Better Regulation in the United Kingdom

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Better Regulation in the United Kingdom

• Steven Murdoch Cabinet Office
• Craig Richardson HM Revenue Customs
• Prague, 23 February 2007

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Agenda

• Better Regulation Background, Definitions
  Benefits
• The Institutional Framework for Better Regulation
  in the UK
• Case Study Better Regulation in HM Revenue
  Customs
• Better Regulation in the Czech Republic

Better Regulation Executive
Promoting Better Regulation
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Background Political Context

• Pre-1997, Deregulation Unit
• Compliance Cost Assessment
• Focus on costs to business
• Focus on getting rid of regulation
• From 1997, change of focus and new institutions
• Better Regulation consider benefits as well as
  costs
• Since then, on-going evolution of better
  regulation policy

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Definitions Benefits

• Regulation is
• is any government measure that seeks to
  change the behaviour of individuals or groups

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Ensuring Government only regulates when necessary
Reducing bureaucracy in both public and private
sectors
Keeping adverse impacts to a minimum
What is Better Regulation?
Evidence-based policy making
Informed decision-making
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Principles of Better Regulation

• Proportionality
• Accountability
• Consistency
• Transparency
• Targeting

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Better Regulation is not..

• About removing necessary protection e.g.
  environmental, public health, employment
• Deregulation systematic policy to get rid of
  costly regulatory burdens

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Tools of Better Regulation

• Effective use of regulatory impact assessment
• Simplification of existing regulations
• Administrative Burdens Reduction
• Effective consultation with stakeholders

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Consultation Why consult?
Greater support for proposals from outside world
Valuable information about policy proposals
Likely risks, e.g. unintended consequences
Potential costs and benefits
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The Code of Practice on Consultation six
requirements

• Consult widely 12 weeks written consultation at
  least once in the process
• Be clear on the proposals, who may be affected,
  what the questions are and the timescales
• Ensure the consultation is clear, concise and
  widely accessible
• Give feedback on how responses influenced the
  policy
• Monitor effectiveness at consultation
• Follow Better Regulation Best Practice

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Gains for the policy-makers

• Better understanding of the problem
• Evidence-based policy
• Better consultation
• Decisions will stand up to challenge
• Better achievement of objectives

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Benefits - for private/public sector
LESS RED TAPE Business, charities and the
voluntary sector should get focused
regulation of which the benefits justify the costs

LESS BUREAUCRACY Focused on, and deals with, the
situation it sets out to address
SIMPLER MEASURES Regulation should be easy to
comply with
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Practical Benefits in the UK (1)

• Simplification plans identified 2 billion of
  savings to business and charities
• 300 million from easier compliance with health
  safety rules
• 124 million through efficiencies in the planning
  system
• Company Law Bill saving business 250 million
  (100 million for small firms)

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Practical Benefits in the UK (2)

• Reduced frequency of vehicle inspections saving
  100 million
• Better guidance for stakeholder groups building
  regulations, fisheries, rural payments
• Removal of audit requirements for small firms
• Consumer benefits removal of price controls for
  telephone landlines
• Charities raising of threshold for mandatory
  registration

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Conclusions.

• Regulation brings important benefits to business,
  charities and citizens
• BUT it must be light touch, targeted and
  focused on achieving objectives
• Better regulation not about removing necessary
  protections
• Underpins a global competitive economy capable of
  sustainable growth

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Better Regulation Institutional Framework

• Better Regulation Executive
• Line Ministries
• Cabinet Committees (Panel on Regulatory
  Accountability)
• Better Regulation Commission
• Parliament
• National Audit Office

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Better Regulation Executive

• In 2005 the new Better Regulation Executive
  was established
• Supports and challenges departments and
  regulators to reduce and remove regulation across
  the private, public and voluntary sectors

• Listens to frontline staff, business and other
  stakeholders

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Better Regulation Executive

• Responsible for
• Impact Assessment Framework
• Public Consultation
• Simplification Administrative Burdens Reduction
• Effective Enforcement of Regulation
• Culture Change
• EU better regulation

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Line Ministries
Three levels of control
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Ministers

• PANEL FOR REGULATORY ACCOUNTABILITY
• (Top level committee chaired by PM)
• Scrutiny role on departmental regulations
• Approves all regulations with costs over 20m
• Challenges and, where necessary, approves
• over-implementation of EU law

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Better Regulation Commission

• Independent Body set up to advise the Government
  on better regulation issues
• Membership from all economic sectors
• Reports on specific regulatory regimes (e.g.
  licensing) more technical issues (e.g. risk)
• Role on departmental simplification plans

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• UK Official Auditor
• Reports to Parliament directly
• Conducts an annual review of a selection of RIAs
• Highlights common issues to BRE that may need
  changes to what we do
• Provides detailed feedback to departments

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UK Parliament

• All legislation laid before Parliament must be
  accompanied by an RIA
• Includes secondary legislation such as Statutory
  Instruments, Orders, etc

• Increased scrutiny of RIAs in legislative
  process
• Select Committee interest

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Conclusions..

• Better regulation strategy needs to be
  effectively implemented across Government
• Therefore, needs politically influential and
  powerful central Unit
• External input can add value
• High-level political commitment vital

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Contact Details

• Better Regulation Executive
• www.cabinetoffice.gov.uk/regulation
• Steven Murdoch
• Tel [phone]
• Email
• steven.murdoch_at_cabinet-office.x.gsi.gov.uk

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Case Study Better Regulation In HMRC

• Craig Richardson,
• Analysis, HMRC

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Overview

• Background to HMRC
• Elaborate on RIAs
• HMRCs work on reviewing old RIAs
• Using the Standard Cost model in an RIA
• Operational impact assessments
• Driving change in HMRC

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HM Revenue Customs

• Formed 18 April 2005, merger of Inland Revenue
  and HM Customs and Excise
• We collect and administer
• Direct taxes (e.g. corporation tax, income tax)
• Indirect taxes (e.g. Value added Tax, excise
  duties, environmental taxes)
• We also pay and administer benefits (e.g. Child
  Benefit, Tax Credits)
• Also responsible for Border and frontier
  protection, National Minimum Wage enforcement
  and recovery of student loans.

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The HMRC Approach

• A taxing authority rather than a regulator
• to regulate only when necessary
• to simplify or deregulate wherever possible
• Ensure burdens on customers are minimised
• Separate but parallel approach, working with BRE
• Ran an Administrative Burdens exercise last year
  to measure the burden of the tax system
• HMRC relationship with BRE

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Who is involved?

• In HMRC it is a combination of people from
• Policy teams (often in HM Treasury)
• Analysts (economists, statisticians)
• Operational teams (implementation plans)
• Better Regulation Unit in HMRC (support advice,
  quality assurance)
• Better Regulation Executive

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Better Regulation in HMRC
Policy/Operational Teams
Analysts
Producing RIAs

• Better Reg Analysis Team
• Advises on compliance costs, Benefits and
  Standard Cost Model
• 2 x Economists, 1 x statistician,
• 1 x Operations researcher
• 1 x database administrator

• Better Regulation Unit
• Advises on Impact Assessments and Consultations
• Home of the RIA guidance
• 7 x advisors
• 2 x support staff

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Impact Assessments
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Why do an RIA?

• Government intervention can
• Add to firms costs
• Reduce innovation, productivity and ultimately
  growth of the economy
• Distort competition
• Have adverse impacts on different groups
• Want to minimise the unintended consequences of
  policy (example, Form 42, CT starting rate)

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Benefits of an RIA

• Clarify the objectives of your proposal
• Think through the full impact of your proposals
• Identify and assess alternative options for
  achieving the policy goal
• Ensure your consultation exercise is meaningful
  and reaches the widest possible range of
  stakeholders

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Benefits of an RIA

• Inform negotiations in the EU
• Determine whether the benefits justify the costs
• Determine whether particular groups may be
  disproportionately affected
• Better policy, better delivery

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Key Elements of an RIA

• Summarise issue and policy objectives
• Describe options and risks
• Identify who is affected
• Compare costs and benefits for each option, and
  who they impact on (in particular, focus on small
  businesses)
• http//greenbook.treasury.gov.uk/
• Impact on competition

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Key Elements

• Growing focus in the UK on the evidence base for
  the policy
• Ministers sign that I have read the Regulatory
  Impact Assessment and I am satisfied that the
  benefits justify the costs
• Soon department chief economists will have to
  sign that they are happy with the evidence base
  as well

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Key Elements

• How the policy will be monitored and the RIA
  reviewed
• Summary of results from consultation (in
  particular, any changes made to the RIA following
  consultation)
• Lead option
• Communication plan
• implementation plan
• enforcement arrangements for lead option

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So to summarise

• Key Gains to policy makers are
• Better understanding of the problem
• Evidence-based policy
• Better consultation
• Decisions will stand up to challenge
• Better achievement of objectives

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Stages of RIA

• Policy idea development (Initial)
• Consultation (Partial)
• Policy agreement (Final)

Winners and losers, risks, broad estimates of
costs and benefits
Ideas fleshed out, quantitative assessments
Final recommendation, costs and benefits
confirmed following consultation
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Consultation and RIAs

• Valuable way to build consensus on a policy
• Different types depending on the stage of the
  policy process
• Whats the problem/current situation?
• Should we do anything about it?
• How should we do it?

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Consultation Types

• Formal e.g. on the Internet anyone can
  respond
• Must follow the Code of practice
• Informal limited number of people can respond
• Use of Forums
• Involving people you know are interested
• Deliberative consultation
• Inviting people to come forward

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Using Informal Consultation

• Do you really know who you need to speak to?
• Who will your measure effect?
• Will your measure be controversial?
• Methods
• Use of Forums
• Speaking to existing contacts

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Feedback from Business on consultation

• We do not consult early enough
• We do not want to know what people think
• We are not seen as properly considering responses
• We do not talk to people
• We do not let people know what is happening and
  why.

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Operational Impact Assessments

• Not just legislative change that impacts on
  businesses
• E.g. changing forms, introducing e-filing,
  improving processes
• Operational teams as well as policy teams need to
  consider how best to achieve their aim

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Operational Impact Assessments

• Similar structure and aim to RIAs
• Challenge is to get operational teams aware of
  the requirement
• Closely linked to businesses cases for internal
  funding for larger projects

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Reviewing RIAs

• HMRC conducts
• Post Implementation Reviews
• Compliance Cost Reviews
• PIRs are wider policy evaluations
• CCRs focus more specifically on the RIA
• http//www.hmrc.gov.uk/ccr/index.htm

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Examples from a checklist

• Number of options?
• Appropriate for various audiences?
• What are we assuming about how businesses will
  react?
• Does it tell a business how it might be affected?
• Are we being too optimistic about costs and
  benefits?
• Does it identify risks?
• Have we consulted?

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Challenges of doing an IA

• Can be viewed as additional bureaucracy
• People arent always aware they are needed
  (especially OIAs)
• Best practice is not always followed (e.g. not
  including all of the required sections)
• Sometimes started late in the policy development
  process

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Challenges of doing an IA

• Often only describe a single option
• Often a lack of evidence to base analysis on
• Numbers affected
• How they will react
• What their costs and benefits will be
• Analysts not involved soon enough
• Implementation plan often forgotten about

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Driving Simplification
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Number of aspects

• RIAs and OIAs becoming accepted
• Now trying to drive a focus on business and
  customers
• Admin burden targets to achieve
• Internal Challenge Panels
• Simplification Suggestion Scheme

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Admin Burdens

• Admin burden Price x Quantity
• Activity based costing model
• Maps obligations (e.g. legislation) onto the
  activities businesses actually have to undertake
  to comply
• Then works with business to measure those
  activities and costs to establish consistent
  estimates
• Scope for HMRC is business (Rest of government
  includes charities)

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Fundamentals

• Golden rule is what gets measured and targeted
  gets done
• Three main phases
• Mapping obligations identifying all obligations
  on business to disclose information plus the
  underlying activities needed to comply
• Measuring burden interviewing businesses or
  using expert assessment to devise estimations
• Updating to track progress measuring burden of
  new policies

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Admin Burden Targets

• HMRC Targets
• Reduce the admin burden on business of dealing
  with HMRC forms and returns by at least 10 over
  5 years
• Reduce the admin burden on compliant business
  of dealing with HMRCs audits and inspections by
  10 over 3 years and at least 15 over 5 years
• Other Departments reduce burdens by 25

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Admin Burden in RIAs

• New aspect to the RIA
• Driven by take up of Admin Burdens
• Using the RIA to track progress against targets
• All new measures need to include an admin burden
  assessment

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Admin Burden in RIAs

• Challenge not just additional bureaucracy
• Model is very detailed/complex
• But a good starting point for considering wider
  compliance costs
• Encourages policy makes to really consider impact
  on businesses
• Forces an early focus on the plan for
  implementation

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Challenge Panels

• Targets all very good, but how do we achieve
  them?
• Need to ensure whole department committed
• Panels to challenge directors of tax areas about
  what they are doing
• Proving to be a good way to generate ideas from
  staff

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Other Sources of ideas

• Simplification portal online for business
  suggestions
• Business advisory board
• What have other tax departments done?

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Contact Details

• HMRC
• http//www.hmrc.gov.uk/better-regulation/
• Craig Richardson
• Tel [phone]
• Email
• Craig.richardson_at_hmrc.gsi.gov.uk

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Additional Material
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Standard Cost Model in HMRC
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Aim of the model

• To get from what we know about
• Regulations
• To what business knows about
• Activities and wages

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The model

• Identify information obligations
• Value each activity required to return each piece
  of data
• Admin Burden P x Q
• P Tariff (gross costs, wage costs and material
  and overhead costs) x Time (how long it takes to
  perform the activity).
• Q Number of businesses (the number of
  businesses that the regulation applies to) x
  Frequency (the number of times that a business
  delivers this each year).
• Burden for a regulation sum of cost of all
  activities that make up the data requirements
  that make up the obligations imposed by that
  regulation...

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CAVEATS!

• Its designed to be indicative and consistent
  across the tax system
• NOT designed to be a statistically representative
  process
• Results should be used with caution, and ideally
  presented as a range

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What its not...

• Its not compliance cost - these are separate
  costs in the Impact Assessment
• In particular Admin Burden does not cover
• the cost to businesses of dealing with change,
  whether of regulation or business model
• the cost of uncertainty
• the cost of working out whether to do something,
  more specifically the cost of working out not to
  do something
• grit in the system
• Psychological costs

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To give you a flavour of the HMRC results...
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More findings

• There are 2692 obligations in the tax system
• But just 85 of them impose 85 of the burden
• These are the main tax returns and forms
• Indicates long tail of other obligations

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More Findings

• Returns and reports make up 58 of the burden
• EU obligations make up 34 of the burden
• 88 of burden falls on small/medium businesses,
  only 12 on large
• Issuing VAT invoices accounts for 9 of burden
• Internal costs make up 41 of burden (Varies by
  tax type)
• Obligations to 3rd parties make up 17