Government Regulation

4th April 2005

During a debate in the House of Commons on Government Regulation, Brooks Newmark makes a major speech highlighting costs of additional regulation for small businesses.


Mr. Brooks Newmark (Braintree) (Con): I would like to thank the hon. Member for Wakefield (Mary Creagh) for her contribution. I felt that, with her experience of small business, she made some very sensible points, particularly about the need to strike a fair balance with regulation. Nevertheless, I would like to remind Labour Members of their 1997 manifesto commitment:
"We will not impose burdensome regulations on businesses, because we understand that successful businesses must keep costs down."

As we have heard from many Members this evening, earlier this year the British Chambers of Commerce published its latest findings, showing that the costs of new business regulations introduced since 1997 are now approaching £40 billion. That figure actually excludes the national minimum wage. It does not include it, as the hon. Member for North Norfolk (Norman Lamb) claimed that it did. Indeed, the CBI has said:
"The Government must stem the red tape tide and make the regulatory environment more business-friendly. There is a pressing need for regulations to be cut-back and simplified."

Nevertheless, the Government announced back in August 1998 that no policy proposal that had an impact on business, charities or voluntary bodies should be considered by Ministers without a regulatory impact assessment first being carried out.

While regulatory impact assessments are in theory required to estimate the costs and benefits of regulation, there is no indication in the Cabinet Office guidance notes that proposed regulations should be aborted if, as is increasingly the case, their costs to business are found to outweigh their benefits. Indeed, the British Chambers of Commerce found that 23 per cent. of the RIAs it sampled in 2002-03 did not even attempt to quantify costs to business, and that 71 per cent. did not quantify the benefits.

Another problem is that the scope of cost-benefit analysis carried out in regulatory impact assessments is drawn extremely widely. The former Cabinet Office Minister, now the Minister for Europe, the right hon. Member for Paisley and Renfrewshire, South (Mr. Alexander), said that an RIA procedure
"requires the responsible Minister to certify that he or she is satisfied that the benefits of the proposed measure justify its costs. The Minister will consider the full range of benefits arising from the measure, including social, environmental and economic".-[Official Report, 22 July 2004; Vol. 424, c. 515W.]

However, there is no objective way of measuring social or environmental benefit. RIAs can easily be reduced to subjective impressions. Furthermore, there is little scrutiny of the extent to which the particular costs and benefits predicted by officials prove accurate, once regulation actually comes into force.

Professor Ambler and Francis Chittenden, who studied 165 of the 197 RIAs published between July 2002 and June 2003, found that
"in many cases completion of RIAs remains a bureaucratic task to be despatched with as little effort as possible."

That impression was reinforced by a Government special adviser, who told the Social Market Foundation's regulatory best practice group:
"It would not be far off the truth to say that"
the Minister
"would hardly remember having seen"
an RIA.
"They have never made any difference to our work-we've got commitments to discharge and we're not going to let procedure get in our way."

So far, approximately 1,100 regulatory impact assessments have been issued since their introduction in 1998. In his study on behalf of the British Chambers of Commerce, Professor Ambler notes that in:
"many cases regulation is transferring government's administrative and social policy onto industry. In other words, whether intentionally or not, many regulations act as a form of taxation."

A good example of that may be seen from the current proposal for the Inland Revenue to take on the role of calculating and paying statutory maternity pay, maternity allowance and statutory adoption pay. The partial RIA on that topic states that it will cost the Inland Revenue £55 million in one-off costs and £26 million a year in ongoing costs to take that work over from employers. Since employers are currently required to administer those payments on behalf of the Government, employers are effectively contributing a lump sum of £55 million plus £26 million per year to the Inland Revenue.

I would therefore draw the Minister's attention to some of the BCC's recommendations on ways to improve RIAs. First, a Minister agreeing to an RIA where the quantified benefits do not appear to exceed the costs should explain why, in his or her view, the RIA is justified nonetheless. Secondly, Ministers, when signing, should also certify that the RIA meets the Cabinet Office guidelines and justify those areas where it does not. Thirdly, where consultees provide estimates of costs and benefits, a summary of those figures should be reported in the RIA. If those figures differ significantly from the Department's own estimates, a review date should be set-it suggests within two years-to examine the actual costs and benefits, as the guidelines already suggest in all cases. If, on completion of the review, it becomes apparent that the costs of the regulation are not justified by the benefits, the regulation should be revised or repealed.

Fourthly, sunset clauses should be used, except where the Minister, when signing, explains why it would be inappropriate in a particular case. Fifthly, the Better Regulation Executive should maintain an up-to-date database and website of all RIAs, which should be serial numbered and linked to relevant documents. Finally, the BRE should publish an annual report, audited by the National Audit Office, of the Government's regulatory performance and compliance. That report should include additional costs and benefits arising from major regulations that have a significant impact on society, the economy and the environment.

Overall, however, the real objective is the need to achieve a significant net reduction in the regulatory burden presently placed on business.

9.27 pm


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