This post is by Donal McCarthy, an economist at the RSPB with a special interest in regulatory reform and its implications for the environment. He recently co-authored a report assessing the performance of voluntary (ie self-regulatory or co-regulatory) alternatives to regulation in delivering on public policy objectives.
Over recent years, political concerns about the costs of regulation to business have risen in prominence, with accusations that rules, such as those protecting rare species and habitats, are placing ridiculous costs on business and the wider economy.
But numerous reviews have made clear the vital role that regulations play in underpinning effective nature conservation and delivering sustainable development in harmony with nature, without significant burdens on business. A review by Defra, for example, concluded that the costs of environmental regulation to business are equivalent to two per cent of business sector turnover on average, and are substantially outweighed by the benefits. While opportunities no doubt exist for improving regulatory efficiency, there is no strong economic case for watering down existing rules en masse on the basis of so-called over regulation.
One in, three out
Nevertheless, the current government has embarked on an ambitious deregulatory drive based around its manifesto commitment to cut the cost of regulation to business by £10 billion over the course of this parliament. To achieve this target and “cement deregulation’s place at the heart of government policy-making”, individual budgets have been allocated to each government department, specifying the regulatory savings that they are expected to achieve. In addition, all departments must now comply with a ‘one in, three out’ rule, whereby any new regulatory costs to business must be offset via the removal or simplification of existing regulations to give a cost saving equivalent to three times that amount. Under this new framework, regulation is only ever to be used as a last resort.
At present, the costs to business associated with all environmental regulations are within the scope of these deregulatory targets, with the exception of those that implement obligations arising from EU regulations, decisions and directives. Meanwhile, Defra has been shouldered with one of the biggest deregulation targets of any department and has recently received praise from the Better Regulation Executive for its strong policy focus on this issue.
This is all well and good if Defra and its statutory agencies can find regulatory efficiency savings equivalent to over 60 per cent of the costs to business associated with their current stock of regulations. However, there are legitimate concerns amongst progressive business groups and civil society organisations that the pressure on Defra to deregulate could both undermine the implementation and enforcement of existing regulations, and make it much more difficult to introduce new regulations if and when needed.
The flaws in this approach to regulatory reform couldn’t be clearer
A timely and important new report published by the National Audit Office (NAO) has done little to assuage concerns, pointing out two major flaws with the current approach.
The first flaw it identified is that the government’s deregulation targets are not based on any sort of robust assessment or economic evaluation of the costs and benefits associated with existing regulations or potential opportunities for improving regulatory efficiency. The NAO notes that there has been no proper consideration of where or how much further deregulation would be most desirable. As such, it is not clear that departments such as Defra will be able to achieve their targets without undermining existing legislative standards and the wider social benefits that they are intended to provide. Concerningly, at least half of all departments believe that pressure to meet these arbitrary targets is resulting in conflict with their other departmental policy objectives.
The second flaw is that the current process for actually scrutinising regulatory and deregulatory proposals is failing to adequately account for the wider costs and benefits beyond business, both monetary and non-monetary.
Wider social, economic and environmental impacts are being ignored
All new proposals imposing a cost on business must be scrutinised by the government’s independent Regulatory Policy Committee (RPC) before they can proceed. However, in spite of the fact that approximately two thirds of such proposals are failing to properly assess the wider social, economic, and environmental impacts, they can still receive a green light from the RPC as long as the business impacts are robustly assessed. As for deregulatory proposals, they appear to avoid the scrutiny process almost entirely.
Serious concerns in the context of Brexit
Regulatory and deregulatory decisions are being made on the basis of limited evidence and only a partial understanding of their wider impacts. The implications of the EU referendum result for UK environmental policy might be extremely uncertain, but the flaws in the current UK approach to regulatory reform (and the associated risks to the environment) could not be clearer.
There have been many claims (and counter claims) regarding the so-called ‘burden’ of environmental legislation over recent years, but few that have been informed by robust evidence. So, at a time when the future of environmental safeguards has never looked more uncertain, it is vital that this issue is tackled head on, and that decision making processes around regulatory reform are substantially improved.
The idea that any future reform of so many hard won environmental safeguards might be subject to the current set of arbitrary deregulation targets, under a framework that focuses only on reducing narrowly defined business costs, is unthinkable.
It will take a significant shift to convince decision makers that cutting red tape is more than just a business issue, as long as the wider impacts and associated trade-offs remain invisible. That is why a clear signal is needed that ignoring environmental impacts, and the associated costs and benefits, of regulatory and deregulatory proposals will no longer be acceptable.
Proposals that fail to properly consider these issues should never be given the green light by the RPC. The NAO has made some significant recommendations on this issue. And the RPC appears to agree. Let’s hope that the ministers at the new Department for Business, Energy, and Industrial Strategy agree too.