I am today publishing the Government’s target in respect of the economic impact of new regulation on business for this Parliament, along with related matters as required under section 21 of the Small Business, Enterprise and Employment Act 2015 (“the Act”). The current Enterprise Bill will extend the scope of the target to include statutory regulators, as well as Ministers. This statement takes account of that proposed extension.
Business impact target
The Government’s target is for a saving of £10bn to business and voluntary or community bodies from qualifying measures that come into force or cease to be in force during this Parliament.
The interim target covers the savings to be achieved from qualifying measures that come into force or cease to be in force in the first three years of this Parliament. The Government’s interim target is a saving of £5bn.
Qualifying regulatory provisions
Under the Act, the measures that are in scope for the Business Impact Target are described as “regulatory provisions”. That includes both legislation, and the activities of regulators (meaning Ministers, and in due course statutory regulators).
As with the One-in Two-out system that operated in the last Parliament, the Government must designate the categories of regulatory provision that are to be scored against the target (“qualifying regulatory provisions”). Qualifying regulatory provisions are those that do not fall within any of the exclusions set out below.
(a) Exclusions carried over from last Parliament
A number of the categories of regulatory provision that were excluded from the One-in Two-out system in the last Parliament will also be excluded from the Business Impact Target. The exclusions are:-
- Regulatory provisions that implement new or changed obligations arising from European Union Regulations, Decisions and Directives, and other changes to international commitments and obligations, except in cases of gold-plating.
- Regulatory provisions specifically relating to civil emergencies.
- Regulatory provisions concerning fines and penalties, and redress and restitution.
- Regulatory provisions that promote competition (where these result in an increase in a direct net burden on business).
- Regulatory provisions that enable delivery of large infrastructure projects.
- Regulatory provisions that implement changes to the classification and scheduling of drugs under the Misuse of Drugs Act 1971, or to National Minimum Wage hourly rates, where these follow the recommendations of the relevant independent advisory body.
- Regulatory provisions relating to systemic financial risk.
(b) New exclusions applied in this Parliament
The remaining exclusions arise from the extension of the target to include regulator activity, and one legislative measure (the National Living Wage) where the offsetting measures – changes to national insurance and tax - are also excluded from the target under the Act.
In order to capture all relevant regulator actions the statutory definition of a regulatory provision is drafted in such a way that every action of a regulator in the discharge of its statutory duties potentially falls within scope. The exclusions are intended to ensure that the qualifying provisions scored under target are focused on regulator policies and practices rather than day-to-day activities. Certain activities related to economic regulation are also excluded.
The exclusions are:-
- Regulator casework including specific investigation and enforcement activity, individual licence decisions, and individual advice.
- Education, communications activities, and promotional campaigns by regulators, including media campaigns, posters, factsheets, bulletins, letters, websites, and information / advice helplines.
- Policy development by regulators, including formal and informal consultations, policy reviews, and ad hoc information requests.
- Changes to the organisation and management of regulators, except for those resulting from legislative changes or another policy change that is a qualifying regulatory provision.
- Regulatory provisions applying to certain business activities of operator(s) of a network or system where the operator(s) are deemed to be a monopoly or to have significant market power, specifically:
o regulatory provisions that concern the terms upon which access is provided to those networks and systems; and
o regulatory provisions that concern effective network and systems operation and co-ordination.
- Regulatory provisions that are price controls, except for the introduction of price controls to previously unregulated activities, or removal of pre-existing price controls.
- Changes to Industry Codes, except those arising from regulator action or new legislation.
- Regulatory provisions that introduce the National Living Wage.
Methodology for the assessment of the business impact target
The impact of each qualifying measure will be assessed on the basis of its Equivalent Annual Net Direct Cost to Business (EANDCB) measured in 2014 prices and with a 2015 present value base year. The contribution to the business impact target will be the sum of the EANDCB over the first five years for which the measure will be in force, or the sum of the EANDCB over the full lifetime of the measure for measures that are in force for less than five years.
The EANDCB is an estimate of the average annual net direct costs to business in each year that the measure is in force. It is calculated as the present value of the net direct cost to business divided by the sum of the discount factors appropriate for the length of time the measure is in force. The discount rate used is determined by the Green Book.
Direct impacts are those that can be identified as resulting directly from the implementation or removal/simplification of the measure.
 As required under section 21(1)(a) of the Act.
 As required under section 21(2) of the Act.
 As required under section 21(3)(a) of the Act.
 Future annual changes to the National Living Wage that do not follow the recommendations of the Low Pay Commission will be in scope for the Target.
 As required under section 21(3)(b) of the Act.
This statement has also been made in the House of Lords