Administrative Costs, Simplification Plans and Regulatory Budgets

Concerns about the burden of regulation received a good deal of attention from early 2005, partly driven, no doubt, by the Government's need to be seen to be business-friendly around the time of the May 2005 general election. There were several strands to the activity, summarised in a separate note. But there were three particularly innovative and inter-related sets of proposals.

Measuring Administrative Burdens

Regulatory costs may in principle divided into policy costs, one-off costs, financial costs and administrative costs:

• Policy costs are those costs directly attributable to the policy goal. For instance, if a new regulation requires employers to reduce their employees' exposure to a particular chemical in the workplace, the policy cost might include buying new equipment such as local exhaust ventilation or personal protective equipment, and regular checking that the equipment is in good working order.
• One-off costs are those costs only sustained once (such as in taking professional advice and initial staff training) when a business is adapting to a new or amended regulation.
• Financial costs include paying tax and license fees.
• Administrative costs are all those costs associated with familiarisation, record keeping and reporting, including inspection and enforcement. Such costs would include ongoing staff training, keeping records of exposure levels and equipment checks, and supplying that information to the authorities.

In March 2005, the Better Regulation Task Force put forward a range of recommendations aimed at reducing the regulatory burden on business:- Regulation - Less is More: Reducing Burdens, Improving Outcomes. The main thrust of the Task Force report was that the Government should for the first time (a) measure and then (b) reduce the stock of regulation, beginning with the adminstrative burden, and then move on to a sizeable programme of regulatory simplification and reform, in part driven by suggestions from business. This was a fundamental change of approach as most previous deregulation initiatives had focussed on reducing the flow of new regulation, rather than attacking the existing stock. The Government published its response to the report in July 2005, accepting all the recommendations. This led to the the Administrative Burdens Measuring Project in which consultants asked the business community to estimate the administrative cost of the existing stock of regulations. The NAO (see further below) later reported that the total was just under £20bn, not including around £11bn "business as usual" costs - such as the cost of preparing accounts which would anyway be needed by managers and shareholders, even if they did not also need to be submitted to Companies House and/or the tax authorities. About one quarter of this £20bn was represented by burdens imposed by the tax authorities. The balance was in December 2006 said to be £13.7bn pa but the NAO subsequently estimated it a little higher.

This exercise, and the subsequent Reductions Programme, led to some fierce Whitehall battles. The BRE argued, for instance, that the cost of telling an employee what hours they are going to work, what they will be paid, and so on, was an administrative burden - and that was certainly the view of many employers. Much the same applied to the cost of defending Employment Tribunal claims. DTI however - equally understandably - regarded these burdens as policy costs and they were not going to try to reduce such hard-won protections.

Administrative Burdens Reduction Programme

In December 2006 the Government published a number of departmental Simplification Plans which supposedly identified 500 "red tape busting actions" which would save businesses etc. over £2bn in administrative costs. Examples included (already enacted) changes to company law, improvements to the planning system and less intrusive health and safety, and retail premises, inspection regimes. The aim was to save 25% (around £3.5bn) of the £13.7bn total administrative cost burden by 2010, together with a smaller proportion of the cost of complying with tax legislation etc.

It was easy to be cynical about this programme. Those close to it believed that businesses wildly over-estimated the administrative cost of certain of the regulations, thus making it very easy for officials to target reductions in those costs. But the programme was nevertheless welcome and there was little doubt that it would do some good, even if it were to achieve much less than the Government's headlines would have had us believe. This conclusion was echoed in the NAO's July 2007 report Reducing the Cost of Complying with Regulations: The Delivery of the Administrative Burdens Reduction programme, 2007. The NAO particularly noted that:

• The Government's targets were for a net reduction in administrative burdens. Departments therefore need to deduct any new administrative burdens from the savings achieved in the delivery of older regulations.
• The results of similar programmes in Denmark and the Netherlands had either "not been noticed in full [by business]" or "not been noticeable" at all. This was presumably because the relative importance of administrative burdens is not known, and may in practice be only a small part of the four-fold cost of regulation (see above), and also, as the NAO pointed out:
• Business find it particularly irritating and burdensome to keep up-to-date with changes in existing regulations, to comply with regulations, and to find appropriate information and guidance. These "irritation factors" are not necessarily the most burdensome in monetary terms, and hence are less likely to be targeted as part of the burdens reduction programme.
• A regulation can appear to impose large administrative burdens because it applies to a large number of businesses, even if the burden is not particularly high for individual firms. Equally, a regulation may not appear to impose significant burdens because it affects only a small number of firms, but the burdens may still be significant for individual affected firms.

The NAO reported again in October 2008. On the positive side, they reported that businesses' perceptions of regulation had slightly improved. But they were not impressed by the reductions in burdens claimed by departments ("should be treated with caution", "not calculated on a consistent basis" "subject to only limited validation"). And two-thirds of the savings claimed by the four main departments (who were responsible for 75% of the total admin burden) were attributable to initiatives which had been identified before the programme had begun.

Regulatory Budgets

This was an even more ambitious initiative, kicked off by a consultation document in August 2008. The big idea was that each department should have a three year (not one year) budget for regulatory activity just as it has a (usually one year) financial budget. And rather like financial budgets, the regulatory budgets would be set:

• in respect of new regulations
• after deducting reductions in regulatory costs consequent on the removal or simplification of older regulations, and
• after prioritising those regulations with higher benefit/cost ratios.

Competition enforcement and and economic regulation would be excluded, as (interestingly) would be regulation aimed at tackling climate change. The latter decision proposal was an early indication of the very low likelihood that this initiative would ever get off the ground. Most departments responded by providing a list of very expensive regulatory proposals for which they would wish provision to be made, including, for instance, the highly regulatory plan for automatic pension scheme contributions for all employees, and compulsory employer contributions, however small the business. The regulatory budget proposal therefore had the unintended consequence of encouraging regulatory ideas to see the light of day rather earlier than might otherwise have been the case. There were also some very obvious practical problems, not least the difficulty of measuring the regulatory costs, and the fact that no Secretary of State was going to give away his/her ability to provide rapid regulatory responses to new and urgent problems. All in all, it became clear that the established system, under which the Better Regulation Executive scrutinised and challenged individual regulatory proposals, subject to political override, was likely to remain the best way of controlling Ministers' regulatory proclivities. The regulatory budget idea was accordingly dropped via a statement by Lord Mandelson on 2 April 2009.

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