Proportionality

Taoiseach's Foreword

Executive Summary

Glossary

Overview

Chart of Principles

Necessity

Effectiveness

Proportionality

Transparency

Accountability

Consistency

Action Programme for Better Regulation

Appendices

Appendix I - Regulatory Impact Analysis (RIA)

Appendix II - RIA and the Legislative Process

• We will regulate as lightly as possible given the circumstances, and use more alternatives.

• We will ensure that both the burden of complying and the penalty for not complying are fair.

• We will use Regulatory Impact Analysis appropriately when making regulations.

In this context, proportionality means striking a balance between the advantages a regulation provides and the constraints that it imposes. The first consideration is the fundamental question: is Government action required in the first place and, if so, should that action be regulatory? Just as there may be alternatives to regulation, there may also be alternative types of regulation, for use in cases where the full rigour of primary legislation is not required.

A second aspect of proportionality is ensuring that, when framing regulations, the burdens imposed and penalties for non-compliance are proportionate to the risks. A fundamental consideration might be, for example, whether penalties within the civil or criminal code are most appropriate. Similarly, it is useful to consider whether the costs for a particular group (e.g. small businesses) of complying with an administrative procedure are proportionate to the benefits to society resulting from the new procedure.

Regulatory Impact Analysis (RIA) provides policy makers with a deeper understanding of the likely effects of regulatory actions. This is a practical way in which the proportionality of proposed regulations can be assessed. Impact analysis then supports other principles of good regulation, such as transparency - through making clear the underlying assumptions - and accountability. Arguably, its main contribution is in helping policy makers to ensure regulation is warranted in the first place and that benefits and costs are clearly defined.

There will always be a need for regulation. The questions that we need to consider are about how much regulation is appropriate and to what extent it is of good quality. When we talk about the quantity of regulation, this can mean both the volume of regulations governing particular aspects of economic and social life, as well as their complexity. When we talk about the quality of regulation, we mean how effective and how clear it is.

An efficient and well-founded regulatory system is one of the features of good governance and gives great strength and certainty to society and the economy. But we do need to recognise the potential disadvantages of State-imposed regulation in certain circumstances. For example, such regulation can be restrictive to market entry, enforcement can be costly, and it can be unresponsive to change over time.

In this regard, some countries have set targets for reduction of regulation. For example, Denmark published an Action Plan in 2002 containing a target to reduce the regulatory burden on businesses by 25% in four years. In addition, it is estimated that the Community acquis - secondary legislation binding on EU Member States - has been reduced by 20,000 official journal pages following completion of a consolidation programme.

It is important to assess the costs and benefits of a traditional "command and control" type regulation, but also to evaluate whether it would be more sensible to use an instrument other than regulation, such as a tax, subsidy, tradable permit, information campaign or other means. A combination of a number of these options might be the best mix to achieve a particular policy goal.

For example, to alleviate the litter problem arising from plastic bags, a tax was used to modify behaviour. This still meant that a regulation had to be introduced but it was a relatively "light" regulation. It did not ban the importation or production of plastic bags. It did not seek to appoint more litter wardens or establish an inspectorate to visit shops.

Regulation should be seen as one of a range of instruments available to policy makers. It can be used instead of, or alongside, other instruments. However, one of the problems with regulation - particularly traditional "command and control" regulation - is that it is often seen as a quick fix. However, problems may not always have a regulatory solution or regulation may only be part of the solution, if used alongside information campaigns, or some other measures.

We need to build our confidence in using alternative types of regulation and alternatives to regulation. We need to build our capacity and understanding of these alternatives because they can, of themselves, improve public understanding of policy objectives. Regulatory alternatives tend to encourage desired behaviours rather than discourage undesired ones.

It is important to recognise that there are costs associated with regulation. Direct costs include fiscal costs (e.g. the cost to the Exchequer of administrators' and legislators' time, the cost of enforcement, etc.). Direct costs also include the cost to industry, business or citizens of complying with the regulations - e.g. installing new equipment, meeting new standards, etc. It is critically important for competitiveness, and for social equity, that we know what the direct costs arising from a regulation will be and who will bear them. For example, compliance can place a disproportionately higher burden on smaller firms. It was estimated by another EU Member State in 1995 that the cost of 'red tape' absorbed by small business works out at €3,600 per annum for each person employed. For larger firms, the comparable figure was put at €153. In Small and Medium Enterprises (SMEs), owners and managers tend to combine a number of functions, and administrative compliance is not easily delegated or contracted out. Excessive compliance requirements, and administrative procedures that are insensitive to the special difficulties of SMEs, will deter new entrepreneurs and distract existing enterprises from innovation and expansion.

Just as compliance costs should be fair and proportionate to the benefits that the regulation brings, the penalties for non-compliance should also be realistic and related to the potential harm and have the desired deterrent effect. Over time, the impact of monetary penalties is inevitably eroded by inflation with the result that they have less and less deterrent effect. Mechanisms are needed to ensure that such penalties, the monetary value of which may have been fixed in old statutes, should be kept in line with inflation. Such difficulties could be overcome by the introduction of a standard fine system based on a number of categories related to the gravity of offence, and containing an indexation mechanism. The Government will explore the possibility of addressing these issues through the introduction of appropriate legislation.

The complexity of regulatory systems in a modern economy can give rise to particular difficulties, including the timeliness and suitability of penalties that can be imposed on regulated parties. When setting penalties, it may be appropriate to bear in mind the financial circumstances of the offending person or body. In particular, the offender's ability to pay may be considered, the provision of easier methods of payment (by instalments, for example), as well as more efficient systems for the collection of fines. This is an issue that requires careful consideration.

Evidence based policy making is about making better use of research and analysis in both policy-making and policy implementation. Regulatory Impact Analysis (RIA) is an evidence-based decision tool, which has four main facets:

• Quantification of impacts;
• Structured consultation with stakeholders;
• Evaluation of alternatives to regulation and alternative types of regulation; and
• Full consideration of downstream compliance and enforcement issues.

RIA is an aid to, and not a substitute for, decision-making. RIA should not be a mechanistic decision process. It should not give a single "right or wrong" answer - either in monetary or in other terms - on the question of whether or not to regulate in particular circumstances. Neither should RIA be something that simply adds to the bureaucratic process of producing regulations. Rather, RIA should be relatively light and proportionate.

It is envisaged that there will be a two-phase approach, the first stage involving relatively light preliminary assessments. In many cases, these will provide sufficient insight into likely impacts and costs. The second stage - the actual RIA - will be a more thorough analysis. A carefully designed system of thresholds and triggers will ensure that a RIA is only required for proposals with major implications - for example, if the cost of the regulation exceeds a certain threshold, or if it has major implications for certain, very specific policy areas that have been identified by the Government to be of particular importance. The level of analysis will be commensurate with the likely impact of the proposal.

RIA enhances the quality of political and administrative decision-making. It also supports other principles of good regulation, including greater openness and transparency and accountability of regulators. This is because public consultation is an essential component of the process. With openness and transparency in regulatory policy, stakeholders/citizens will be able to see the benefits of participation and get actively involved.

Special consideration will be given to the impact on business, particularly SMEs. Better quality regulation can significantly improve competitiveness. Some business groups have found that for over half of small Irish businesses, legislation - specifically rules and regulations emanating from the EU and employment legislation - is a major problem due to the costs of compliance and loss of flexibility. It has been estimated that 44% of small Irish firms have cited red tape - form filling and compliance with regulatory requirements - as problematic, both as a barrier to market entry and as a significant impediment to business expansion. This is consistent with the results of a Government-commissioned survey ³ published in 2003 which found that 54% of businesses felt that regulations were a significant and increasing burden on their business.

At present, a number of policy proofing mechanisms and procedures already exist within Government Departments. These include various checklists that must be completed when submitting proposals to the Government under Cabinet Procedures. They also include specific filters for policy designed to identify particular impacts on issues such as gender, poverty and health. There is potentially an overlap in some of these areas with Regulatory Impact Analysis. preparing and submitting documents to Government will be done on an electronic basis. RIA, along with other proofing mechanisms, would form part of the e-Cabinet system whereby the detailed assessment of impacts would be available to Ministers at the touch of a button, where thay have been undertaken.

³ Business Attitudes Towards Government Regulations, (2003): Lansdowne Market Research