Examination of Witnesses (Questions 120-139)|
TUESDAY 26 FEBRUARY 2002
120. You have produced a reference to your Burdens
Barometer. Perhaps you could explain to us first of all why you
say in your evidence at paragraph 5.9 that this covers 1997 to
2002 when it seems that the figures are calculated up to May 2001.
When you say there is a cumulative cost of regulation, can you
explain? Does that mean, as a result of all the regulations brought
in between 1997 and 2001, in this current year, there is a cumulative
burden on business of £X million or billions of pounds, or
are you saying that there was a burden last year and a burden
this year and you add the two together to produce your cumulative
result? Perhaps you could explain a little bit more what you mean
by what is contained in paragraph 5.9.
(Ms Low) The Burdens Barometer takes all the regulatory
impact assessments produced by government departments and takes
what is available in the latest listing produced by the Cabinet
Office. The last Burdens Barometer showed the compliance cost
to business of regulations to be 15.6 billion and that was compiled
last year. We extrapolated the costs up to May 2002 so essentially
we are taking costs from 1997 for the regulations and then we
had regulatory assessments available to us and then we estimated
the recurring financial costs up to 2002.
121. They are recurring financial costs as a
result of regulations brought in since 1997?
(Ms Low) Yes.
122. They are annual recurring costs? The 15.6
billion is an annual recurring cost?
(Ms Low) No. The Burdens Barometer is set out. I do
not think you have a copy of the table.
123. Is it the excess of costs in 2002 over
costs in 1997?
(Mr Fletcher) No. The choice of the five year period
was to look at what would normally be a parliamentary term and
it is the cost of new regulations that have been introduced over
that particular five year period. For example, the national minimum
wage was not introduced until April 1999 so it would be the cost
of that from 1999 through to May 2002.
124. You mean the cost in 1999, if that cost
occurs again in 2000, which presumably it does? You add the two
(Mr Fletcher) Yes. It is a five year lump sum.
125. Can I venture to suggest this is not a
very helpful way of proceeding. Much as it may suit me from a
party political, partisan point of view, I much prefer to go into
a debate with useful statistics and I would be much more interested
in the annual recurring cost. What is the cost in this current
financial year as a result of regulations which have been brought
in over whatever specified period you want to measure it against,
but certainly the annual recurring cost rather than a cumulative
cost, because that does not define the burden this year on business.
(Mr Fletcher) From our political perspective, we thought
that three million a year would not illustrate the impact as much
as 15 billion over a parliamentary term.
126. Shades of the Treasury at this point. This
is treble and double counting, is it not? You have a very fair
point to make that there are costs as a result of regulation but
if you are looking at a five year period the rational thing to
do, I would have thought, is to say the costs that occur in 2002
over and above those that occurred in 1997that is the additional
costs which could go on, year on year, if the regulations are
not changedbut in some cases double, treble and quadruple.
You have done that because you get a bigger number.
(Ms Low) Essentially, it is reflective of the cost
to business. Businesses are still having to have that burden year
127. Why not extrapolate to 2005 to get an even
(Mr Fletcher) Because governments do not tend to change
every five years.
(Mr Peel) Can I suggest that you might like to receive
a figure which is differently presented?
Mr Berry: What would be useful would be your
estimate of the difference between the cost of regulation in 2002
and the cost in 1997 so that we can see the increase over that
128. Or the annual recurring cost as a result
of regulations introduced in particular years. If you are able
to do that, it would be helpful.
(Mr Fletcher) What we tried to achieve was in one
number, the summary of that total impact. It will vary from year
129. Whatever these figures are, do they apply
both to manufacturing and service sectors or just to the manufacturing
(Mr Fletcher) It will encompass the whole business
130. Is it possible to divide it between the
two sectors or not?
(Ms Low) The regulatory impact assessments that we
use do not make that distinction in most cases.
131. How much of this is attributable to the
minimum wage? Is it a big part of this three billion a year?
(Ms Low) The minimum wage as reflected in the Burdens
Barometer does not include the figure that we put, 674.5 million.
That does not include the cost of paying the minimum wage; that
is a recurring, administrative cost.
132. Is the burden of regulation, whatever it
is, going up or coming down?
(Mr Fletcher) It is going up. If you look at the 15
billion, whether you like that figure or not, and compare it with
the government's deregulatory orders over the past five years
and the regulatory action plan published in the last fortnight
or so, the figures do not bear comparison.
133. In your evidence, you refer to the costs
that entrepreneurs incur by way of opportunity costs. Can you
put a figure on that?
(Mr Fletcher) No. That is something that we are keen
to drive, to get regular impact assessments that departments are
obliged to produce to take some account of those opportunity costs
as well as the recurring costs of administration and the policy
costs. There is currently a review of guidance to departments
on the regulatory impact assessments.
Sir Robert Smith
134. In that global figure, was that all annual,
recurring, permanent, new costs or was some of it start up costs?
(Ms Low) There is a one off administrative cost included
in that figure; then recurring administrative costs.
135. So it would need to be broken down. I did
sit on a committee back in February where, if you were looking
at the costs, you would have said that the costs to pig feeders
of the new pigswill regulations would be X but obviously the cost
to the industry of not doing it was Y. Is there any way of looking
at the other side? Obviously, that is one of the problems. One
person's regulation burden is another person's salvation.
(Mr Fletcher) We do not object to the government introducing
what would be seen as decent standards. Our objection is the way
it regulates it. We agree with the objective; if not sometimes
the means. For example, a regulation that is currently being progressed
through the Employment Bill is to introduce the right to careful
consideration of the return to part time after maternity leave,
a very worthy objective, but did the government look at achieving
that through other means in terms of supporting small businesses
towards that objective, rather than simply passing a right that
small businesses may not be able to meet?
136. On the other side of the coin, that figure
may be an under estimate in the sense that you are relying on
the regulatory impact assessments which are quite narrow.
(Ms Low) The regulatory impact assessments are looking
at direct costs, not indirect costs.
137. What government incentives, new or improved,
does the manufacturing sector need to improve investment in R&D
in business expansion? In your chart, you show a worrying trend
in this country.
(Mr Fletcher) There are fairly broad, generic incentives.
Generally, the feedback we get from businesses is that a lot of
incentives come through the tax system and add further complexity
to the tax system. Is that a price worth paying for the incentives?
In the case of things like capital allowances, most small companies
employ an accountant. If the owner/manager is not able to get
his head round the capital allowances, then the accountant will.
There are however some more targeted incentives, things like the
Enterprise Investment Scheme, Venture Capital Trust, things of
that nature, where there is a large, up-front cost in terms of
understanding the incentive in the first place. I have come across
examples of businesses where they have had to call in quite specialist
accountants and lawyers to be able to ensure that that particular
incentive is taken and that their reasons for taking it are watertight.
138. Are you suggesting you make things clearer?
(Mr Fletcher) In the case of targeted incentives,
yes. Using the tax system is not the way to go. In those cases,
using grants creates difficulties in terms of EU state aid laws.
But from our perspective, we would rather see it coming through
grants than through the tax system.
The application procedures would be simpler
in that respect.
139. Have you any other suggestions?
(Mr Fletcher) In the case of the more generic incentives,
we are pleased to see the government giving appropriate emphasis
to research and development on that score. Given the difficulties
that manufacturing sectors are facing at the moment and this problem
of instability in 40 per cent of this market, it might be worth
pushing for greater capital allowances going up to 100 per cent
rather than the existing 40 per cent for small and medium sized