COMMONS

Plastic bag 'saving' cannot conceal slow progress on cutting regulation costs

12 October 2016

The Public Accounts Committee report says that Government must rethink its approach having made limited progress on cutting the cost to business of regulation.

Report findings

The aim of the Business Impact Target is to reduce the total cost of such regulation by £10 billion between 2015 and 2020.

The Government has so far achieved less than £1 billion savings, "almost entirely down to it counting the mandatory 5p plastic bag charge as a 'saving' for retailers because of the additional revenue it brings them".

Limited progress in reducing regulatory costs

In a new Report, the Committee states: "The Government's limited progress, so far, towards its target of reducing regulatory costs…relies, ironically, on the imposition of a new regulation".

The Committee concludes the credibility of the Government's target is undermined by the exclusion of significant costs to business arising from new regulations, such as the National Living Wage.

Costs of compiling with regulations not known by departments

It finds Government departments do not know how much it costs the business community to comply with their existing regulations—and once departments have implemented a regulatory decision, "they do not do enough to monitor and evaluate its impact".

Departments are also not rigorous enough in assessing the expected wider costs and benefits to society of regulatory activity, concludes the Committee.

The Committee makes a number of recommendations to the Better Regulation Executive (BRE), the Government unit tasked with developing and implementing a framework for achieving the Business Impact Target.

It urges the BRE to "consider whether it is appropriate to include regulations imposed on business as contributing towards the target" and to set out by the end of 2016 interim targets for savings to be achieved, as well as what steps the BRE intends to take to achieve the target.

Regarding its concerns over costs excluded from the target, the Committee asks the BRE to report back on how it will develop "a more comprehensive picture of the overall compliance costs that government places on the business community and who it will involve in this task".

Chair's comments

Meg Hillier MP, Chair of the PAC, said:

"The Government's inventive way of recording the plastic bag charge cannot conceal what has been a disappointingly slow start to cutting regulatory costs.

This high-profile piece of new regulation is being counted as a saving while a swathe of other regulations, expected to cost businesses billions of pounds, is omitted from the calculations.

It is tempting to say 'you couldn't make it up', but clearly you can—and then enshrine it in the implementation of Government policy.

If this appears to be a piece of creative accounting designed to present a more favourable bottom line, then business isn’t buying it.

The Federation of Small Businesses told us there was a lot of cynicism about the fact the Business Impact Target could be manipulated, and that tax administration costs are excluded. The Confederation of British Industry is also concerned about exclusions.

A policy of reducing regulatory costs has the potential to deliver significant benefits but the Government has its work cut out if these are to be realised.

As a starting point it must rethink its approach to achieving the Business Impact Target, so that progress is both more rapid and represents genuine savings to businesses."

Background

Regulation has many purposes, including protecting consumers, employees and the environment, promoting competition and supporting economic growth.

Regulation can benefit both businesses and consumers through, for example, building consumer confidence in the products and services they buy. However, businesses incur costs in complying with regulations, which can act as a barrier to competition and reduce productivity.

The Government has set a target, known as the Business Impact Target, to reduce the total cost of regulation for business by £10 billion between 2015 and 2020.

The Better Regulation Executive, a joint unit of the former Department for Business, Innovation & Skills and the Cabinet Office, is responsible for developing and implementing a framework for achieving these cost savings.

Departments and regulators are responsible for delivering the cost savings to achieve the target through the regulatory decisions they make.

Report summary

The Government has set a target to reduce the cost to business of regulation by £10 billion between 2015 and 2020.

So far it has achieved less than £1 billion and this is almost entirely down to it counting the mandatory 5p plastic bag charge as a 'saving' for retailers because of the additional revenue it brings them.

The credibility of the Government's target is undermined by the exclusion of significant costs to business arising from new regulations; the National Living Wage is one of a number of individual regulations that are excluded and which, in total, are expected to add costs to business of £8.3 billion by the end of this Parliament, far outweighing the reported 'savings'.

Cost reduction does not consider social cost or regulation benefits

Departments do not know the cost to businesses of their existing regulations, making it difficult for the government to know where to prioritise its efforts to reduce business costs.

The focus on reducing business costs also means that departments are not consistently giving adequate consideration to the wider societal costs and benefits of particular regulations, for example where they impact on the environment, consumers or employees.

Departments also need to do more to monitor and evaluate the impacts of their regulatory decisions, both to see whether regulations are working as intended and to learn lessons to inform future regulatory decisions.

Further information

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