Regulatory Impact Assessments (Audits) (Hansard, 11 February 2004)

§ Mr. Archie Norman (Tunbridge Wells) (Con)

I beg to move, That leave be given to bring in a Bill to make provision in respect of the audits of regulatory impact assessments. Last week, my hon. Friend the Member for Huntingdon (Mr. Djanogly) made an admirable proposal, which was designed to address the problem of the gold-plating of European directives and legislation as they affect small businesses, charities and voluntary organisations in this country. That proposal was to provide those organisations with a right of appeal where legislation goes beyond the requirements of the original directive. This week, I propose to address a different aspect of the same problem, which is widely recognised on both sides of the House: the over-regulation, including burdensome regulation and regulation accumulated over time, that affects not only businesses but charities and voluntary organisations.

My proposal is to provide for regulatory impact assessments to be externally audited to ensure that they are objective, properly prepared and rigorously analysed, and to ensure that, under some circumstances, they can be post-audited once the legislation is in place and operating, to assess whether the original assessment of cost and benefit was accurate. My proposals have the support of the Institute of Directors, the British Chambers of Commerce, many voluntary organisations and many right hon. and hon. Members.

It is generally accepted that there is a problem with the accumulation of regulation in this country. There is not necessarily a problem with each individual piece of regulation; it is very hard to find items of regulation that need to be repealed. However, it is a chronic difficulty of government that we have a machine that produces more and more legislation and an archaeology of decades of legislation that are never removed. As a consequence, the burden on small businesses, organisations and individuals grows and never diminishes. All the efforts of successive better regulation taskforces have failed to do anything other than toothpick away at an effective avalanche of new controls.

The British Chambers of Commerce has estimated, based on calculations using RIAs, that £20 billion of extra cost was placed on organisations in this country between 1998 and 2003. That is not a wild overestimate; it is probably a wild underestimate, because the figure is arrived at by simply adding up the Government's own estimates of cost. Their estimate of the cost is £20 billion, but it is almost universally accepted, including in many quarters of the Government, that on some occasions those costs have been underestimated. It is also true that there may sometimes have been an underestimate of benefits. For example, environmental organisations would claim that many of the benefits of environmental legislation are not properly understood.

They may well have a fair point. However, the point is that regulatory impact assessments are the profit and loss accounts—the budget—for legislation.

1445 Regulatory impact assessments assess, in so far as it is possible to quantify such matters, the cost and the benefit of any legislation. They provide information that should be relied on by Ministers and policy makers in assessing whether the legislation is warranted and what form it should take. Indeed, the Prime Minister himself has addressed this problem in a foreword to a glossy pamphlet that I have, in which he says: In particular, I want to stress that a regulatory impact assessment is not an add-on to the policy process. It is an integral part of the advice that goes to Ministers. He is right, but it is also fair to say that it forms an integral part of the advice that comes to the House. Members are entitled to rely on a regulatory impact assessment when assessing the costs and benefits of a Bill, and entitled to believe that it has been rigorously and objectively prepared, without bias and without fear or favour.

The reality, however, is that regulatory impact assessments are notoriously superficial. They are prepared by the same officials who cooked up the legislation in the first place, and the tensions that will arise from that are obvious to anyone. Let us imagine a situation in which a Bill is put forward in the Queen's Speech and a regulatory impact assessment is subsequently prepared—this happens in many cases—that turns out to be unfavourable. It is inconceivable that the assessment would go forward, signed by Ministers, in that form.

There is therefore pressure on everyone to prepare a calculation that ignores many of the costs involved and exaggerates the benefits. That is exactly what will happen under a Government of any complexion. It is the history of these matters. In consequence, regulatory impact assessments lack credibility in the House—it is remarkable how rarely they are referred to in the course of debates—and in the outside world they are regarded with total cynicism. That can be added to the cynicism with which small businesses and voluntary organisations view the whole process of legislation and the activities of the House.

I do not seek to make this a partisan issue, but it is true that the Conservatives probably place greater weight on it than do those on the Labour Benches. However, the Government have made efforts to improve the quality of regulatory impact assessments. The problem has been recognised on both sides of the House. The Cabinet Office has produced a nice glossy brochure on how to prepare a regulatory impact assessment. It is rather like a DIY manual. I welcome it; it is full of good, sensible advice and nice flow charts showing when to start, and so on. That is entirely reasonable. We have also had seminars on regulatory impact assessments for parliamentarians. It is a perfectly reasonable idea to educate everyone in the House—as though it were somehow our fault—as to what regulatory impact assessments are meant to do and how they are produced. Unfortunately, this has not made any difference.

The Social Market Foundation says exactly that. It states that there is little evidence that quality has improved. 1446 It goes on to say something that I think will ring true for both the Government and the Opposition, which is that in the UK and Brussels they"— regulatory impact assessments— are regarded as a chore". I have no doubt that that is the case for both Ministers and officials. It goes on to say that regulatory impact assessments are in most cases to be produced grudgingly, once a decision has already been taken, and therefore crafted with as little information as possible and as narrowly as possible. That rings true every time we scrutinise the way in which a regulatory impact assessment has been prepared and who has been consulted. That is why purported consultees say that they were not properly consulted, and that they do not support the legislation as a result. It is therefore not surprising that we have a chronic problem. The British Chambers of Commerce has said that the quantification of costs and benefits is patchy, and that 60 per cent. of respondents to its survey believe that the consultation process operates poorly.

I want to refer to two examples in the brief time available to me. The Care Standards Act 2000 had a regulatory impact assessment of £116 million. However, industry estimates conservatively put the cost at £400 million, because many of the costs involved were not taken into account, including the incremental costs—not least to the health service—of the closure of care homes. It is quite clear that that underestimate involved a quantum leap. The estimate relating to the legislation extending the working time directive for junior doctors was ludicrously set under the regulatory impact assessment at £23 million. The NHS pilot schemes alone have already cost £63 million, according to the Government. The total cost to the NHS will run to hundreds of millions. That estimate was therefore born of total negligence. It is a complete misrepresentation of the effects of the provisions, and that must have been apparent at the time.

That is why we need to introduce a form of external validation of regulatory impact assessments to restore confidence in the process. We need to apply to Government the same standards of rigour as we would expect private organisations to apply when dealing with their shareholders and customers. We need to restore objectivity and ensure that both the benefits and the costs are properly assessed. We also need to ensure that a thorough and fair view is given to Members in the House and to the public at large, regardless of the nature of the legislation and of the time required or the extent of the political pressures involved.

The external audit need not be an onerous requirement. Of course it will cost some money, but it will be a matter of spending millions of pounds that could save hundreds of millions subsequently. Such measures would bring back credibility, honesty and transparency to the system, and restore the faith of small businesses, charities and voluntary organisations in the Government and in Parliament.