Deregulation, Better Regulation and Regulatory Reform

1. Deregulation, Better Regulation and Regulatory Reform Facilitator: Tony Cash

2. Outline • The different impact of regulation on large and small firms • Measuring and reducing the burden • Right touch regulation • Examples from various countries • One in and one out regulation • Behavioural insight • Example ‘The UK Regulatory Policy Committee’ • Alternatives to Regulation.

3. The Power Of Incentives ‘Most of economics can be summarised in four words: “People respond to incentives”. The rest is commentary.’ Steven Landsburg – ‘The Armchair Economist’ So in regulation we must look at the incentives that exist now and that will result

4. Better Regulation and Deregulation Compared Better regulation includes other options than cutting regulation. We will explore some of these options.

5. Regulation and Small Firms • Small firms cannot afford to have a compliance department – time for compliance can be disproportionate • Can be more difficult for small firms to keep ahead of latest changes • Perception of regulation may prevent people starting up businesses or increasing employment • Etc. • So some governments even consider exempting micro businesses from various requirements.

6. UK Business Secretary’s View • “We are launching our review, not from Whitehall, but starting from the viewpoint of the people affected by the rules. The consumers, the citizens, the small businesses who actually have to carry out instructions, and can tell us whether they are working how they are meant to. • “The problem is that to the experienced practitioner – from the civil servant drafting the language, through the inspector visiting premises, down to the lawyers weighing in during a dispute, the rules can seem to make sense. For people whose job is regulation, there doesn’t seem to be a problem. And if they are the only people we talk to, we won’t see the problem, and it will just get worse.” Vince Cable 

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7. Vince Cable View CTD • “Our starting position is not “all regulations are wrong”. • Sometimes regulations are what make a market possible, and enable the trust required between consumers, workers and businesses. • “But what we have heard, consistently, from smaller businesses in particular is that they are tired of continuously having to adjust themselves to the government’s latest priority – to find out about some new procedure, some unfamiliar form or website to visit. • “…the effect on enterprise can be chilling. Owner-managers of micro businesses estimate that they spend between one or two days per fortnight on regulatory issues. • Big companies, by contrast, can hand over the problem to a dedicated compliance department …small businesses soon start fearing even worse regulations than actually exist, and too easily become prey to offers of expensive help.” (Vince Cable)

8. Better Regulation Five Principles Any regulation should be: • Transparent • Accountable • Proportionate • Consistent • Targeted

9. Exposure to the chemical di-hydrogen monoxide in sufficient quantities can cause death. Should it be regulated?

10. “Right Touch” – A View • “Right-touch regulation is the minimum regulatory force required to achieve the desired result” (Harry Cayton, Chief Executive, Council for Healthcare Regulatory Excellence)

11. Right Touch Regulation: The Core Principle • Distinguish between those who will • exceed our standards anyway • meet the basic standards, perhaps needing help • only comply with standards with strong incentives • If using regulation, make sure the first two categories don’t suffer because of the latter

12. International Standard Cost Methodology Network “Rules should never be an objective in themselves, but always a means of assuring a public interest or achieving a public goal. In the last few decades, the system of rules in a lot of countries has become increasingly complex, due to which the cohesion and logic of rules for companies and citizens are not always easy to grasp. This hampers compliance and is unnecessarily time-consuming and expensive, not to mention irritating. As countries, we have an obligation to create the best possible conditions for our business community. We must reinstate the balance.”

13. SCM Definitions: Types of Cost

14. Legislation Information obligation Administrative activity Time Tariff Number of enterprises Frequency P = Cost of each administrative activity Q = Number of administrative activities each year Administrative Burdens (AB) = P x Q Standard Cost Model (for Business Costs)

15. Tips for Gathering Information on Compliance Burdens • Use existing databases or ask business representative groups to help you to identify a representative sample of businesses with which to consult. • Prepare a short survey to distribute to these businesses asking them to detail any compliance burdens which they envisage (it is important that you supply sufficient information on your proposal to accompany the survey- an early draft of your RIA would be very useful in this regard). • If necessary, establish a small focus group to discuss the survey findings in more detail • Use any existing Groups or Fora involving business of which your Department is a member to discuss the impact of your proposals. (Ireland RIA Guidance 2009)

16. How Can You Reduce Burden? • Remove, reduce, merge or improve regulations • Simplify the process to comply with regulations • Data-sharing and joined-up government • Develop ICT solutions and services • Provide better guidance and information.

17. Example: the Netherlands • The Netherlands experience informed the UK’s better regulation initiatives since 2004/5 • “The Dutch approach offers a way to reduce paperwork and administrative costs, saving businesses money and freeing up people for more productive activities.” • “The approach has three components - measurement of the burden, political commitment to a target and an organisational structure that provides incentives to achieve that target.” David Arculus ‘Less is More’ 2005

18. Example: Germany • “With its Bureaucracy Reduction and Better Legislation Programme, the Federal Government on 25 April 2006 decided to measurably lower administrative costs caused by federal information obligations, to avoid the imposition of new information obligations and to vigorously work for the reduction of existing information obligations at European level.  • “The Federal Government aims to reduce the present administrative cost burden by 25 % by 2011, and to achieve about half of that amount by the end of 2009.  • “In these efforts, the connection to the impact of a reduction of the administrative burdens related to EU legislation is to be maintained.”

19. Example: Ireland • “Ireland was a relative latecomer to Regulatory Impact Analysis but has been catching up” OECD • (Since 2005 RIAs a requirement for all government departments / offices) • “In March 2008, DETI was given responsibility for leading and co-ordinating the measurement and reduction of administrative burdens across government, leading to the achievement of the 25% target by 2012.”

20. Example – EU Initiatives • EU publication ‘Better Regulation- simply explained’ acknowledges that Netherlands and UK have inspired some EU initiatives e.g. tracking and reducing admin burdens, and impact assessment • Better Regulation strategy is based on three key action lines: • Promoting the design and application of better regulation tools at the EU level, notably simplification, reduction of administrative burdens and impact assessment. • Working more closely with Member States to ensure that better regulation principles are applied consistently throughout the EU by all regulators. • Reinforcing the constructive dialogue between stakeholders and all regulators at the EU and national levels.

21. Developments in Better Regulation (UK) • Less Is More (Better Regulation Task Force) and Hampton Report • Davidson Review (“gold-plating of EU Directives etc”) • 25 per cent reduction in admin burdens between 2005 and 2010 (worth £3.5bn) • 2010 commitment to reduce the costs of paperwork and wider regulatory costs by a further £6.5bn in 2010-15. • Establishment of Regulatory Policy Committee (RPC) and Reducing Regulation Ministerial Sub-Committee (RRC) in 2010 • One in one out approach • Behavioural insight

22. Hampton Principles • Regulators, and the regulatory system as a whole, should use comprehensive risk assessment to concentrate resources on the areas that need them most • All Regulations should be written so that they are easily understood, easily implemented, and easily enforced, and all interested parties should be consulted when they are being drafted • Businesses should not have to give unnecessary information, nor give the same piece of information twice to the same or different regulators • The few businesses that persistently break Regulations should be identified quickly and face proportionate and meaningful sanctions. It should be easy to determine non-compliance. • Government and regulators should provide authoritative, accessible advice easily and cheaply so businesses know what is expected of them. • When new policies are being developed, explicit consideration should be given to how they can be enforced using existing systems and data to minimise the Administrative Burden imposed.

23. UK’s One-in, One-out Rule (OIOO) • Objective: to bear down on cost and volume of regulation; encourage last-resort attitude to regulation • Scope: no new primary or secondary UK regulation can be brought in without reducing regulations with a greater/ equivalent reduction • Presently, EU measures excluded.

24. Behavioural Insight In UK when proposals are reviewed will be asked questions including: • Does the proposed approach harness the insights of behavioural economics in order to achieve outcomes in minimally burdensome ways? • (examples on next slide)

25. Behavioural Insight MINDSPACE (1) Cabinet Office MINDSPACE model • Messenger – we are heavily influenced by who communicates information • Incentives – our responses to incentives are shaped by predictable mental shortcuts such as strongly avoiding losses • Norms – we are strongly influenced by what others do • Defaults – we ‘go with the flow’ of pre-set options

26. Behavioural Insight MINDSPACE (2) • Salience – our attention is drawn to what is novel and seems relevant to us • Priming – our acts are often influenced by unconscious cues • Affect – our emotional associations can powerfully shape our actions • Commitment – we seek to be consistent with our public promises, and reciprocate acts • Ego - we act in ways that make us feel better about ourselves

27. Impact Assessment An Impact Assessment is both: • A tool used by policy makers to assess and present the likely costs and benefits (monetised as far as possible) and the associated risks of a proposal that might have an impact on the public, private or civil society organisations, following HMT Green Book’s appraisal and evaluation techniques • A continuous process, consistent with the policy appraisal cycle, as set out in the Green Book, to help policy makers to fully think through the reasons for government intervention, to weigh up various options for achieving an objective and to understand the consequences of a proposed intervention. • Guidance makes clear that regulation should be last resort, only used when it is superior to other options by a clear margin.

28. Key Stages of a UK Impact Assessment • Development Stage (not published) • Options Stage (not published) • Consultation Stage • Final Proposal Stage • [If applicable – Enactment Stage] • Review Stage (Post-Implementation Review) • http://www.bis.gov.uk/ia

29. Impact Assessments: UK Format • Summary and Interventions • What is the problem under consideration? Why is government intervention necessary? • What are the policy objectives and intended effects • What policy options have been considered (including any alternatives to regulation)? Please justify any preferred option • When will policy be reviewed • Ministerial sign-off • Summary Analysis and Evidence: cost benefit summary for each options • Evidence Base (detail) • [Also specific impact tests]

30. UK Regulatory Policy Committee Criteria • RPC emphasis on two areas; • Have the costs and benefits, and the impacts on small firms, public and third sector organisations, individuals and community groups been robustly identified and reflected in the choice of options? • Have the necessary burden reductions required by “One-in, One-out” (OIOO) been identified, and are they robust?

31. Regulatory Policy Committee Recommendations (2010) • Recommendation 1: Don’t presume regulation is the answer • Recommendation 2: Take time and effort to consider all the options • Recommendation 3: Make sure you have substantive evidence • Recommendation 4: Produce reliable estimates of costs and benefits • Recommendation 5: Assess non-monetary impacts thoroughly • Recommendation 6: Explain and present results clearly

32. RPC Ratings • January 2011, all Opinions on impact assessments include a rating based on a traffic light system: • RED The IA is "Not Fit for Purpose". Major concerns over the quality of the evidence and analysis and overall quality of the IA. • AMBER concern with the IA which should be resolved before the IA is submitted to the RRC– • GREEN: The IA is "Fit for Purpose". We may still highlight some minor issues with the IA. • Any IA receiving a RED opinion must be amended and resubmitted to the RPC for a new opinion prior to submission to RRC

33. General Government Policy Options (1) • Types of Regulation • Classic command and control • Encourage Self-regulation (e.g. Advertising Standards Authority Ireland) • Co-regulation (self-regulation supported by government regulation e.g. Medical Council Ireland) • Performance based regulation e.g. in US vehicle emission standards set in law but left to manufacturers HOW to meet • Encouraging higher standards • Recognition e.g. Quality Marks • Encourage & support Codes of Practice (e.g. UK OFT) • financial incentives • Direct e.g. tax, price controls, funding • Guarantee arrangements e.g. UK Small Firms Loan Guarantees

34. Government Policy Options (2) • Permits schemes • Provide support e.g. mediation and conciliation services (UK ACAS) • Other incentives • E.g. giving greater rights to redress in the courts • Education and information (e.g. smoking, fireworks, health UK awareness campaigns) • Disclosure (e.g. UK OFCOM and broadband) • “Nudges” (use of behavioural insight) • Etc

35. A Thought: Establish the Real Problem Is it: • A supply issue • A competition issue • An information issue (e.g. to enable better choices) • A cultural issue • Etc? The answer makes a big difference to which options will work!

36. Pre-Conditions for Successful Policy and Regulation • Veracity (willing to embrace truth and facts) • Neutrality (open & aware of assumptions) • Willingness (determination to find best solution) • Acceptance (deal with society/ economy as it is, not as you’d like it to be) • Reason (logical analysis of evidence) • Concern for people (i.e. the real impact in the real world). • Thanks for your attention.