Wednesday, July 25, 2007

Red Tape Industry



Production is booming

Quite apart from taxes, government imposes a further huge burden on us in the form of regulation.

One part of this- although only one part- is red tape. Successive governments routinely promise to slash it, but somehow the slashing never seems to inflict much more than a mild scratch. Even worse, the slashing itself spawns an entirely new tax-funded industry devoted to... er, slashing red tape.

So what does it all cost?

The National Audit Office has just published its first review of the present government's much trumpeted slashing programme (see this blog). And it helpfully summarises some of the key numbers.

Total costs are officially estimated at £31bn pa. But £11bn pa of that supposedly relates to "business as usual" paperwork that businesses would have to do anyway. Which means the net cost of government red tape- the "administrative burden" of government- is officially put at £20bn pa. The government's target is to reduce that by 25% by 2010.

On this basis, the four worst offenders are our old friends the DTI (as was), HMRC, Communities and Local Government, and the Health and Safety Executive. Together they acount for about three-quarters of all red tape (by cost):

These estimates were cooked up... sorry, put together, by consultants PWC and KPMG, using a survey based approach known as the "Standard Cost Model" (see Report Fig 6), And nice work it is too- consulting fees have so far amounted to £17m (para 2.2).

Of course, the consultants are not the only ones making a living from "slashing" red tape. The government's own Better Regulation Executive (BRE) is "a dynamic force... tasked by the Prime Minister to minimise bureaucracy for businesses and front–line staff in the public sector and to help charities and the voluntary sector to make a greater contribution to society."

Dynamism, tasking... you'd almost think they were part of the old DTI. Except of course, that was so full of red tape it was abolished. So it can't be.

Except... I've just noticed the BRE (numbers and costs shrouded in mystery) is part of the Department for Business, Enterprise and Regulatory Reform, which... well, blow me down... is just the old DTI with a new nameplate. The DBER is investigating itself: I have a teensy feeling we shouldn't hold our breaths for action.

But there's another Much Bigger problem. As we've already mentioned, red tape comprises only one part of the regulatory burden. And it's unlikely to be the biggest part: that comprises the burden of the regulations themselves.

The British Chambers of Commerce produces a well-known annual running score of the broader regulatory burden: the Burdens Barometer:

"The BCC Burdens Barometer is compiled in partnership with academics from the London and Manchester Business Schools. The 'Burdens Barometer ' calculates the compliance cost to business since 1998 of new regulations. It is calculated using the Government's own Regulatory Impact Assessment (RIA) figures which means it reflects the Government's own generally conservatively estimated costs. It has been calculated at £10 billion in 2001; £15 billion in 2002; £20.6 billion in 2003; £30 billion in 2004; £38.9bn in 2005; £50.27bn in 2006 and £55.66bn in 2007."

So using the government's own conservative estimates, the BCC calculates the burden has increased by £55.7bn pa just since 1998.

And it sure wasn't zero before that: indeed according to the NAO report, seven out of the 12 most onerous bits of regulatory legislation were enacted by the last Tory government (especially the Employment Rights Act 1995, and the Town and Country Planning Act 1990- see report Fig 9).

On that basis, the government's estimate of £20bn red tape cost doesn't come close to capturing the whole regulatory burden. That's at least three or four times bigger.

So will the "targeted" 25% reductions even be noticed? You know the answer.

The NAO looked at other countries that have already tried the same thing, and the story is universal: proud government boasts that its reduction targets have been met sit alongside a real world where the victims don't see a blind bit of difference (report Appendix Three).

In its own understated way, the NAO condemns the whole exercise as a total waste of time and money:

"2.21 There is, therefore, no guarantee that a 25 per cent reduction in administrative burdens will lead to a noticeable change in the resources that businesses devote to complying with regulation. Administrative burdens are likely to be a relatively small element of total cost to business of complying with regulation (Box 2). As it is difficult to establish the impact of regulation on productivity, there is no benchmark for the level of reduction needed to deliver an increase in productivity levels. Equally, there is no benchmark for the level at which the benefits of regulation to business would start to diminish as a result of reductions."

Let's hope the PAC gives the clowns in charge of this outrage a roasting. I'm booking my seat now.

Meanwhile all we taxpayers have got is yet another expensive government bureaucracy and yet more consultant fees.


PS For the avoidance of doubt, yes, BOM wants to see less red tape, but through a radical downsizing of government, not redesigning a few forms.

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