I was not the only commentator who found it difficult to understand Ministers’ claims that they had ‘reduced regulatory costs for business by £10 billion during the 2010-15 Parliament’. But I have recently re-read an excellent NAO report which explained how this was calculated and – just as important – what it did and did not include.
First, the £10bn is calculated as follows. Let’s say a regulation which costs business £20m a year was abolished in 2010. The saving over the coming five year Parliament is assumed to be 5 times this amount – £100m. Fair enough! But what happens if it was abolished in 2015 – during the last year of the Parliament? It is then still reported as £100m over the Parliament. That is a seriously weird way of reporting the figure.
A much better way of reporting the savings would be to take the annual savings as perceived by business – which started quite low but had built up to around £2.2bn over the five years to 2015. That is still a worthwhile saving – except ….
There are major exclusions before the net savings are calculated. These include massive areas such as:
- tax administration (particularly Income Tax, Corporation Tax and VAT),
- European Union regulation,
- the National Minimum Wage (see further below),
- the Living Wage (ditto),
- the Apprenticeship Levy,
- compulsory Workplace Pensions,
- fees and charges imposed by government or regulators, such as the fees paid by care homes to the Care Quality Commission.
The result of these exclusions is as follows.
2010-15: The NAO reckon that almost half (46%) of the 951 regulatory decisions made during the 2010-15 Parliament were not included in the estimated savings of £10bn. These 46% were estimated to have imposed annual costs of £2.8bn, rather more than the £2.2bn annual savings that had been achieved by the end of that period. In other words, the burden of regulation increased over those five years, not decreased.
2015-16: The Government claimed net savings of £0.9m during the period from the beginning of the next Parliament through to the date the NAO prepared its report. This however excluded the cost of the introduction of the National Living Wage (£4.1bn) as well as the increased minimum wage – adding another £3.1bn to businesses’ costs. This was clear cherry picking of the measures that HMG chose to include in its targets. Other exclusions added up to around £0.8bn bringing the total to £8.0bn, a good deal more than the savings of £0.9bn!
The inclusions – those savings that are claimed by the Government – are interesting, too. Over 90% of the £10bn claimed savings 2010-15 were 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.
These were hardly the sort of deregulation that would be appreciated by a typical SME.
The inclusion – as deregulation – of the new law requiring larger retailers to charge £0.05 per plastic bag was particularly odd. This was counted as a regulatory saving amounting to £1.0bn over five years because the shops would now spend less on buying the plastic bags. But was this really deregulation? As one MP noted: “we imposed this regulation on business to [make them] do something they were not previously doing, [and yet] we are claiming £1bn towards our target. That is like something out of Alice in Wonderland.”
And note, by the way, that if this £1.0bn figure is excluded from the net saving of £0.9bn, there was in fact no progress at all towards the government’s target during the 2015-16.
Note too that subsequent research showed that the gross proceeds from the plastic bag charge had been around half of the Government’s first estimate, so the true five year saving to business (if it was a saving) was only £0.5bn. But the reported figures will not be revised.
Indeed, the NAO also pointed out that departments seldom monitor the ongoing impact of their regulatory decisions, And departments are supposed to evaluate their new regulations within five years of implementation – but they don’t. 83 regulatory decisions were made in 2011. By 2016, only seven reviews had been scheduled of which only two had been completed.
A detailed history of deregulation in the UK may be found here.
Editor Understanding Regulation