Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 1 - 19)




  1. Good afternoon and welcome to the Committee of Public Accounts. This afternoon we welcome Mavis McDonald, the Permanent Secretary to the Cabinet Office. We shall be talking about the regulatory impact assessments (RIAs). We obviously have a good story here as there is room for improvement. Welcome to our Committee. Would you like to introduce your colleague?

  (Mavis McDonald) I have with me David Andrews who is David Irwin's deputy at the Small Business Service. We thought it would be helpful to the Committee to have someone who is an expert in the operations of the Small Business Service alongside me today.

  2. May I start with paragraph 2.1 which emphasises the importance of starting early, consulting effectively and costing appropriately. To what extent do you think these characteristics are reflected in assessments being done at the present time?
  (Mavis McDonald) Our view is very much the view which the NAO set out in their own report that there is a lot of good practice going on in departments but there are various areas in which we both agree there is room for improvement. A lot of the material in the new guidance we published in August 2000 does pick up some of the points the NAO focus on, like early consultation and the need to consult fully on proper options. We do accept that there is room for extending examples of best practice, working further with departments. We are proposing to revise that guidance itself and are happy to work with the NAO in taking forward the recommendations in their report on how we improve practice over the next few months, consulting external stakeholders where necessary.

  3. Paragraph 2.3 is an important paragraph. It says that several organisations consulted by the NAO complained that departments had already made their minds up before preparing their assessments. What are you doing to change this attitude?
  (Mavis McDonald) The guidance we have already suggests that there is not much point in just thinking about only one option for taking forward any proposal for regulation, and that the consultation we encourage people to follow through should engage with a number of options. We have some very good examples of where regulatory impact assessments, when they are at their partial stage, have included a number of options. I might quote one I was involved in myself which was the Countryside Bill on access to the countryside where a lot of work was done on different kinds of options including getting some consultancy support and where the actual legislation then pursued several different approaches as a result of that consultation. We acknowledge that this is not consistently as good across all RIAs and there is room for encouraging departments to improve their practice there.

  4. You can see the sort of attitude that might be prevalent, particularly in the business sector, that this whole process is a bit of a charade really and the department has made its mind up. Are you prepared to intervene specifically? You obviously have the power, but are you prepared to intervene, keep an eye on what is going on and ensure this is a proper process in the meantime?
  (Mavis McDonald) We do have machinery which enables us to work with departments as they develop regulatory impact assessments from the initial seeking of policy approval through the various stages of full public consultation. We have a group of units called departmental regulatory impact units (DRIUs), where we have regular meetings between the central team and the Cabinet Office; we are exchanging good practice on what works and what does not work all the time. We also ourselves run a series of seminars and workshops to try to encourage people to learn the best from each other. I do think that it is important to distinguish a point which comes through clearly in the report where the NAO talk about the distinction between the policy cost and the administrative cost of implementing regulation. There are some cases where a government will have made a prior commitment to make a change, having already stated why it wants to make that change, but that does not mean there is not frequently room for talking about how that change is implemented. There are examples in the report, like the minimum wage itself, where consultation has changed the way in which the implementation has been carried through which has resulted in reduced cost to business and had particularly good impacts on small companies.

  5. I shall return to small businesses in a moment; it is a very important point. Do you think there would be benefit in having a more systematic, independent external review of individual assessments?
  (Mavis McDonald) As you would expect, this is something on which we have had some discussion amongst ourselves. Our view is that having an external assessment of what is going on can always be a good thing, but a formal process, where you are actually quite frequently developing primary legislation or working to tight timetables on statutory legislation, could be very much held up by having to go to an independent body. It is not clear what gains would be got from that process that we could not already seek by an improvement of the very open process which we currently run. We have within the process the capacity for business or charities and the voluntary sector to challenge what has been done at any stage, if they think it is inappropriate. A lot of this activity is in the public —

  6. The answer there appears to be no. I am not sure it is for me to mention, but I am advised that it was a commitment in the Labour Party's business manifesto that there would be some sort of external audit. Are you saying that you would not therefore view in a positive way the National Audit Office being able to have greater audit power over these impact assessments?
  (Mavis McDonald) There is a difference between audit and intervention. Some degree of external evaluation, whatever it might be, could add value and indeed the current process does require people when publishing the full regulatory impact assessment to say how they propose that a new regulation should be evaluated. We have been discussing with Ministers how they would want to look at their commitment to evaluate regularly within three years, and they are minded to wait and see what comes out of the NAO study and some other work the OECD are taking forward on the way our system compares with other systems which they have been looking at, to decide exactly how to do that. There are several ways in which you might do it. You might work more closely with the NAO in the way in which they audit particular departments and we have had some discussions with our colleagues at official level about ways in which we might or might not take that forward. You might do a much fuller assessment, the normal academic assessment of what has worked well and what has not worked well in particular areas. In some cases we already have commitments that other bodies should look particularly at the impact of assessments.

  7. We might come back to that, particularly the point about the NAO, in which we are particularly interested. Another important point is paragraph 2.26. This is the skills your own civil servants have in Whitehall, where they are being moved around different departments and these are really quite complicated things to do and to prepare. What are you doing at the Cabinet Office to equip policy makers with the necessary skills and knowledge both to prepare assessments and to draw on the expertise of others?
  (Mavis McDonald) I should like to answer this question in two halves. There is the general need for people who are largely leading on policy development to understand the process and the kind of skills which others might need to bring to bear in developing it. As the report itself says, the RIA in itself can add value to the policy development process. At one level we would look to be developing more generally the senior civil service competencies and skills to improve the `intelligent customer capacity' of the senior civil service more generally and in this report and in the report which was published at the beginning of November by the NAO on modern policy making there are references to the kinds of skills and capacity to build up our general know-how on things like risk management and risk assessment which are relevant to this. On particular individual RIAs, where you may have a team who have not done one before, then we would hope that the DRIUs, the departmental expertise, could provide extra advice to the particular team. We would expect everybody to have the capacity of economists or other professional groups who are well versed in things like cost benefit analysis and to go and take extra advice on particular aspect of RIAs where necessary.

  8. I now come to a very important point, which I am sure other colleagues will want to cover in more detail, which is the impact on the small business sector. I see that the Small Business Service has since nearly the beginning of 2000 been preparing guidance to address the problems outlined in paragraph 2.17 of obtaining the opinion of small businesses on the impact of regulatory proposals. What I am very disturbed to read is that despite the fact that this is a very important subject and they have been working on it a long time, this guidance is still not available. Am I wrong in thinking that?
  (Mr Andrews) No, you are not wrong at all. This is a very big gap in the battle against inappropriate regulation, but we have not been inactive in this area. When the Small Business Service was set up in April 2000, we established a new team to look at the impact of regulation and to argue for better regulation of small businesses. Since then we have expanded that team and we have experimented with a number of different ways of establishing very clearly the small business interest in regulation. We have looked very carefully at the way in which the overall burden of regulation affects small companies and we have experimented throughout the last year in a variety of different ways on consulting small businesses effectively. We have in a sense the checklist. We produced our little aide mémoire which departments can use to assess impact. The Cabinet Office guidance itself includes a lot of best practice on the way in which departments should be consulted. I am quite sure that any future proposals we make will build on that. We have discovered during the course of the last 18 months that it is very easy simply to tick boxes, it is very easy to phone up a random selection of small businesses and ask the questions guaranteed to give you the answers you are looking for. It is incredibly difficult to undertake a really meaningful in depth consultation. Small businesses by their very nature are diverse, they often find that they need to examine issues quite carefully before they can give a view. We have found that there is no easy answer to this question, there is no easy route through to the true views of small businesses. It is going to take us a bit longer.

  9. How much longer?
  (Mr Andrews) We are hoping that by early next year, certainly by January/February, we shall be able to agree not only with departments but also with some of the key representative bodies a way forward on the so-called small firms litmus test. We are very keen that we get the views of informed outsiders. We want the views of the CBI, the Institute of Directors, the British Chambers of Commerce, the Federation of Small Businesses, the Forum of Private Business, the Engineering Employers' Federation and a variety of others on the mechanisms we propose. Unless we have that buy-in we are not going to end up with something sufficiently rigorous.

  10. When will this guidance be issued?
  (Mr Andrews) I assume it will be issued at the same time as the revised Cabinet Office guidance.

  11. Remind me again when that will be.
  (Mavis McDonald) We are aiming for some time in the middle of the year, partly depending on when the OECD finishes its work.

  12. So that will be over two years since your service was set up.
  (Mr Andrews) We do have interim guidance; there is guidance available to departments. We do strongly promote the importance of effective consultation. There was the `Think Small First' document published in January of this year, which urged departments to look very carefully at alternatives to regulation, to consider very carefully consultation with small business. It will take us a little longer I fear to put the really rigorous guidance in place.

  13. Others may want to come back on that. Paragraph 3.22 says, "The idea persists that anything less than direct Government regulation is in fact less effective than such regulation". This is an idea which is prevalent in Whitehall traditionally, that Government regulation is what works. What are you doing to change this sort of attitude?
  (Mavis McDonald) The guidance itself does already encourage departments to think about alternatives to regulation. The general proposition that the earlier you start to think about the regulatory aspects of a policy development, the more likely you are to look at a wider range of options, holds true. We agree with the NAO that there is more we can do to help departments by giving other kinds of options and best practice to them in this particular area. In the Better Regulation Task Force principles of better regulation we also have examples where it is a good idea not necessarily just to go to formal regulation but to think about things like self-regulation through the ABTA model or other kinds of regulation like codes of practice backing up the status of professional bodies. There is more we can do to find examples which have really worked as alternatives within the RIA cohort we are building up.

  14. There were 283 new regulatory proposals in the two years since December 2000. It is Government policy to reduce the regulatory burden on business, but there is a perception by business that regulation under every Government gets worse and worse every year. Would you like to comment on that?
  (Mavis McDonald) It is very difficult when discussing with business to distinguish between regulations and the sources from which they come, those which are the result of policy commitment and those which follow from the way in which policy is implemented. Ministers have discussed with the CBI the way in which the CBI, for example, account for the regulatory burden and the way in which Ministers see that from their own perspective. It is part of the role of the regulatory impact unit to ensure that the balance of the burden of regulation is appropriate and the nature of the regulation is appropriate for the task in hand. That does not mean that there is not going to be any more regulation.

  15. Obviously this is a vast area and other members can come back. Various recommendations are made by the NAO here. Do you accept these recommendations? If you do accept them, when and how do you propose to implement them?
  (Mavis McDonald) We have worked closely with the NAO on this report. We have no difficulty with the vast majority of the recommendations. What we would propose is that we should work with the NAO jointly as we work up the consultation package for the guidance so that we can pool together our developing thinking with the recommendations in this report and go out with what hopefully is an agreed package when we do go out to consultation with the wider stakeholders.

Mr Gardiner

  16. I welcome the whole basis on which the regulatory impact unit works. It seems to me that you have made a correct distinction between the policy level and then the consequences of the implementation. What I am keen to do is to see ways in which the impact of the implementation side of it can be really tightened up. We have had complaints made to the Committee by the European Policy Forum. May I put that to you and give you the opportunity to address one of those? It would be that under the 2000 guidelines ". . . departments are advised to consult affected parties at the outset on the most appropriate data collection and impact assessment methodology". They complain that is not happening. Can you give the Committee three unambiguous cases to show that it is?
  (Mavis McDonald) May I go back to the one I referred to earlier, the Countryside Act? We had a lot of discussion there with people about what we knew about the difficulties of doing cost benefit analysis in a largely untrammelled area and agreed to go out and get professional advice on how you might actually do that analysis. That is one particular one. I could also refer to some of the examples the NAO themselves give in the report where people have adopted techniques like using questionnaires with their consultation to make sure they elucidate the right kind of response to the consultation, so that you get meaningful answers to the questions you put. I can also certainly let you have a note which would give you more precise examples in response to your question than I am able to give you off the top of my head, if that would be helpful.[1]

  17. That would be extremely helpful to the Committee. It is important for us to be able to judge just what substance there is to the complaint. May I refer you to paragraph 3.11? In Australia there is the equivalent of—I love this; I call you CORI Unit and have visions of you sitting there watching soaps endlessly—the Cabinet Office Regulatory Impact Unit which reports annually on compliance to Parliament. How would we best establish that sort of accountability in the UK?
  (Mavis McDonald) We do give Parliament information on what we are doing and the basic process requires the full regulatory impact assessments to be published with legislation as it is brought forward. We have one route through there. In terms of the underlying question about how everybody is complying with the guidance, we have not as yet developed any kind of systematic base line against which to be able to give a year-on-year assessment. It is something we are working on. We have been looking at the Australian experience to help us see whether we can work something through. The difficulty they have found, from our understanding of what they do, is that the numerical bit is relatively easy, the qualitative assessment is slightly more difficult across a whole range of things that are going on. It is something we are trying to do and we shall let the Committee know when we have developed any proposals which we wish to run with.

  18. You will get back to us on that as well?
  (Mavis McDonald) Yes. It is one of our published underlying targets, not the PSA but an SDA target.[2]

  19. May I refer you to paragraphs 1.15 and 1.19? Has the Cabinet Office or the SBS ever pulled a regulatory proposal because the RIA was either poor or non-existent? Can you give me an example where you have pulled a proposal on that basis?
  (Mavis McDonald) I do not know the answer to that immediately. May I consult? Our answer to that is no, but we are in a process of general discussion with departments on the policy clearance process. It is not just a matter of "this goes" or "this does not go". There is scope for exchanges at both ministerial and official level before a proposal gets its final exposure to the whole world.

1   Ev, Appendix 1, p 22. Back

2   Ev, Appendix 1, p 22. Back

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