The Government’s Better Regulation Guide contained the following foreword written by the Prime Minister:
“A fair, decent and safe society depends on good regulation. People look to their Government to ensure that they receive benefits such as fair terms of employment a cleaner environment and safer products. Often regulations are the only or the best way to pursue such aims. But precisely because issues like these are so important to us, it is vital that Government regulates wisely. If our regulatory framework is excessive or poorly conceived, we all suffer from the resultant red tape. The intended benefits of regulation disappear, often to be replaced by less choice, higher prices and lower employment and investment. This can be particularly damaging to our small firms.”
“I have therefore decided that no regulatory proposal which has an impact on businesses, charities and voluntary bodies should be considered by the Government without a thorough assessment of the risks, costs and benefits, a clear analysis of who will be affected and an explanation of why non-regulatory action would be insufficient. This requirement (affects) a new proposal for primary or secondary legislation or a negotiating line that will result in such legislation. Without a prior assessment of the kind described in this guide, clearance for such proposals will not be given.”
“…Important though regulation is, there will be many occasions when alternatives such as codes of practice and economic instruments are a better answer. Good economic analysis will help to resolve these choices; but open public debate is the key…this Guide describes a system of assessment called Regulatory Impact Assessment, which must be used whenever departments are publishing new legislation (including that which implements European legislation) or consultation papers on regulatory proposals…The Assessment should include a clear statement of the objectives of the regulatory proposal and its likely effects. It should demonstrate that the proposal is the most effective means of meeting the stated objectives, set out the costs and benefits of the proposal, and identify who will be affected…The published Assessment should be concise…”
“I commend this Guide to all Ministers and officials. It will help us all to promote the safe and prosperous society that our citizens are entitled to expect.”
Excerpts from the Guide:
“The impact of regulations on business, voluntary organisations or groups of citizens may, in the short run at least, be very significant…Many regulations may have little impact on the economy as a whole, but some may, as, for example, could be the case with a carbon or energy tax, have lasting significant effects…”
“Some regulatory proposals are clearly more significant than others. The level of resources devoted to carrying out an RIA is a matter of judgement but, in general, should be proportionate to the significance of the proposal in question…You should not disregard costs and benefits simply because they are difficult to quantify or value.”
“Even where quantification is not possible or reasonable, qualitative descriptions of the pros and cons of regulatory options may be sufficient to make any trade-offs clear and provide sufficient information on which to base a decision.”
This Guide will help you to ensure that your regulations are necessary, effective in securing the desired benefits and that the costs are justified.
The Guide also highlights the importance of communication in ensuring that we regulate in accordance with the Better Regulation Task Force’s five key principles of good regulation:
- Transparency – Be open, keep it simple, be user-friendly
- Accountability – To Ministers and Parliament, to users, to the public
- Targeting – Regulation should focus on the problem, and minimise side effects
- Consistency – Be predictable, people should know where they stand
- Proportionality – Fit the remedy to the risk, only regulate when you need to
Intended as an aid to policy makers, the Guide focuses on domestic regulations. However, the practices it describes should also be applied to European regulation.
Understand the Problem
1.0 Whenever you are considering introducing regulations, your first step should always be to identify as clearly as possible the issue that you are seeking to address. What is the nature and scope of the problem? Who is affected or involved? What is your timescale for action? What exactly is your objective in addressing the problem?
1.1 As part of this first step, you need to ask yourself whether regulation is genuinely the most appropriate way to achieve your objectives. Regulation is only one way of dealing with the issues which Government faces. In some circumstances, it can be an inflexible and expensive option.
Options to Consider
1.2 So, before you decide whether to propose new regulations, examine the issues carefully and evaluate all the options. Always consult Departmental lawyers at an early stage when considering options.
1.3 Do nothing. As a starting point, you should consider whether a case for Government action really exists. Not every problem can be solved by Government intervention. The problem may have been exaggerated or may be best resolved by others, particularly if the costs of intervening outweigh the benefits. Change may simply shift the problem elsewhere. Alternative forces, such as consumer choice, customer loyalty, competition and innovation may be a faster or more reliable method of solving the difficulties you have identified.
1.4 Review existing law. Consider whether a previous Government action has directly or indirectly caused the problem. The solution may be to improve publicity or guidance on how to comply; to improve enforcement generally; or to make existing regulations simpler or target them more directly at the problem (e.g. through a Deregulation Order).
1.5 Improve information. If the problem results from sellers having information that buyers do not – for example, about product ingredients – solutions might be best based on information disclosure. This might involve publicity or disclosure of information by the Government or mandatory disclosure directly from sellers to buyers. Advantages of such approaches are that they do not restrict consumer choice…
1.6 Introduce a voluntary scheme. This may be appropriate where public and private interests coincide, so that incentives for change can result from mutual interest rather than sanctions. Examples include non-mandatory codes of practice, agreements on standards, or information disclosure (e.g. labelling). However, care needs to be taken to ensure that such schemes are not used to restrict competition.
1.7 Consider a code of practice which has legal effect. This can be used where the enabling Act specifically provides. Some codes may be used as evidence to show whether a legal duty has been complied with. An example is the Highway Code which, although not legally binding, can be used in evidence. Codes can set out the circumstances when a regulatory authority will take action. They can be more flexible than mandatory requirements, but they can cause uncertainty, which can be expensive especially for small organisations.
1.8 Ask the industry to regulate itself. This could involve using a group like the Advertising Standards Authority to regulate the behaviour of its members. Collectively, industry may have an Incentive to regulate itself, even if individual firms do not. Such an approach can be especially appropriate where an outside body with a regulatory role has expertise that Government lacks. Rules may be observed more readily if they are made by industry itself and may be updated more quickly. However, Ministers may not be able to control the detailed content of the rules and care needs to be taken to ensure that public rather than private interests are protected. Self regulation can also be used by insiders to create barriers to market entry.
1.9 Use economic incentives or tradable property rights. Behaviour can be usefully changed by measures such as emission fees for pollutants or charges for waste disposal. This approach can be cost effective, stimulate innovation and may need updating less frequently than direct regulation. However, the outcome may be less certain than with direct regulation…
1.10 Consider risk-based insurance or risk-pricing. Insurance markets can be used as an alternative to direct regulation by requiring business to insure itself against injury or damage. This allows the market to put its own price on risk. It will only be appropriate in very limited circumstances where damages can be attributed directly to the responsible party and the insurance market is sufficiently developed (e.g. in road traffic accidents).
You may need legislation to implement some of these options. Your Departmental economists will be able to advise on the appropriateness of economic incentives, risk-based insurance and other similar approaches.
1.11 Direct regulation. Finally, consider direct regulation, whereby requirements are laid down directly in statute and enforced. One of the advantages of regulation is that in laying down standards directly you can avoid complexity and be seen to be fair However, law-making can be a lengthy and costly procedure.
1.12 Regulations can also be inflexible, discourage innovation, and be expensive to monitor and enforce. They can become quickly out of date and require frequent expensive revisions. Even if direct regulation is the best option, you should avoid being overly prescriptive and focus on achieving compliance rather than just punishing breaches. Above all, keep it simple.
Wherever possible regulation should specify the goal, leaving those who are being regulated some freedom to decide how to achieve this goal.
1.13 License the activity that causes the problem. Licensing may be a means of controlling or restricting unsuitable operators. However, it inherently restricts access into markets and so competition. Care needs to taken to ensure that it does not lead to the abuse of power or too much bureaucracy…
1.14 International regulation. If direct regulation is the preferred option, it may be best to regulate at the European or other international level. You should always consider this option. Controls will often be more effective if applied internationally and this will also help to ensure that the UK competes on a level playing field with other countries.
When considering EU or international regulation, Departmental EU or International Divisions should be consulted as appropriate.
1.15 It is important to bear in mind that the way in which the Government communicates problems and any risks involved may be of vital importance in determining the effectiveness of any options.
Reviewing Regulation: Questions to Ask
- What were the objectives behind the regulation? Has the issue changed? Is the regulation still necessary?
- Does the regulation achieve the objectives? How far are any changes due to the regulation? Does it have any side effects?
- Is it fair? Does the scope of the regulation need to be so wide? Is the regulation being enforced consistently?
- What does it cost to administer and enforce?
- What are the costs to those affected?
- How do the costs and benefits compare with those identified in the Regulatory Impact Assessment?
- Do the benefits still outweigh the costs?
- Could it now be simplified or achieved by cheaper means?
- How would any changes be carried out and enforced and at what cost?
- When will it be reviewed again?
Remember to consult those affected by the regulation.
Consultation with Small Business: ‘The Litmus Test’
As part of every RIA, Departments should normally identify two or three typical small businesses and discuss with them the impact the regulations will have on them. This should include the practicality and cost impact of implementing the regulations and any other impacts, for example, on their competitiveness and export business.
Where the regulations will affect more than one sector then sufficient small businesses will need to be consulted to ensure there is a representative analysis of the impact on small businesses in those sectors likely to be most affected by the regulation.
Departments should make their own selection of small businesses to consult bearing in mind that Ministers may be challenged to defend the choice. The businesses selected should not be identifiable from the information given unless they agree to being named.
It may also be appropriate to consult trade associations representing small firms but such consultation is not a substitute for carrying out the test with two or three typical small businesses.
The results of the analysis should be included as part of the RIA together with an explanation of how the small businesses selected are representative of small businesses in the affected sector.
In the case of proposals which are confidential or where the details are confidential, it may be necessary to defer carrying out the assessment until the detailed proposal has been published. Where this is the case the assessment should be carried out as coon as possible subsequently so that it can be included in the final published RIA and the reason for deferring the assessment should be given in the RIA.
Departments may use an alternative method to assess the impact of a proposed regulation on small businesses if they feel this would give a better and clearer picture of this impact; the reason for this should be included in the RIA.
Reduce The Use asks whether you consider that these laudable aims are being achieved?
It is obvious that Reduce The Use welcomed the commonsense approach of this Report although it would have been even more welcome had it been written in a more concise way. The Small Business Litmus Test was particularly welcome although, over the last few years, it has become obvious that Departments have not fully followed the advice in the Report. For example, it clearly stated that consultation with representative bodies was not ‘a substitute for carrying out the test with two or three typical small businesses’. It is relevant to mention that Micro Businesses are rarely included and care is not always taken to ensure that the business being consulted is really a small business and not a division of a larger business, as has been the case on more than one occasion.
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