Institute ofDirectors

Regulation Comment

1 Introduction

Reg Alert is a quarterly publication from the Institute of Directors.It highlights the burden of domestic and EU regulation affecting UK business.

Reg Alert is free and copies may be made without specific permissionor payment. It can be downloaded from www.iod.com/policy/papers.For a printed copy, please telephone 020 7451 3278.

Commentson regulation are always welcome. Please send them to James Walsh at theInstitute of Directors, 116 Pall Mall, London, SW1Y 5ED or by e-mail to james.walsh@iod.com.

2 EuropeanDevelopments

Thisedition of Reg Alert brings afamiliar set of themes from the EU the best of intentions but the worst ofoutcomes.

The goodnews is that the European Commission is pressing ahead with its BetterLawmaking package of reforms. These measures stand to bring genuine benefitsto business if the detail is right.

The badnews is that a number of important EU initiatives have taken turns for theworse. On measures affecting temporary workers and the recycling of electricalgoods, Brussels legislators have ditched provisions that would have shieldedmany companies especially small businesses from the worst of the regulatoryimpact.

Better Lawmaking package

TheEuropean Commission published its Better Lawmaking package on 5^thJune. A detailed summary of the proposals was given in the July edition of RegAlert. The package comprises four elements:

an overview paper; ¹

plans to introduce impact assessments for allnew EU legislative proposals (COM (2002) 276); ²

minimum standards for public consultation onCommission proposals; ³ and

an Action Plan to simplify and improvethe regulatory environment. ⁴

TheCommissions package is welcome, but still offers room for improvement. The IoDhas been working with other SME representative organisations to strengthen theproposals. Through Small Business Europe⁵ we submitted commentscalling for clarification of how the measures would be implemented in practice.

The newsystem of Impact Assessments now looks likely to be introduced from Novemberthis year. This is welcome news, but much will depend on how well the procedureis implemented across the Commissions Directorates-General.

As notedin the last edition of Reg Alert, theCommissions proposed standards for public consultation would fix the minimumconsultation period at just six weeks. In the UK, standard practice usuallyallows 12 weeks for consultation. TheCommissions six-week proposal has been widely criticised, and British civilservants now expect a modest concession perhaps to eight or ten weeks. Giventhat the current exercise is, in essence, a consultation about how best to runconsultation procedures, it would be the ultimate irony if the Commission wereto ignore the many submissions it has received on this point.

The finalpiece in the jigsaw will be an inter-institutional agreement between theCommission, European Parliament and Council of Ministers on how the new systemof Better Lawmaking will work in practice. This is expected by the end of theyear.

Agency Workers Directive

Thisimportant piece of employment legislation has made significant progress sincethe last edition of Reg Alert muchof it for the worse.

Inessence, the Directive would establish the principle of non-discriminationbetween temporary workers supplied by agencies and their permanent colleagues.It would cover pay, working hours and holidays, but not pensions, socialsecurity rights or discretionary payments.

The IoDhas been seriously concerned about this Directive from the start. Quite apartfrom the fact that regulation of temporary staff would be much better carriedout at national level, there is a severe risk that the Directive will damagethe market for temporary workers, making it more difficult for temps to findemployment and undermining labour market flexibility.

Debate onthis proposal has concentrated on the qualifying period how long it shouldtake before temporary workers acquire the same pay rights as their permanentcolleagues. The draft Directive proposed a six-week qualifying period for pay.The IoD (and the Government) had pressed for a much longer period.

It was, therefore, a majordisappointment when the Employment and Social Affairs Committee of the EuropeanParliament deleted the six-week qualifying period altogether in a series ofamendments voted through on 21^st October. This was the worst possibleoutcome for British business. Britains temporary employment sector is thebiggest in the EU, with around 700,000 agency workers on temporary assignmentsat any one time.

The Parliament will nowvote on the Directive at its plenary session of 18^th-21^stNovember. It is still possible that amendments at that stage will reinstate thequalifying period, but IoD members should not bank on it.

It is particularlydisappointing that concerted lobbying by British business and (to their credit)by the British Government appears to have come to nothing on this importantmeasure.

WEEE Directive another blow forsmall businesses

MEPs and EU Governmentsappear to have reached agreement on the new Directive that will makemanufacturers responsible for recycling the electronic goods that they produce.

The Waste Electrical andElectronic Equipment Directive (known as the WEEE Directive) will require EUmember states to recycle 50% of small appliances (such as toasters and vacuumcleaners) and 75% of larger appliances (such as refrigerators) by 31^stDecember 2006. The measure is expected to add up to 3% to retail prices.

In a blow for smallbusinesses, a proposed 5-year exemption for micro businesses (up to 10employees) has been removed from the text.

The latest discussionsmarked the end of the conciliation procedure by which the European Parliamentand European Council reach agreement on new EU legislation. The measure willnow be submitted for formal approval by the Parliament and Council, with a voteexpected in the Parliament during December.

It remains to be seen howthe Government will go about implementing the WEEE Directive in the UK. IoDmembers have always been keen to take up opportunities to recycle materials andprotect the environment. But there are legitimate concerns that this latestmeasure will bring extra costs and bureaucracy alongside any environmentalbenefit. With the micro-business exemption removed, the smallest businesses nowlook certain to be the hardest hit.

Environmental LiabilityDirective

IoDmembers will wish to be aware of the EUs proposed Environmental LiabilityDirective yet another item in the Brussels pipeline that threatens to have asignificant impact on British business costs.

Thecentral purpose of this legislation is to make companies that damage theenvironment financially responsible for putting the situation right.

IoDmembers will have no objection to the basic principle that the polluter pays.There are, however, legitimate business concerns about the way in which the EUis proposing to put it into practice.

Forexample, implementation of the Directive is likely to involve further growth inthe range of licensing and inspection fees charged to businesses by theEnvironment Agency. Some or all of these extra costs will be passed on tocustomers.

Remarkably,the European Commission has failed to undertake any economic assessment of thelikely costs and benefits of this important piece of legislation. Thisdemonstrates yet again that implementing the new system of EU ImpactAssessments (see 'better lawmaking' above) will require a dramatic change ofattitude in some parts of the Commission.

In theabsence of an EU analysis, the UK Government has carried out its own study.DEFRAs Extended partial regulatory impact assessment concludes that the newDirective will impose some additional requirements and burdens beyond thosealready enshrined in UK law. ⁶ Business audiences will be concernedthat the assessment says:

the non existence of data,the complexity of the existing domestic regimes and the methodologicaldifficulty of estimating ex-ante costs and benefits i.e. predicting thebehaviour of economic agents, has meant that most of the assessment in thisstudy is qualitative rather than quantitative in nature. ⁷

Inother words, the Government has no idea how much this new Directive will costBritish business.

Oneof the most important unresolved issues concerns insurance. Some EU officialswould like to see insurance cover made a requirement of the new legislation.The IoD argues that decisions on insurance should be voluntary. One of the fewspecific estimates given in the DEFRA impact assessment is that SMEs could faceinsurance costs of 5-10,000 per annum in order to cover themselves for liabilityunder the new Directive.

3 New guidance onregulatory impact assessments

TheCabinet Offices Regulatory Impact Unit has drawn up new guidance on puttingtogether Regulatory Impact Assessments (RIAs). These analyses of the costs ofnew legislation are essential if the Government machine is to recognise thatcompetitiveness can easily be undermined by otherwise well-intentionedmeasures.

The newguidance, which will be circulated widely to Whitehall policy-makers, containssome welcome advances. For example, it places a much greater emphasis on thesmall business litmus test. This innovation was proposed in a report by thePublic Accounts Committee of the House of Commons and the IoD is pleased to seeit put into practice.

However,there remains a suspicion that RIAs help to identify the costs of regulationsbut do not necessarily prevent them from going ahead. It would be helpful ifthe Regulatory Impact Unit could publish some facts and figures on how manyregulatory proposals have been stopped in their tracks by the RIA process. Itwould be even more helpful if these could be compared with the number of newregulations that have been allowed to go ahead even where the RIA demonstratesa significant cost.

Similarly,it is good to see the document outlining alternatives to the regulatoryapproach. Self-regulation, codes of conduct and dissemination of best practicecan often achieve the same objective as top-down regulation but with fewercosts and a lighter touch.

The IoDhas urged the Cabinet Office to ensure that the guidance presents such optionsnot just as an alternative to regulation, but as a preferred way forward.Government-imposed regulation should always be seen as a last resort, only tobe used when it can be shown that market-based or voluntary options would proveineffective.

4      Asbestos rules science questioned

TheGovernment has signed a major new set of regulations intended to tackle thehealth risk posed by asbestos despite widespread criticism of the science onwhich the new rules are based.

The newControl of Asbestos at Work Regulations 2002⁸ will require those whohave responsibilities for maintenance of non-domestic premises to assesswhether there is any asbestos on site and, if so, to remove or manage it asappropriate.

No onedisputes the basic fact that asbestos causes mesothelioma a very serious typeof lung cancer. There is, however, controversy over which types of asbestos areto blame.

Expertsagree that blue and brown types of asbestos, based on iron silicates, pose amajor threat to health. It is less certain, however, that white asbestos, basedon magnesium silicates, should give rise to the same concern.

In arecent House of Commons debate, the Minister for Work, Nick Brown, admittedthat:

most experts believe thatthe blue and brown varieties are more dangerous than the white, and the mostrecent review of the scientific evidence suggests that the difference issubstantial; but there is a wide range of scientific opinion and a good deal ofuncertainty. ⁹

Theresearch on which the regulations are based was undertaken in 1985 and appearedto show that exposure to white asbestos caused mesothelioma. ¹⁰ A re-examination of thestudy ten years later showed that the lung damage had actually been caused byresidues of blue and brown asbestos.

OppositionMPs have called on the Government to allow an independent examination of theresearch perhaps by a Select Committee taking evidence from acknowledgedexperts. Without such an inquiry, there will be a lingering suspicion that theregulations are more burdensome than is necessary.

TheHealth and Safety Executive initially estimated the cost of implementing thenew regulations at 5.1 billion over a 50-year period. This figure has sincebeen revised down to 3.4 billion and now 1.5 billion. Whatever the truefigure, it is clear that these regulations will impose significant extra costson British businesses in terms of commissioning surveys and, where necessary,taking remedial action.

IoDmembers will have no objection to making their workplaces safe from theterrible health risks that certain types of asbestos can bring. If, however,they are required to tackle risks that simply do not exist, they will haveevery right to complain that business is again footing the bill for poorquality policy-making in Whitehall.

5      Anti-bureaucracy drive halted by red tape

Youcouldnt make it up. The Governments attempts to slash bureaucracy appear tohave run into a classic Yes, Minister trap in the form of Whitehalls ownred tape.

Back inFebruary, the Prime Minister promised that the Regulatory Reform Act 2001 wouldlead to at least 260 measures to cut red tape. Eight months later, just sixRROs have reached the statute book.

Itappears that the process of drawing up and implementing the Orders involves somuch bureaucracy that civil servants just cannot be bothered to drive themthrough. ¹¹

CabinetOffice Minister Lord Macdonald is reported to be frustrated that theGovernments good intentions have been ambushed by Whitehall red tape.

A CabinetOffice spokesman said its early days yet.

6      OECD report

Theofficials of the OECD may have been thinking of the slow progress on cuttingred tape when they compiled their recent report on Regulatory Reform in theUnited Kingdom: challenges at the cutting edge. ¹²

Althoughthe OECD commented The UK is at the forefront of regulatory reform in theOECD, it has already made major improvements and has planned more, much of thereport lamented the steady creep of regulation and the lack of urgency intackling it.

Regulatoryobjectives have become more numerous, complex and often potentially in conflictwith each other, commented the OECD. Structural and legal impedimentscontinue to discourage risk-taking.

Thereport urged the Regulatory Impact Unit of the Cabinet Office to take a tougherline with other Whitehall departments when challenging their latest plans forintervention and regulation.

Despitethese criticisms, the report finds that the long-term trend in Britain is stillshaped by the 1980s drive to boost enterprise. Britain still has labour marketflexibility, world-class financial services and investment flows that are theenvy of most other developed economies.

Stop Press WorkingTime rules extended

As RegAlert was about to go to press the DTI launched aconsultation on plans to extend the Working Time Directive to a wider range ofworkers.

TheDirective, which sets a maximum 48-hour week together with other rights such as11 hours of rest between working days and four weeks of paid holiday, does notcurrently apply to:

non-mobile workers in road, sea, inland waterways,transport and seafishing;

junior doctors;

those workers in aviation not covered by the AviationDirective; and

workers in the rail and offshore sectors.

A new piece of EUlegislation, the Horizontal Amending Directive,¹³ extends the reachof the Working Time Directive to these groups. It is to be implemented bymember states by 1^st August 2003.

TheGovernments regulatory impact assessment estimates the cost of the HAD tothe UK economy at 170 million a year.

The DTIis consulting on amendments to the Working Time Regulations. The closing dateis 31^st January 2003. ¹⁴ Regrettably, this is not aconsultation on whether the plans should go ahead but on the technical detailof how they should be implemented.

The IoDwill be responding to the consultation in coming weeks. Readers of RegAlert are invited to let the Policy Unit have theirviews.

James Walsh

Parliamentary and European Adviser

November 2002

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References

1. COM (2002) 275

2. COM (2002) 276

3. COM (2002) 277

4. COM (2002) 278

5. Small BusinessEurope lobbies for British SME interests in Brussels and works closely with theIoD. See www.smallbusinesseurope.org

6. DEFRAs assessment may be downloaded from: http://www.defra.gov.uk/environment/consult/liability2/pdf/eu_env_liability_pria2.pdf

7. DEFRA extendedpartial regulatory impact assessment on proposals for a Directive onEnvironmental Liability, 20^th June 2002

8. HSC/02/73,available at http://www.hse.gov.uk/foi/hsc/2002/160702/papers/c73c.pdf

9. Hansard, 24^th October 2002, Col 486

10. research by ProfJulian Peto, 1985

11. Financial Times, 23^rd September 2002

12. OECD, 24^thOctober 2002

13. 2000/34/EC

14. http://www.dti.gov.uk/er/work_time_regs/hadconsulta.htm