“Red Tape Challenged?” a new report released today (Monday) by the British Chambers of Commerce (BCC) shows that the government’s new regulatory architecture is inconsistent and lacks transparency. Through analysis of Impact Assessments* (IAs) by government department, and the feedback on these by the Regulatory Policy Committee, the BCC was able to examine the progress made by the government to improve regulatory policy and reduce the effects of red tape on business.
Regulation can substantially affect businesses’ ability to grow, innovate and create employment. Only substantive reductions in regulatory burdens will make a genuine difference to British businesses. During 2011, the government has made a serious commitment to reduce red tape for firms, but our report finds that the systems and processes put in place to achieve this are still inconsistent and must be strengthened. .
The report found:
The burden of regulation on business remains too high
• Despite promises to reduce regulation, and the launch of the Red Tape Challenge, businesses are still expected to comply with a huge volume of regulation.
• The October Common Commencement Date saw the introduction of new regulation with a £45m price tag for business.
The regulatory process is opaque, and not open to effective scrutiny
• The BCC found that not all government departments publish all of their regulatory Impact Assessments in the IA Library. In several cases, we had to use Freedom of Information (FOI) requests in order to gain access to these. This is at odds with the government’s aim to make the regulatory process transparent.
• The architecture through which regulations must pass is still flawed. The Regulatory Policy Committee is tasked with “independent scrutiny of proposed regulatory measures”. However our research found that in some cases their recommendations were not taken seriously, or implemented by government departments. See below for an example.
• In addition, the study shows that there is too much inconsistency between the regulatory processes of different government departments. We believe that the Better Regulation Executive should be empowered to monitor government departments’ deregulatory performance, with strong Ministerial support.
“One-in One-Out” policy not applicable to 42% of regulations
• The Coalition’s introduction of a One-in One-Out approach is designed to force departments to scrap old laws if they want to bring in new ones, and so reduce the costs and burdens faced by businesses in complying with regulations.
• However, many new regulations are out of the scope of the policy because they are either European in origin, or relate to non-applicable areas such as environment or tax.
• The figure of 42% of regulations falling outside of the “One-in One-out” policy is disproportionately high. This means businesses on the ground still feel the effect of more, rather than less, regulation.
A working example: National Minimum Wage increase
On April 7th 2011, the Department for Business, Innovation and Skills (BIS) announced that the National Minimum Wage would increase by 2.5% to £6.08 per hour in October 2011.
However, an FOI request sent to the Department for Business, Innovation and Skills by BCC found that the Regulatory Policy Committee (RPC) had rated the Impact Assessment ‘not fit for purpose’. This means that BIS should have addressed their concerns around the regulation before proceeding with any change.
The Department for Business, Innovation and Skills chose to ignore the RPC’s opinion and increase the National Minimum Wage regardless. Moreover, BIS made the announcement of the increase on April 7th 2011. However the RPC opinion states that the IA was not submitted until April 21st 2011, with the RPC issuing an opinion on June 6th 2011. This demonstrates that the government had clearly planned to increase the NMW regardless of the RPC’s view, undermining its role in the regulatory process.
Commenting on the report, John Longworth, Director General of the British Chambers of Commerce, said:
“Regulation affects businesses every day. While some regulation is necessary to improve markets, an excess can add unnecessary burdens and hinder growth among businesses. Needless regulation creates uncertainty, and damages productivity, distracting firms from innovation and expansion. It is crucial that the drive to reduce the regulatory burden is treated as importantly as all other aspects of economic policy.
“The scrutiny of regulation often falls down as there is no single Ministerial ‘guardian’ to make sure it is being delivered. National Minimum Wage uplifts and the Agency Workers Directive are key examples where this was the case in 2011. ‘One-in, One-out’ has potential to have a big effect, but the current exemptions and lack of transparency with Impact Assessments make it difficult to police. Brussels is still pumping out regulatory proposals in areas such as employment and health and safety.
“Businesses the length and breadth of the country are yet to feel the concrete or positive changes promised by the government’s deregulatory drive. Only substantive and real reductions in the regulatory burden will give companies confidence and enable them to plan for future growth with certainty and clarity.”