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Employers’ estimates of the costs of Regulation

To be fair to employers ‘organisations, they have not only moaned about the burden of 'red tape' - they have at least made an effort to quantify the costs of new government initiatives. Unfortunately the methodology they have used is flawed and the results wholly unconvincing. For example, the CBI and the British Chambers of Commerce (BCC) have recently suggested that 'red tape' has cost UK business between £12.5 and £15 billion since 1997. This is nonsense. These figures are almost entirely accounted for by the cost of paying the minimum wage and the introduction of paid holidays for employees who previously had no annual leave at all.

The CBI rather confusingly argues that 'excessive red tape has caused most of the headaches rather the rights themselves' but that nonetheless 'this has led to an incalculable cost with firms diverting resources into admin and losing opportunities'. It is not clear if incalculable means the CBI has no idea what the actual cost is or that it is a big if unquantified number. The Government itself strongly challenges BCC’s £15 billion figure and by implication the CBI estimate. According to the Cabinet Office’s Regulatory Impact Unit, the 'real costs of administering new regulations is a fraction of this figure [but] what has increased is the amount people receive in benefits, like decent wages, paid holidays or time off to attend to family matters, through measures such as the National Minimum Wage and Working Time Regulations' [9] .

The BCC argues that their assessments are robust because they are based on the government’s own Regulatory Impact Assessments attached to consultation documents on the implementation of various regulations. This is not a claim that can stand too much scrutiny.

Take for example, the BCC’s Burdens Barometer, which attributes more than half of the 'red tape' bill to the impact of the Working Time Directive, which has apparently cost employers £7.65 billion since it was implemented in November 1998. This is based on the analysis in the RIA, which estimated annual costs of £1.9 billion per year rising to £2.3 billion per year after November 1999. However, the RIA makes it clear that these costs are generated by employers having to provide basic standards to employees (e.g. 4 weeks paid leave, regular rest breaks etc) rather than the financial demands of any new record-keeping procedures.

The RIA says, 'where the requirement to show compliance results in some employers keeping records of hours worked, we do not anticipate this will impose significant additional costs' [10] . In addition, the minimal administrative requirements linked to the Directive were reduced further in 1999 when employers only had to maintain records of the hours worked by those who had not opted out of the Directive but who were at significant risk of regularly working in excess of 48 hours, a group constituting a very small minority of employees.

In the case of the National Minimum Wage the BCC does not classify the added costs of paying employees the minimum wages as 'red tape'. The CBI 'Red Tape Challenge' is more confused, saying that the cost of the NMW has been £4 billion, acknowledging that this is the cost of paying higher wages and concluding, 'the Government’s minimum wage legislation has not created an excessive burden because of good consultation'.

The BCC goes on to claim that the NMW has generated cumulative administrative costs of £675 million on the basis of their analysis of the original draft RIA produced for the NMW. However, what the BCC has apparently failed to notice is that the original draft RIA was revised in light of changes to the draft NMW regulations removing planned obligations on employers to establish new record-keeping procedures for wages. As a result the final RIA for the NMW states quite clearly that all the administrative 'costs can be eliminated as a result of the changes made to the Regulations'(NMW RIA, para 26, DTI, February 1999). The figure of £675 million figure is bogus.

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