Overview of costs and benefits associated with regulation in Scottish agriculture

5. Conclusions

Background

Farming is a diverse and complex industry delivering both positive and negative non-market effects. Such market failures are common and provide a rationale for policy intervention to alter resource allocations and the distribution of costs and benefits. Crudely, such intervention may take the form of information provision, incentive schemes or regulatory controls - although these options are not mutually exclusive and are often used in combination. Governments are increasingly aware of the problems that poorly designed regulation can have and "Better Regulation" has become an important policy driver at both European and national level.

Case studies

The initial review revealed in the order of 100-200 agricultural regulations, however the exact number is difficult to define as it depends on what is included, for example whether all amendments are included, or whether non-farm specific regulations are included. During the selection of the case studies 102 regulations were identified; however this is not an exhaustive list. The regulations fell into five categories:

• Agricultural support and rural development
• Pollution control, natural heritage and waste
• Animal health and welfare
• Employment legislation
• Other (notably land use planning and food safety)

Twelve regulations were selected for study. Most of the selected regulations were either wholly or partly the result of EU obligations. This reflects the patterns in the long list of regulations, and is consistent with a recent study, which found that 67% of the administrative costs associated with Defra's policy areas arise from EU obligations (Defra 2006). The predominance of EU-derived regulations in the agriculture and environment policy areas limits the scope for domestic initiatives to reduce regulatory costs. Suggestions for improving specific regulations are given in chapter 3. In terms of the overall balance of costs and benefits of the regulations, some case study results were characterised by lack of detailed valuation, in part reflecting the difficulty of valuing costs and, in particular, benefits. In the case studies examined, the existence of social benefits is acknowledged even where full valuation of these benefits has not taken place. The dearth of benefits valuation in regulatory impact assessments ( RIAs) may reflect a pragmatic approach to policy appraisal in the face of analytical costs and the operational reality of international obligations. However, the downside to this approach is that it may reduce industry confidence and the rationale for deviation from official impact assessment guidance should be made clear.

Agricultural regulation in New Zealand

A brief case study of agricultural regulation and the regulatory review process in New Zealand was undertaken, in order to identify examples of alternative approaches and best practice that might be applicable in Scotland. New Zealand has carried out a number of reviews of the regulatory environment recently, highlighting the Government's commitment to ensuring an open and fair commercial environment. The outcomes of the reviews are generally global in their applicability and provide useful guidance on priority areas for further investigation. Tools used for assessing regulations are also being developed and could provide examples for similar work in Scotland. Three areas were examined in more detail: TB, water pollution and animal transport. These case studies help to illustrate the outcomes based, light regulatory touch generally associated with New Zealand regulations.

Measuring changes in administrative burden and the Standard Cost Model ( SCM)

The SCM is a methodology for measuring the administrative cost of regulation imposed on business by government. In essence, it is a consistent way of breaking down the administration required to comply with a regulation into a range of manageable, measurable components. The SCM only measures a (predefined) set of administrative activities; it does not measure the policy costs or any of the benefits of a regulation. The SCM is an integral part of the UK central Government's Administrative Burdens Measurement Exercise ( ABME). This approach to better regulation has significant strengths, not least of which are that it: demonstrates commitment to reducing regulatory burden; improves the regulator's understanding of the regulatory landscape; provides momentum for simplification plans; enables comparison of changes in administrative burden, through time and between government departments and countries. The preliminary appraisal of the ABME/ SCM approach indicated that it may well be a cost-effective exercise. However, in practice, the effectiveness of the approach will depend very much on how it is implemented and the policy aims that one is trying to achieve.

The SCM is not a way of measuring administrative costs more accurately; it is primarily a way of being able repeat measurements and demonstrate change. It is therefore most effective when employed as an integrated part of an ongoing programme of admin cost reduction, rather than as a one-off assessment of costs. In this context, the existing SEARS (Scotland's Environmental and Rural Services) activities is an existing approach in Scotland to identifying and reducing admin burden but does not provide the quantitative elements that a SCM analysis is designed to provide. Significant effort has already been expended under SEARS to identify and reduce burdens and this information could inform - or possibly make redundant - a generic or agricultural SCM exercise. Specific recommendations regarding the SCM are given in chapter 2.

Other routes to better regulation

Undertaking a SCM based ABME is only one of a range of initiatives that could be undertaken to improve regulation, and this may involve expending greater effort on gathering information and securing stakeholder involvement. Identifying the best course of action requires a clearly defined vision of how and why one wants to improve regulation. For example the table below shows four different goals that could all fall within the scope of improving regulation.

Finally, the regulatory regime in Scotland and the UK as a whole needs to be viewed in context. While the regulatory regime in the UK imposes costs on business, these need to be viewed in light of the significant benefits it provides to business by, for example: protecting the natural resource base; strengthening the competition regime; showcasing best practice; protecting consumers; encouraging people to take paid employment; and reducing the costs of accidents and ill health. By some measures the UK has a relatively benign business environment, which is at odds with industry perceptions. While it is true that the UK has more stringent environmental and animal welfare standards than some of its key competitors, evidence suggests that regulatory costs are not a major factor in determining competitiveness. Furthermore, commitment to improving regulation has been demonstrated through recent UK and Scottish initiatives, and the ongoing efforts of the Scottish Government and its agencies to involve stakeholders in the development of regulation. At the UK level, a dedicated unit (the Better Regulation Executive) has been set up to drive forward the better regulation agenda through initiatives such as the Administrative Burdens Measurement Exercise and associated Simplification Programme. In Scotland, the SEARS partnership has been welcomed as a way of reducing the administrative costs of regulation.

The Scottish Government is currently developing an approach to improving regulation in Scotland that is distinct from the UK central agency approach and is "genuinely fit for purpose and able to deliver tangible results and offers more than is currently available from the attempts by Westminster and Brussels" (Regulatory Review Group/Scottish Government 2008 p5). The key elements of this approach are:

• High level political commitment to improving the regulatory environment, thereby boosting competitiveness and productivity.
• Establishment of a close relationship between Minister, officials and the Regulatory Review Group.
• Mainstreaming a better regulation focus rather than making it the preserve of a specialist unit.
• Recognising the importance of effective regulation in meeting environmental and social objectives; using risk-based approaches and reviewing existing legislation.
• Recognising the need for continuous improvement.
• Working to achieve policy objectives without immediate recourse to legislation.

The regulatory landscapes in Scotland and the rest of the UK are therefore undergoing periods of change, which should provide significant improvements in the regulation of agriculture and the environment, while enabling wider lessons to be learned about the relative performance of the different approaches to better regulation.