Examination of Witnesses (Questions 100
MONDAY 26 NOVEMBER 2001
CB AND MR
100. I can well understand in that situation
how you could balance different proposals against one another,
one might have a greater impact on the companies concerned and
one might cost more than another. What I am interested to know
is how you try to get the balance between going ahead with the
regulation or not. That must to some extent depend on the number
of people who might be affected by this sort of an accident in
future and how you reckon that sort of a risk up.
(Mavis McDonald) A proper cost benefit analysis would
give you some methodology with which to make that judgement but
at the end of the day some of these judgements will be for Ministers
to make within the context in which they are looking at that particular
change. This is about money, risk and uncertainty to some extent
and there are always choices largely to be made by politicians
in the circumstances.
101. I understand that, but in a case like that,
is it part of the regulatory impact assessment to provide Ministers
with information about what the likelihood of numbers of deaths
due to this sort of accident would be over the next ten years
(Mavis McDonald) Yes; certainly.
102. Do you also give then advice about what
financial value could be put on that?
(Mavis McDonald) I ought to make it clear that we
do not purport to be the experts on methodology for cost benefit
analysis. We would largely direct people to the Treasury green
book which is being revised at the moment between us and the Treasury
and more particularly pick up some aspects of how that guidance
might be more easily applied to the RIA process.
103. I think you said earlier that you had never
come across a case in which the regulatory impact assessment had
been critical in stopping something going ahead, stopping a policy
going ahead at all, stopping a new regulation going ahead at all.
That surprises me, given that it seems to me that we do quite
often get situations in which we are more or less driven into
introducing new regulations to cover some point which may never
(Mavis McDonald) I ought to be clear. When I made
that comment we were talking about the internal processes of exchange
as the policy was being developed. I referred to there being an
iterative process between departments and Ministers. There are
examples where going through the RIA process, indeed there is
one in the report itself, has led to the conclusion that what
was proposed was disproportionate and that there should be no
regulation. I think it was on pesticides if I recall correctly.
The process itself can lead to that conclusion and has done.
104. To what extent do you consider when you
are going through one of these impact assessments the possibility
that some of the bodies affected may just collapse completely?
I am thinking particularly here of an interesting case which arose
recently where new regulations were introduced for voluntary bodies
which were dealing in some way with children and the regulation
was proposed that all such bodies should have to go through checks
on anyone who applied to work with children. This was going to
cost them. Some of the bodies concerned said that if they had
to pay for these costs they would go under, they simply could
not do it any more. In that case there was obviously a cost to
society of that work no longer being done. To what extent is that
taken into account and how do you judge the value of that?
(Mavis McDonald) That seems to me a perfectly legitimate
kind of factor to take into account and we would expect an individual
department developing its proposals to know where that vulnerability
existed. That would not mean they could not look at alternative
ways of achieving the desired end result by some different kind
of registration system or indeed help in bearing the cost if necessary
directly from the department if they thought it was essential
for that objective to be achieved.
105. I appreciate that and in a sense you have
answered my question but I was getting at something a little bit
different from that, which is that the cost to the company may
be £10 per person or whatever, but actually the cost to society
may be the loss of a whole company or the loss of that whole voluntary
agency, which may have a much greater cost than the individual
pound per person cost. I am wondering how you judge the cost of
the loss of a whole organisation?
(Mavis McDonald) David would deal with small businesses
such as small nurseries and child care providers in that kind
of way. We would expect, if feedback from broader consultation
was so significant that to follow that route meant that you lost
the service you were relying on, that you would have to go back
to the drawing board and wonder how you delivered this service,
whether you wanted these skills already there to continue in delivery,
what else you needed to do to get the policy result you wanted
and to sustain the level of provision the service was currently
106. I understand but, if I may say so, that
is an entirely general and unquantified way of looking at it.
There may be cases in which you can say if we go ahead with this
regulation, we will lose three per cent of the organisations which
provide this service, but the other 97 per cent may well be able
to bear the cost.
(Mavis McDonald) Yes.
107. How do you judge the cost of the loss of
an organisation in that sense? I cannot understand how you can
do it in a woolly-minded way of thinking about whether it is going
to be worth it or not. It seems to me you ought to be able to
have some quantified data about what this is really going to cost
if three organisations out of 100 are going to go under.
(Mavis McDonald) Yes and I would hope you would get
that from any analysis you have done on the cost benefits and
any feedback you get from the consultation on the way you propose
to proceed. It does seem to me you still get back to the point
where there is a judgement to be made about the risk of losing
that three per cent and whether you want to go ahead regardless
or whether you want to change the proposals so you do not lose
that three per cent. At that point there are policy options for
Ministers to re-visit.
108. Let me turn now, if I may, to another sort
of benefit in a sense. Part of the reason for introducing regulation
sometimes is that you get some small businesses which are in some
way acting in a slightly shady manner, trying to cut corners or
whatever. What you are trying to do with the regulation is to
create a proper level playing field so that everybody has to meet
certain basic guidelines and cannot get away with things which
other companies might not feel they ought to do for moral reasons;
some companies do not feel that moral imperative. What is the
value you give to creating a level playing field in that sense?
(Mr Andrews) Very considerable. We have tried a two-track
approach to that issue. First of all, as the Small Business Service
we are sponsoring a number of projects across the country to look
at the way in which regulation can be enforced more effectively.
That is imposing fewer burdens on the honest companies, the well-intentioned
companies, but targeting enforcement effort on those who are less
well intentioned. During the course of next year we shall review
the success of those different approaches. Essentially we are
conducting an experiment. Secondly, we are working with the regulating
agencies to see whether we can promote more effective ways of
targeting. I shall give you one single sentence example of that.
We are working with the Health and Safety Executive to see whether
we can draw lessons from the work their local enforcement officers
undertake to see whether we can refine guidance they received,
so they can target their activities more effectively and provide
guidance to companies who want to comply but maybe have not and
target their enforcement activity and legislative impact on those
companies who do not want to comply but know perfectly well what
is expected of them. Those are the two approaches we are following
at the moment. There is the experimental, approaching, running
different projects, but also working directly with the enforcement
109. It seems to me that another aspect is that
as soon as you introduce legislation, any sort of regulation,
you get people who are going to try to get round it in some way.
You will almost certainly get lawyers who can see some sort of
loophole through which they might be able to push a company or
voluntary agency and you will get legal challenges and you are
likely to get further regulations introduced in order to cover
some of those loopholes. To what extent when you are introducing
the initial regulation do you cost into that the likelihood that
you are going to have further regulation following on, so your
initial costs may be only part of the overall costs?
(Mavis McDonald) That is a nice one. Where we have
a regulation provided for in a main piece of legislation and then
the order-making power to follow through that legislation, clearly
we would expect to understand that follow-through and what the
costs were. I am not awareand my colleagues behind me will
correct me if I am wrongthat we have costed in the potentiality
of people to get round and our needing a new regulation in order
to go for harder enforcement.
110. You are assuming whenever you make a regulation
that it is going to be perfect and nobody is going to be able
to get round it or through it.
(Mavis McDonald) What we do suggest departments do
is look very hard at the best way to achieve compliance. If it
looks as though there is really not going to be any buy-in, people
are going to spend the whole time getting round the whole approach
because they are not convinced by it, think hard about whether
that is the right way to proceed and whether something like-self-regulation
where an industry itself
111. It does sound as though if you go ahead
with regulation you are assuming it is going to be watertight
and not cost you anything.
(Mavis McDonald) We are fairly clear that we do not
assume you will always get 100 per cent. We do assume that by
the time you have gone through the whole process and you are going
ahead the validity of the regulation is well founded.
112. Some legislation, particularly perhaps
recently, has had to go through the House of Commons, the House
of Lords, rather fast as a result of some emergency situation.
We have decided amongst ourselves in Parliament that it is necessary
to introduce legislation within a month or so. How on earth do
you manage a regulatory impact assessment when you have legislation
moving at that sort of speed.
(Mavis McDonald) It is clearly much more difficult,
but we would hope to encourage departments to do what they could
within the timescales available and we do have some examples,
something like the Animal Welfare Bill, where we were able to
113. Do you ever warn Ministers that to try
to do that sort of thing may well end up with a Dangerous Dogs
(Mavis McDonald) Ministers are advised on the pros
and cons of very speedy legislation quite frequently
114. I shall try to help you as much as I can
by not asking the same questions so you will not have to repeat
yourself. Coming so low on the list we do tend to run out of questions
so we have to be a bit more inventive. I see from Figure 2 on
page 3 of the report that an RIA looks at all costs. In your answer
I should like you to differentiate between policy costs and administration
costs so I think I have an understanding why you look at all the
costs. When you look at all these costs, do you look at the costs
with regard to a company who is at present one of the few companies
producing stuff in this country in competition with overseas competitors?
Do your cost benefit analyses take into consideration the extra
burden on that firm and its position with regard to competition
with overseas companies?
(Mavis McDonald) The answer is yes, there is absolutely
no reason why the cost benefit analyses cannot do that and indeed
a good one would do.
115. When you do this individual cost, do you
submit all the costs imposed upon a company of all the other regulations
(Mavis McDonald) No, we do not do that.
116. You do not?
(Mavis McDonald) No.
117. So they fall by the wayside, they do not
make an impact on your cost benefit analysis.
(Mavis McDonald) Our experience has borne out that
we get information back, that the cumulative impact is stressed
to us in areas where people feel particularly that a marginal
addition is going to impact their competitiveness. We do ask people
in doing their regulatory impact assessment to look at the effect
on the competitiveness of the proposal. Indeed the new role of
the OFT will also enhance the analysis which is going to be done
on the competitive effect of policy changes as well. That area
of analysis will get strengthened. The OFT's analysis will be
fed into the RIA process.
118. Would I be right in saying that if we put
regulations on firms in our country which are not put on firms
in European partner countries, we have in effect what could be
called negative state aid, have we not? It could therefore be
taken to the European Court I should imagine because it constrains
trade. It is just a point. I do not expect you to answer some
of these things, to be honest. What I would ask you to do is look
quite specifically at a regulation we imposed, particularly like
the working families tax credit, which meant a lot of administration
being imposed on a company. Quite simply, in the cost benefit
analysisand you might not know this case particularlywould
it be possible to consider paying the company to administer this
on behalf of the Government and therefore take out the negative
state aid situation?
(Mavis McDonald) I shall ask David to comment in a
minute on any more general examples of the kind of cases you are
quoting. There is no reason in principle why the Government could
not reach a decision in the way in which I explained when answering
Mr Rendel that if it wanted to achieve a particular objective,
then it might have to meet part of the costs of meeting that objective.
In principle that could happen, but an industry would have to
make a very strong case for that or small businesses would have
to make a very strong case for that to happen. Theoretically it
could well do so.
(Mr Andrews) I would simply observe that it is often
contended that UK companies are disadvantaged in particular ways
but we are very short of hard evidence and obviously would consider
very carefully evidence in particular cases. Certainly I have
not seen any from the Small Business Service perspective.
119. Would not the impact analysis and all the
cost benefit analyses you do on that give you the hard evidence?
(Mr Andrews) No, not necessarily. It would only give
us that evidence if a company could demonstrate that in some way
they had been disadvantaged. I have to say that does not normally
come out of the RIA process; we have not seen it.