Business Perception of Regulatory Burden

Frank Peck Centre for Regional Economic Development

University of Cumbria

Research conducted on behalf of UK Department for Business, Innovation and Skills

Research Objectives

1. To identify the theoretical channels for information dissemination

2. To explore the different sources where businesses obtain information regarding regulatory obligations and to evaluate the veracity of these sources

3. To assess the results from business perception surveys

4. To explore examples of international best practice in managing dissemination of regulatory requirements

Themes in the literature• Increasing complexity of regulatory landscape –

multilayered; state to non-state sources • Debate on the costs of regulatory compliance • Strategic significance of regulatory knowledge –

compliance innovators • Debate concerning the nature of the “regulatory

burden” – not the same as “cost”• But no substantive body of literature specifically

on communication of regulation

Regulatory Landscape

Traditional regulation Public regulation emanating from governments (national

regulation) or international treaties and intergovernmental organizations (international regulation)

Co-regulation (multistakeholder approaches)

Hybrid forms of regulation, involving individual governments,

intergovernmental organizations, corporations, nongovernmental

organizations and other interested parties i.e. the insurance industry

Self-regulation Forms of business

regulation that display a maximum distance from

public actors.

Characteristics of Regulatory BurdenTerms surrounding the word Burden

Threat of being sued Compensation culture Civil action Unreasonable outcomes Growth prevention Constant regulatory change Cost of keeping up-to-date Inconsistency Confusion Tidal wave of information Loss of control Unfair cost to smaller businesses per employee Training Overlapping accreditation Non-productive bureaucracy Cost of experts and consultants

The Evidence

• Many and varied surveys available on issue of costs and burdens of regulation.

• Problem interpreting data especially comparing different surveys which vary in context and quality.

• There is variation in response by size of firm, sector, type of regulation, type of question asked.

• BUT -with a few exceptions, the evidence from surveys of businesses in the UK conducted up to 2011 points to a perceived increase in the cost or burden associated with compliance with regulation.

Business perception surveys

• National Audit Office (NAO) Business Perceptions Survey findings 2007 to 2010.

• British Chambers of Commerce Barometers.• Surveys of the Institute of Directors 2010, 2011. • Institute for Chartered Accountants in England and

Wales (ICAEW) 2011.• Federation of Private Business (FPB) 2011 survey

including impacts of compliance.• “Burden of government regulation” (World Economic

Forum). • “Ease of doing business” (World Bank Reports).

Business perception surveys

Some “health warnings”: – Surveys are conducted within an arena that is

increasingly highly charged (party politics, economic recovery, EU).

– Surveys do not tend to distinguish regulatory burden arising from different sources of regulation. They are therefore very crude indicators of the specific effects of UK regulatory reform.

– Surveys do not provide a consistent definition of “burden” or “cost” which makes interpretation problematic.

– Sample sizes and target audiences vary considerably which makes comparison difficult.

– Questionnaire designs vary considerably – terminology used and wording of questions.

Cost and Burden – depends how you ask – NAO Survey 2010

Do you agree or disagree that the overall level of regulation in the UK is an obstacle to your business’s success

62% agree

Government has to weigh up the cost to business of complying with rules and regulations against protecting people and the environment from harm. Overall do you think the government has got the balance right?

56% think the balance is not right

Do you think there is too much regulation? (replies only from those who thought the balance was not right)

94% think there is too much regulation

In the past 12 months, has complying with regulations become less or more time consuming?

40% say more time consuming

In the past 12 months, has complying with regulation become easier or more difficult?

29% say become more difficult

NAO Business Perception Survey: 2007- 2010

BCC Barometer of Regulatory Costs (£bn)

Time spent dealing with regulations (IoD)

Time spent on compliance by company size (FPB 2011)

Do you agree or disagree that the overall level of regulation in the UK is an obstacle to your business'

success?” (NAO Survey 2010)

“Do you agree or disagree that the overall level of regulation in the UK is an obstacle to your business'

success?” (NAO 2010 survey)

Time spent on compliance by type of regulation (hours per month) (FPB 2011)

Parts of regulation that businesses in the NAO survey (2010) thought were becoming more time consuming

“How informed do you feel about (area of law) regulations which affect your business?”

NAO 2010 Survey

Business perception surveys

• With few exceptions, evidence from recent surveys in the UK points to a perceived increase in burden, however defined.

• Evidence also supports the conclusion that small businesses experience greater regulatory burden.

• Perception of regulatory burden has increased in the period associated with economic downturn and squeezed profit margins.

• Evidence suggests that compliance with employment law and health and safety law generate the greatest amount of time cost or “burden”.

Communication channels• Studies show that channels of communication are

increasing in diversity.• Growth in consultancy and out-sourcing by large and

medium-sized firms.• Most trusted sources for SMEs those involving face-to-

face contact – surveys since 2006 in UK, Australia, Malaysia – regulatory visits, friends, accountants, agency officials.

• Is this changing? – social networks, on-line “trusted” communication?

• SMEs tend to be reactive, whereas: • Larger firms more proactive – regulators cannot

necessarily control their own approach of use of communication channels.

Models of communication• Ideas about the nature of communication

– There are many simplified models of communication in the academic literature (e.g. Laswell (1948), Kotler (1967), Schramm (1971), Schult & Kitchen (2000), Wibeck 2009)).

– None of these entirely captures the situation with regard to regulation.

– They indicate areas of “communication failure” – Sender failure, channel inefficiencies, recipient failure.

– More sophisticated ones introduce elements such as time effects, memory, co-production of messages.

Fig 2.4: Recipient information processing

Source; Schultz & Kitchen (2000 p. 45)

MEM

OR

Y

Divided into sensory stores, short-term memory, with long-term memory divided into nodes, beliefs, scripts, and memory organization packets

Message (or incoming stimuli)

Exposure

Attention

Comprehension

Acceptance (yielding)

Retention (LTM)

Communication of Regulation• No single “conventional” model of communication

captures regulation.• Co-production of the message (shift from “separation” to

“integration” model).• Build up of expectation over time is highly significant –

process is cyclical and iterative .• Asymmetric – (one?) large organisation (government)

communicating with a diverse and fragmented audience of stakeholders.

• Regulatory communication is not a series of single events but a social process over time.

Businesses(RECIPIENTS)

Government(COMMUNICATOR)

Media

Media

Media

Decode

Decode

Decode

T1

T2

T3

Consultation “co-production”

Sender“encoding”

Media“noise”

Recipient“scanning”

Build up of expectation and

memoryKeyInfluencers

Case Studies

• Employment Red Tape Challenge October 2011 over 2200 comments.159 regulations examined.

• Health and Safety Red Tape Challenge June/July 2011 received 651 Government plans to begin a major cut back of health and safety red tape as early as January 2012.

• the Equalities Act that came into force on 1st October 2010 - discrimination in public life on the basis of age, disability, gender identity, marriage or civil partnership, pregnancy, race, religion, sex and sexual orientation.

• EU Directive on conditions for temporary (agency) workers – Directive 2008/104/EC - “Agency Workers Directive”. EU Member States had until 5 December 2011 to implement this Directive. BIS proposed to implement on the basis of the CBI/TUC agreement of May 2008 (equal treatment after12 weeks).

The Equalities Act 2010

Official Home Office Release 1 Oct 2010

“employees get a new weapon in the fight for equal pay”

3 Oct 2010 “Firms warned on Equalities Act arrival”

3 Oct 2010 “Equality notion lets Stalin into the workplace”

18 Oct 2010 “School meetings in evening ‘are sexist’, says equalities quango”

The Equalities Act 2010

27 Nov 2011 (year after official press release)“Beware, the equality zealots are unfair and cost us millions”

12 Dec 2011 (year after official press release)Human Rights laws’ use is ‘barmy’ Britain’s equality supremo Trevor Phillips critical

The Equalities Act 2010

Anticipating official press release:1 Oct 2010 “What does the Equality Act mean in Practice?”

Reporting on unforeseen circumstances:4 Mar 2012 “‘Equality laws’ need to protect all lifestyles” (story ran from Dec 2010)

4 Dec 2010 “Concern raised over access to online fuel tariffs” (discrimination against elderly)

6 July 2011 “Blind Dave Heeley wins taxi dog ban equality case”

The Equalities Act 2010

• Media noise anticipated the official press release• Amendments to the Act led to confusion over what

was required to comply adding to media noise • Various commercial firms selling services added to

this noise• Willingness of government to amend Act also

encouraged lobbyists to add to the noise • The long period of ‘co production’ of this regulation

and its interpretation feeds into increased “regulatory burden” of individual business

EU Agency Workers Directive 2011

Official BIS Release 6 May 2011 “Government has today published guidance to

help employers and the recruitment sector prepare for the introduction of the Agency

Workers Regulation”

11 May 2011 “Small business temp pay blow”

21 May 2008 (3 years pre official release) “Businesses warn temp pay laws will harm economy”

EU Agency Workers Directive 2011

1 October 2011 “Employers count cost of triple whammy of new employment rules”

15 Nov 2011 “Chancellor George Osborne strikes back...Red tape axe boost jobs”

10 Jan 2012 “Third of bosses will sack temporary staff because of new EU employment law”

EU Agency Workers Directive 2011

Memory build up from business groups:

• BCC (Oct 2009) still hoped many small businesses would be exempt from the Directive

• CBI (March 2010) web guide to handling directive and predicted cost to business of £2bn.

• IOD (Oct 2010) government is gold plating Directive

• FSB (May 2011) one-off cost of £40m and government failure to halt in increase in employment regulatory changes

Findings from Case Studies

• Reports on specific regulatory changes appear over an extended period of time, not just the day of announcement.

• Comment prior to announcement stimulated by consultations and debates can generate considerable “media noise”, mixed messages and influence expectations.

• Coverage of announcement is, to varying degrees, influenced by the design of press releases and their origin.

• Final announcement of regulatory change is often followed by an extended period of further “media noise” as the reactions of stakeholders are variously reported.

• No widespread misreporting of regulatory changes but “tail” of reporting tends to focus on unintended consequences.

Key findings (1)

• “Regulatory burden” cannot simply be equated to measurable costs. It embraces other aspects such as anxiety generated by the threat of litigation, uncertainty, the pace of change and sense of inequity.

• The perception of burden is influenced by the growing complexity of the regulatory landscape, with businesses finding it difficult to distinguish between regulation that originates from national government, international sources, industry self-regulation and business policies.

• Communication about regulation is a complex social process where consumers of the message (businesses) can become co-creators.

Key findings (2)

• There does not appear to be widespread misreporting of regulatory requirements, but most media noise does relate to negative aspects of regulatory or deregulatory proposals.

• Large deregulatory exercises can have the unintended consequence of increasing awareness of regulatory burden and increasing perception of the burden.

• An integrated approach to communication which engages a wide range of interested parties is consistent with the philosophy of open government. However, this can spread anxiety through a continuous sense of impending new burdens.

• Increasing the pace of change can be a source of regulatory burden.

Business Perception of Regulatory Burden

Frank Peck Centre for Regional Economic Development

University of Cumbria

Research conducted on behalf of UK Department for Business, Innovation and Skills