Ministers accused of ‘creative accounting’ in efforts to cut business regulation

12 Oct 16

The government has made only limited progress in cutting the cost of regulation to businesses, despite a pledge to reduce the burden by £10bn to 2020, MPs have said.

In a report released today, the Public Accounts Committee concluded that savings worth less than £1bn had been highlighted by government, which was almost entirely due to the fact the government has counted the 5p plastic bag charge in shops as a ‘saving’ for retailers, because of the additional revenue it brings them.

The government has made only limited progress in cutting the cost of regulation to businesses, despite a pledge to reduce the burden by £10bn to 2020, MPs have said.

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MPs questioned whether it was reasonable for the government to count this as a saving attributed to reducing red tape under its business impact target, since it came about as a consequence of greater regulation.  

Moreover, the credibility of the government’s target was undermined, the PAC said, by the exclusion of significant costs to business arising from new regulations. The National Living Wage was highlighted as one of a number of individual regulations that were excluded from the government’s count. In total they are expected to add costs to business of around £8.3bn by the end of the current parliament.

Also, the target excludes all regulations originating from the EU and any that relate to fees and charges that regulators apply to cover the cost of enforcement. The report said that tax administration, which businesses “repeatedly cite as one of the most burdensome areas of compliance,” is also out outside of the scope of the target.

Meg Hillier, chair of the PAC, said the government’s “inventive” way of recording the plastic bag charge cannot conceal what has been a disappointingly slow start to cutting regulatory costs.

“This high-profile piece of new legislation is being counted as a saving while a swathe of other regulations, expected to cost businesses billions of pounds, is omitted from the calculations,” she added. 

“It is tempting to say, ‘you couldn’t make it up’, but clearly you can – and then enshrine it in the implementation of government policy.”

She said that business would not buy this piece of “creative accounting” designed to create a more favourable bottom line.

The committee also found departments do not know how much it costs the business community to comply with their existing regulations. Moreover, once departments have implemented a regulatory decision, “they do not do enough to monitor and evaluate its impact.” Five out of the 14 departments with regulatory responsibility within the scope of the target have no plans to quantify the costs to business of existing regulations, according to the committee.

Moreover, once departments make a regulatory decision, they do not do enough to monitor and evaluate its impact. Departments are now required to carry out post-implementation reviews after five years to assess whether the expected costs and benefits of a regulation have been achieved. However, of the 83 regulatory decisions within the scope of the target, for which reviews are due in 2016, only two had been submitted for scrutiny.

Consequently, according to the report, departments frequently fail to plan for evaluation when making regulatory decisions. Also, they do not do enough to measure the wider costs and benefits to society of their regulatory decisions.

Responding to the report, a spokesman for the Department for Business, Energy and Industrial Strategy said the Business Impact Target acts as a reminder for every government department and regulator to find cost savings for business

“The UK remains a great place to do business and this government will continue to look for opportunities to cut red tape, while building an economy that works for all," he added.

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