The government is failing to cut the true cost of regulation, because its £10bn target is too narrowly defined and it does not have a clear overall picture of the costs business face, according to the National Audit Office (NAO)
The business impact target aims to reduce the cost of regulation by £10bn between 2015 and 2020. However the NAO says its analysis shows that so far this Parliament, the £8.3bn of expected regulatory costs imposed on business that are not included in the scope of the target greatly exceed the £900m savings that are.
Almost half (46%) of the 951 regulatory decisions made during the last parliament did not count towards estimated savings to business of £10bn, the NAO calculates. Over 90% of this reduction was due to 10 changes, including changing the inflation index used to increase pension benefits, reducing audit requirements for small companies, and streamlining the guidance relating to contaminated land.
It points out that for this Parliament, ministers have decided to exclude several important recent regulatory provisions from the target, notably the National Living Wage (NLW), which is expected to add £4.1bn of costs to business.
The NAO says the government’s argument that the impact of the NLW is offset by reductions in corporation tax and National Insurance, so it should be excluded from the target, leaves it open to claims of ‘cherry-picking’ the measures that it includes.
The audit watchdog says the government does not know how much cost businesses incur as a result of its existing regulations, which means that it cannot know how ambitious its target for reducing regulatory costs is.
According to the NAO, the current target does not and is not designed to reflect all administrative and regulatory costs to business, who also bear costs including tax administration, self-regulation and complying with EU regulation. It says there is no overall picture of how these costs affect businesses, making it difficult for the government to prioritise its efforts.
The watchdog is also critical of the Better Regulation Executive (BRE), a joint department for business, innovation and skills (BIS) and Cabinet Office unit, which is responsible for developing and implementing the business impact target.
The report found that the BRE has not assessed the costs to departments and regulators of complying with its processes, and so cannot be sure that its approach is making the best use of their limited resources. Some departments told the NAO that the complexity of complying with BRE rules diverts resources away from genuine deregulatory activity.
The NAO estimates that the departments’ better regulation units cost £2.3m per year and the BRE and Regulatory Policy Committee (RPC) together cost £4.1m in 2015-16. These estimates do not include costs incurred by departmental policy teams or regulators.
In addition, although Treasury guidance says that departments should monitor the ongoing impact of their regulatory decisions, they rarely do so. This means that departments could miss opportunities to adapt policies in ways that would help businesses.
While some departments are working to improve analysis of their ‘stocks’ of regulation, the NAO says five of the 14 departments with regulatory responsibility within the scope of the target said they have no plans to quantify existing regulations.
According to the NAO, the government does not ensure the wider social costs and benefits of regulation are adequately considered. Although businesses are concerned about the cost of regulation, some stakeholders have raised concerns that deregulation could have harmful wider effects.
Amyas Morse, NAO head, said: ‘The government will not be in a position to demonstrate that its work to reduce regulatory costs is providing value for money, until more robust evidence is available.
‘The current system is set up to ensure that government can hit its target. But it misses the point by not truly reducing burdens on businesses where they feel them most. If the target is to have a greater impact on productivity and growth, the government must improve its understanding of businesses’ overall experiences, and prioritise their most pressing concerns. Departments will also need to take a more active role in reducing regulatory costs and assessing the impacts of their regulatory decisions.’
The NAO report, Business Impact Target: cutting the cost of regulation, is here.
