImpactAssessment, can be effective in shaping the

final Commission proposal. Directives 2005/59and 2005/69 are good examples.

These Directives amended Council Directive76/769/EC relating to the restrictions on themarketing and use of certain dangeroussubstances and preparations (TCB and PAHs).On the proposals relating to TCB the UKlobbied for derogation for an essential UKmanufacturing use from the restrictionspermitting the use of TCB in the manufactureof TATB, a substance used in the manufactureof sensitive munitions. This was successful. As aresult it was concluded that EU wide marketingand use restrictions of these substances withderogations would provide the mostappropriate means for controlling the riskassociated with the substances. This took theform of the 27

th and 28

th amendments

(2005/69/EC and 2005/59/EC) to CouncilDirective 76/769/EEC.

During the negotiation stage for theseproposals several meetings were held with theUK industry that uses TCB. This helped informthe UK negotiating position. A twelve weekpublic consultation was also run in the UK onboth draft Directives. The European ScientificCommittee on Toxicity, Ecotoxicity and theEnvironment (CSTEE) was consulted andconsidered the Risk Assessment Reports. Intheir opinions of June and July 2001 theyconfirmed the conclusions of the Assessmentsof the need to reduce risks to health. In-depthrisk reduction strategies for both toluene andTCB were prepared by the DanishEnvironmental Protection Agency. Duringdevelopment of the partial regulatory ImpactAssessments, two extensive publicconsultations were undertaken with industry,downstream users, trade associations and otherkey stakeholders with an interest in thesesubstances. An early refocused partial (R)IAwas prepared for the UK implementation of theDirectives and this allowed the revocation andconsolidation of 17 statutory instruments into asingle SI as result of a review of the previousarrangements, which were consideredcumbersome and impractical for businesses.

Our main concern lies less with whether partialImpact Assessments are prepared (theyprobably are) but when and whetherconsultation with business takes place soonenough. Table 11 illustrates this concern.

24



25



Table 11: Progress dates for EU Directives

Directive Issued EU enforcement UK Consultation Final (R)IA UK enforcement

2004/101 27/10/2004 13/11/2005 Jun-05 16/10/2005 13/11/2005

2005/04 19/01/2005 08/02/2006 Jul-05 23/11/2005 06/02/2007

2005/06 26/01/2005 16/02/2006 Sep-05 23/01/2006 16/02/2006

2005/07 27/01/2005 17/02/2006 Sep-05 23/01/2006 16/02/2006

2005/08 27/01/2005 17/02/2006 Sep-05 23/01/2006 16/02/2006

2005/9 28/01/2005 28/07/2005 Jun-05 04/07/2005 28/07/2005

2005/10 04/02/2005 08/02/2006 Jul-05 23/11/2005 01/01/2006

2005/20 09/03/2005 09/09/2006 Mar-05 22/11/2005 01/01/2006

2005/26 21/03/2005 21/09/2005 May-05 14/07/2005 21/09/2005

2005/31 29/04/2005 20/05/2006 Dec-05 24/04/2006 20/05/2006

2005/37 03/06/2005 04/12/2005 No formal 29/11/2005 22/12/2005

2005/46 08/07/2005 09/01/2006 No formal 29/11/2005 22/12/2005

2005/48 23/08/2005 24/02/2006 No formal 29/11/2005 22/12/2005

2005/55 28/09/2005 09/11/2006 Aug-06 21/09/2006 09/11/2006

2005/61 30/09/2005 31/08/2006 Apr-06 18/07/2006 31/08/2006

2005/62 30/09/2005 31/08/2006 Apr-06 18/07/2006 31/08/2006

2005/59 26/10/2005 15/12/2006 Jul-06 Nov-06 16/01/2007

2005/66 26/10/2005 25/08/2006 No formal 05/09/2006 26/11/2006

2005/64 26/10/2005 15/12/2006 Jan-07 Not available 26/04/2007

2005/78 14/11/2005 08/11/2006 Aug-06 21/09/2006 09/11/2006

2005/69 16/11/2005 29/12/2006 Jul-06 11/12/2006 01/01/2007

2005/68 16/11/2005 10/12/2007 Jul-07

2005/79 18/11/2005 19/11/2006 Feb-06 23/05/2006 17/11/2006

2005/80 22/11/2005 May 2006 Jan-06 27/04/2006 22/05/2006

2005/86 05/12/2005 31/12/2006 Jun-06 22/11/2006 31/12/2006

2005/87 05/12/2005 31/12/2006 Jun-06 22/11/2006 31/12/2006

2005/94 20/12/2005 01/07/2007 Feb-06 11/10/2006 20/12/2006

2005/88 27/12/2005 03/01/2006 Nov-06 29/12/2005 03/01/2006

26

Whilst the UK mostly complies with EUenforcement dates, some are sooner and someare later. That is not an issue. The (R)IAs,however, are mostly late since they should beout with, or shortly before the Directive isissued. Bear in mind it will have been two yearssince it was proposed and consultations takeplace long after this. The late issue of final(R)IAs confirms that the UK (R)IA system isfocused on the transposition of Directives intoUK regulation, a relatively mechanical processwhere consultation can have only a marginaleffect.

During the negotiation stage of Directive2005/6/EC, the Association of Public Analysts

requested that the implementation of Directive

2005/6/EC be deferred, so that its

requirements could be phased in alongside the

accreditation and validation associated with

another measure (EC Regulation 882/2004,

which came into force on 1st January 2006).

However, the Association had been advised

that deferment was not a realistic option, as

failure to meet the deadline for implementation

could attract infraction proceedings from the

European Commission. The (R)IA linked to the

implementation of this Directive did not include

any quantification of costs and benefits to

business. Earlier consultation could have

addressed the issue.



Only about 27 per cent of EU Directives and 50per cent of Regulations that should have IAsseem to have them even though the system issupposed to have been in force for four years.On the other hand, we cannot understand whythe EU uses IAs for non-legislativeannouncements. Some UK (R)IAs that shouldexist for EU legislation do not appear to do sobut the extent to which the UK system is missingthe EU legislation where it should apply, is farfrom clear. 85 per cent of EU IAs appeared tocomply with the requirement for consultationalthough, as indicated elsewhere in this report,we are sceptical about the efficacy of thatprocess.

Although 87 per cent of the UK (R)IAs includeda “do nothing” option, we found no (R)IA wherethis was the final decision. The same conclusionwas reached by the National Audit Office,although they did find one example, but thatarose from a Private Member’s Bill where theinstinct of the department was to thwart it. Therequirement to give special consideration toSMEs is largely ignored.

So far as we can determine from the very limitedinformation made available it would appear thatat least 79 per cent of Post Implementation

Reviews that should have been completed haveeither not been conducted or published.

Despite expressed concern with the total volumeof regulation, their pace of introduction, asmeasured by (R)IAs, has continued to increase.About 130 regulations per annum weregenerated in the first four years of thisgovernment. The number has increasedprogressively to about 350 in 2006/7.48 Thecumulative burden on British business since 1998is, according to the (R)IAs themselves, £66bn., ofwhich 70 per cent arises from EU sourcedregulation (73 per cent last year). In terms of thenumber of regulations, the EU accounts for onlyabout 35 per cent. The financial cost shown bythe (R)IAs is only part of the burden; keepingtrack of changing legislation through the forestof legislative paper is a major burden in itself.Small wonder so many firms do not bother to doso and that those who do bother grumble aboutthe burden of so doing.

At the same time, some reductions arebeginning to arise from reform and weacknowledge that regulation is not solely afinancial matter: social and environmentalbenefits can also be enhanced.

27

KEY FINDINGS

48 We acknowledge thatsome of the increase mayhave arisen from the RIAsystem being now appliedmore widely but the rule for(R)IAs since 1997 has beenthe same, namely that allregulations financiallyaffecting business, charitiesor the voluntary sectorshould have (R)IAs. Since itwould be foolish to produceunnecessary (R)IAs, we holdthat business-affectingregulations can be countedby the number of (R)IAs.

Neither the UK nor the EU Impact Assessmentsystems are working effectively to challenge,inform and shape new regulations. Otherresearch draws much the same conclusions,49

although expressed in more encouraging terms.Vibert suggests that the net result of policy-making in the Parliament and Council ofMinisters, combined with a politicisedCommission is that the institutional setting is notone within which IAs are likely to be effective instemming the flow of regulation that may havethe potential to damage market competitiveness.Indeed the IA guidance acknowledges that therationale for Impact Assessment is to ensure thatlegislation is fit for purpose. Only as a last resortshould the necessity for the proposed legislationbe questioned. At both EU and UK levels, thesystems are under active review and it would begood to believe that challenge will become moreeffective. Our recommendations below are inthat direction.

The elephant in the room is the absence ofsynchronisation between the EU and memberstate Impact Assessment systems. This has beenacknowledged, at least informally. For example,the time lines for the production of ImpactAssessments at EU and member state levelsshould be consistent, and sufficiently early toallow full consultation and review not just bygovernment officials but by business and otherparties affected by the proposed legislation. It isnot enough to publish the first ImpactAssessments after the decisions have effectivelybeen made.

Part of the problem arises from the complexityof the paperwork and the bodies who areinvolved in the process. Impact assessmentsoverlap with explanatory memoranda at both EUand national levels. Directives require two layersof legislation and transposition notes betweenthe two. As the European Commission itself hassuggested, it would be simpler to useRegulations in place of Directives.50 EURegulations and UK Statutory Instruments aremostly administrative orders and thus obscurethe minority which are legislative in nature.

As this report has shown, the complexity drivesout effective consultation particularly for EUlegislation. As we have pointed out in ourprevious reports, even for purely UK regulation,consultation is conducted by the “Counsel forthe Prosecution”, i.e. the department promotingthe new regulation, and contributes to

facilitation rather than challenge. We here repeatour previous recommendation that forensicexamination is required from an independentexpert (as in Europe) who should prepare a onepage summary for legislators, e.g. Parliament. Toensure independence, it would be preferable forthis expert not to be employed by, nor even paidby, government. We have previouslyrecommended that the myriad but toothlessregulatory committees are replaced by one thatis both independent and effective, i.e. the NAOor, like the NAO, answerable directly toParliament. We still believe that to be the rightanswer and similarly the independent expertsshould be paid by Parliament or the NAO.

The BRE has now adopted our earlierrecommendation that there be a one pagesummary, which is progress, but we go further.The summary proposed here would be from anindependent perspective and provide legislatorswith both sides of the picture. ExplanatoryMemoranda, precursors of IAs, would therebybecome redundant. Eliminating them would be asmall contribution to simplification.

Where does this leave us? Clearly both the EUand Whitehall law factories are beavering abouttheir businesses with the best of intentions. TheImpact Assessment systems are fine examples ofthat. The boxes are being ticked but theirfundamental rationale of challenging the needfor new legislation and, if so, finding the mostcost effective alternative is being missed at bothlevels. Meanwhile, the UK Parliament which doeshave the power to intervene effectively, throughthe SI process, is asleep at the wheel.

In terms of overall number, only about 35 percent of new regulations are triggered by EUlegislation. This immediately questions whetherthe other 65 per cent are necessary. The UKpresses for the EU being a single market and asingle market requires just a single set ofregulations. If a business regulation is notrequired by the EU, then it is not required inBritain. Alternatively, if it is required in Britain, itis required for the rest of the EU. Every extrabusiness regulation for the UK not shared withits European trading partners, is a further burdenbusiness should not carry. Our firstrecommendation is that, when Ministers sign offa new UK-only regulation in the IA, they shouldexplain why it is needed in the UK but not in therest of Europe.

28

CONCLUSIONS

49 F Vibert, The EU’s NewSystem of RegulatoryImpact Assessment – AScorecard, (European PolicyForum, London, 2004)

F. Vibert, The Itch toRegulate: Confirmation Biasand the EC’s New System ofImpact Assessment(European Policy Forum,London, 2005)

F. Vibert, ‘The limits ofRegulatory Reform in EU’,26 Journal of Institute ofEconomic Affairs 3, at 17–21.

Risk, Responsibility andRegulation: Whose risk is itanyway? Better RegulationCommission, October 2006.

50 EU Comm 535, 25October 2005: “FromDirectives to Regulations:As the Commission madeclear in its Communicationon Better Regulation forGrowth and Jobs, thechoice of the appropriatelegal approach must bebased on a careful analysis.Replacing directives withregulations can undercertain circumstances beconducive to simplificationas regulations enableimmediate application,guarantee that all actors aresubject to the same rules atthe same time, and focusattention on the concreteenforcement of EU rules.This contribution tosimplification was widelyrecognised in theconsultations underliningthe view that it wouldprevent divergent nationalimplementation. Inconformity with Treatyprovisions and taking intoaccount the Protocol to theTreaty on subsidiarity andproportionality, theCommission intends tofurther exploit, on a case bycase basis, the potential forsimplification throughsubstituting directives withregulations.”

The expansion of regulation may help explain theworsening overall control of the process and, onesuspects but this is beyond the purview of thispaper, effectiveness. “Command Papers” are theofficial lists of new regulations. As the July Paperwas issued late, for the second year in succession,and it has not been possible to find about 15 percent of (R)IAs at all. Since the whole point of(R)IAs is to make regulation transparent, thiseconomy with their availability illustrates thesystemic failure. For over ten years, theGovernment has had no overall control system forregulations although a database is planned for2008. It has since transpired that some (R)IAslisted in the Command Paper are not (R)IAs at all.In short, the 2007 data are so compromised thatwe are holding over our detailed audit until wecan obtain clarification in time for next year’sanalysis. As a postscript, we have discovered that79 per cent of the major Post ImplementationReviews that should have been published by theend of 2007, have not been.

The comparison of EU and UK ImpactAssessments leads to a simple conclusion: theEU very rarely employs IAs, and even more rarelyquantifies them thoroughly but, when it does so,the system works very well. Conversely, the UKgoes through the motions with all Directives andRegulations but so superficially that the systemdoes not work at all.

No evidence of partial UK (R)IAs being used toinform EU Directives was found in our sample.By the end of the transposition process, Final(R)IAs were in place but those appear to beafter-the-event, tick box papers. Partial (R)IAsmay have been replaced by later versions but itseems that they are not being produced soonenough, if at all, and that consultation with UKbusiness is taking place some years after itshould. And by that time consultation can haveonly a marginal impact. We accept thatdepartments are involved sooner but the extentto which they represent British business interestsis unclear and is second hand at best.

The production of Directives, and thereforepresumably Regulations, and ImpactAssessments at EU level is seldom informed by adetailed UK assessment of options, risks, costsand benefits, developed by business. It iscurious, with hindsight, how much attention hasbeen given to perfecting the UK domesticsystem, in theory, with so little regard to the EUwhich is the source of the heaviest burdens onbusiness and should be the priority.

Our recommendations have been revised sincelast year, taking into account the slight progressthat has been made.

29

CONCLUSIONS

1. When, in an area with EU competence, aMinister signs off a new UK-only regulation inthe IA, in relation to an area with EUcompetence, he or she should explain why itis needed in the UK but not in the rest ofEurope.

2. UK government should switch its attentionfrom the domestic IA agenda towards havingan effective UK IA system for EU sourcedlegislation. Having Regulations (or “Laws”under the new Treaty) rather than Directiveswould help but that, together with the EU IAsystem, are out of UK hands. The UK IAsystem is synchronised with the EU Workplanso that EU legislation is effectivelychallenged in time to have any effect. Inother words, an early provisional IA andconsultation with British business should takeplace, and be recorded, as soon as theDirective is proposed. The first provisional IAshould be preserved for the audit trail.

3. The BRE should extend the proposed ImpactAssessment database to ensure that allrelevant EU legislation that should have UKImpact Assessments are included with thedates and versions of the EU and UK Impact

Assessments as they are produced (the“audit trail”).

4. Ministers should insist on due PostImplementation Reviews being completedand published for all regulations placingsignificant burdens on British business, i.e. allthose appearing in the British Chambers ofCommerce’s Burdens Barometer three yearspreviously.

5. We will not try readers’ patience byrepeating last year’s recommendations butsimply invite all those seriously interested inreforming and improving the UK’s regulatorysystem to provide better alternatives, explainwhy those recommendations are wrong orunaffordable or even, if all else fails,implement them. This would make a pleasantchange from avoiding uncomfortable truths.

6. One exception is that parliamentariansshould take responsibility for legislation. MPsnow have the power to block poor and/orredundant regulation but they do not use it.To complain of excessive regulation whilstfailing to use the powers they have to resolvethe matter is not acceptable.

30

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