We will now have a discussion with officials of the Department of the Taoiseach on the fourth joint committee report, Innovation, Competition and Regulation — Achieving the Balance. I welcome Mr. Philip Kelly, assistant secretary; Ms Audrey O'Byrne from the public service modernisation unit and Ms Tríona Quill from the better regulation unit. Before I ask Mr. Kelly to make his presentation, I draw attention to the fact that while members of the committee have absolute privilege, the same privilege does not apply to witnesses. Members are also reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.
Fourth Joint Committee Report: Innovation, Competition and Regulation — Achieving the Balance: Discussion.
I thank the Chairman for giving us the opportunity to appear before the committee. The Department of the Taoiseach responded to the paper prepared by Deputy Hogan. It might be useful to go through the developments which have occurred since we made that response in June last year.
Committee members have received a copy of the presentation I will make. I will outline the background to the better regulation agenda and explain why the Department of the Taoiseach is involved. I will also touch on the White Paper published by the Government and developments in the past year which impacted on business.
We first got involved in the regulatory agenda by having the OECD come to Ireland to examine our regulatory reform processes and systems and how we made regulations. Its report, published in 2001, was critical of Ireland on a number of fronts. It stated there was no coherent policy with regard to how we made regulations, designed regulators and oversaw their activities. It also pointed out that much of the body of regulation seemed to be skewed in favour of producer as opposed to consumer interests. While the OECD has always maintained that the systems in Ireland are comparatively lightly regulated, it did express concern about how Ireland dealt with its stock of regulations. It was not happy with the regularity with which we revisited regulations and examined legislation and statutory instruments to determine whether they were achieving their original objectives. It also expressed concern about quality-proofing new legislation and statutory instruments.
The Government decided to produce a White Paper but before doing so, held a public consultation process. The White Paper codified six broad principles that might inform how we make legislation and how we design regulatory bodies. These principles are necessity, effectiveness, proportionality, transparency, accountability and consistency. The Government took a pragmatic approach in that it did not adopt an ideological stance on whether there was too much or too little legislation. The focus was on whether legislation was appropriate and achieving its intended purpose. The White Paper as published contained an action plan addressing the stock, flow and quality of legislation. More recently, in the draft national social partnership agreement the Government has undertaken a further review of the system of impact analysis which it introduced last year.
I chair the better regulation group which consists of representatives of the key economic Departments — the Departments of Finance, Enterprise, Trade and Employment, Transport and Communications, Marine and Natural Resources — as well as the Competition Authority, ComReg, the CER, the Office of the Director of Consumer Affairs and so forth. The group's chief objective is to improve the capacity of the public service to design statutory instruments, legislation and independent regulators. One of its key tasks was the introduction of regulatory impact analysis to address the criticism of the OECD that the Government did not have a transparent system by which legislation was evaluated. It spent over one year piloting a system of impact analysis in a range of Departments on groundwater directives, the Export Control Bill, statutory instruments in the revenue area and so forth to determine the most appropriate model of impact analysis for Ireland.
The Government accepted a model in the summer of 2005 and decided to introduce the new procedures as part of Cabinet procedures in order that those Departments coming to it with proposals for legislation would have at least completed a screening regulatory impact assessment. The purpose of the assessment is to explain, in clear terms, why a regulation is being introduced; why a do nothing option is not tenable; why the regulation is required; how we will know if it is achieving the desired effect, whether it has been screened for unintended consequences, what the burden on the Exchequer will be in implementing it in terms of the cost of inspectorates, prosecutions and so forth and what the burden will be on business and consumers in complying with it. The Government is now potentially more informed when it comes to make decisions on the introduction of legislation or statutory instruments.
Much of the analytical work was under way within the system but we took it upon ourselves to initiate an extensive programme of training for officials across the entire Civil Service. We sent over 40 individuals to the London School of Economics to receive training on impact assessment techniques. We also devised our own domestic course which my colleagues in the Department co-deliver with external experts. So far this year over 70 individuals have completed the impact assessment training course. A further 60 are lined up to undertake training in the course of this year. We have also initiated a master's degree programme in analytical techniques which includes an extensive module on impact assessment. There is a range of other courses in which we participate where we promote analytical approaches to policy-making. We are also involved in developing similar training programmes at EU level on EU directives. We have produced guidelines for officials to help them understand how they should go about conducting an impact assessment because it is not always the most obvious process, is complex and involves cost-benefit analyses. We have also retained a firm of economic consultants which we make available to Departments to help them carry out impact assessments. In the latest draft national agreement, Towards 2016, the Government is committed to examining how implementation of a policy on impact assessment has progressed since 2005 and completing this examination by the end of 2007.
A key part of impact assessment and ensuring one is not just talking to the usual suspects is having a systematic process of consultation. This relates to the OECD criticism that legislation often reflected producer interests. We have produced guidelines for all civil servants and other agencies and regulators on how they should go about engaging in more systematic consultation, including trying to reach out to communities which do not normally engage with Governments and possibly resourcing communities which want to organise themselves to engage in dialogue with the Government. The Taoiseach launched the guidelines in July 2005.
I referred to the stock and flow of regulations. In that context, the OECD accused the Government and officials of having a "regulatory impulse". It pointed out that our first response in many instances was to regulate. It argued that the impulse was so strong that we often did not return to the stock of regulations already on the Statute Book. In response, the Government introduced the Statute Law Revision Act 2005 which repealed over 200 pre-1922 Acts. During the course of the passage of that legislation, it became clear that a much larger revision task lay before us. Therefore, the Government initiated a consultation process on pre-1800 legislation, with the intention of repealing over 2,000 Acts. Today it decided to extend the process to deal with all pre-1922 legislation in order that over 3,000 Acts will be repealed. I hope the relevant legislation will be laid before the Oireachtas this autumn.
That was decided today. Is that correct?
The decision to extend the Bill to cover all legislation passed prior to 1922 was taken by the Cabinet today.
That is a good step.
In addition to trying to repeal moribund legislation that may be costing businesses money by virtue of the fact that they must check whether it is still relevant, the Government has also initiated a restatement programme under the Statute Law (Restatement) Act 2002. This is a process whereby an informal consolidation of legislation in a particular area is undertaken and certified by the Attorney General.
Therefore, the recertified legislation does not have to be placed before the Oireachtas to be usable in a court of law. That is a useful tool which allows informal consolidations in areas of economic or social interest in a speedier and more reliable manner. It is also a useful entry point for Departments and Ministers in planning the consolidation of legislation. Between the repeal of moribund legislation and the restatement of existing legislation, progress is being made on reshaping the Statute Book.
Today the Government will publish a document on the appeal system for sectoral regulators, a copy of which has been supplied to committee members. It examines the process for the appeal of decisions made by regulators such as ComReg and the Commission for Energy Regulation. Appeal mechanisms vary among regulators. In some cases, the only means of appeal is a judicial review. The Government is initiating a debate about the best structure for appeals by asking if the appeal systems simply allow people to frustrate the decisions of regulators on the opening of markets or add an unnecessary layer because people will have recourse to the courts. As the Oireachtas has specific views on the role of regulators, decisions on how sectors are regulated should be made through legislation rather than being left to the courts. Depending on the response to its questions, the Government intends to bring forward proposals on how we can best design the appeal structures, some of which are specified at European level.
The Government has established a better regulation forum to promote dialogue between business and the Government. The Department of the Taoiseach has commissioned an extensive survey, to be completed by early autumn, of the concerns of business with regard to the regulatory burden.
This is a very important debate which will impact on consumers and businesses. It is welcome that the Government is beginning to pay closer attention to the issue. What is the composition of the business forum?
The vast majority of members are drawn from business organisations such as ISME, IBEC, the Small Firms Association and the Irish Bankers Federation. The forum also includes a variety of individuals, including Senator Quinn who chairs the IBEC business regulation committee. It also includes a small number of civil servants at assistant secretary level in each of the economic Departments. There are approximately five civil servants and 15 business representatives.
How many times has the better regulation group met?
It has met four or five times each year since 2004.
Regulators are not generally seen as nice organisations but they are established to serve a particular purpose. Are their terms of reference supplied by the relevant Ministers?
Their mandate is specified in legislation. We are becoming more sophisticated in their design and, the more experience we gain, the better we can address concerns. Over time the Government has taken powers to allow Ministers to give directions to regulators. It is a new science because many regulators were established within the past decade and the issues they face have sometimes challenged their mandate. They have had to be redesigned as the markets and challenges changed.
Ministers give direction to regulators. In other words, the regulators take their cue from departmental policy.
I am not sure that is a fair description.
To whom are they answerable?
They are answerable to the Oireachtas.
In other words, they are answerable to the Government.
They are answerable to the Oireachtas.
To whom is the Commission for Energy Regulation answerable?
It is answerable under law to the Oireachtas and its representatives appear before Oireachtas committees. It is also scrutinised by the Comptroller and Auditor General and accountable to its stakeholders. I understand it has a policy of transparency, under which it consults on the regulations it introduces and publishes feedback and suggestions from interest groups.
Mr. Kelly has identified the core principles of regulation as necessity, effectiveness, proportionality, transparency, accountability and consistency. Energy consumers wonder what the Oireachtas is doing to contain the massive price increases imposed on consumers and businesses in recent years. Does Mr. Kelly think the proposals made by the ESB to increase electricity prices by 20% and Bord Gáis to increase gas prices by 34% are proportionate and necessary? What other criteria are taken into account when the CER decides to grant such increases? People do not understand why they are being imposed.
I am not the best person to answer the Deputy's questions because I am not an expert on energy policy. However, I am not sure the demands of the ESB are the result of regulatory failure. They may arise from other issues such as fuel and other costs, investment needs in the industry and the need to promote diversity within the industry and security of supply. Whether the changing price of energy derives from regulatory failure, a failure in the mandate given by the Government to the regulator or a failure by the regulator to exercise that mandate correctly would not be clear to me. However, it would be clear to me that many of the companies in the area would go directly to the courts if the energy regulator did not operate in line with its statutory mandates.
Would something like that arise at a better regulation meeting?
It would not because we are trying to promote the capacity of our system to deal with regulatory affairs, to upskill our people, and give guidance and principles with which they may operate. The Department of the Taoiseach is not in the business of second-guessing people on aviation, energy and so on, relating to detailed regulatory affairs. Our function in the context of modernising the public service, is to promote dialogue with external stakeholders and promote the skills and competencies of the public servants dealing with the issue.
Are there too many regulators with a lack of co-ordination between them? There are so many regulators now that they are often criticised as empire-building.
It is a common criticism. We have approached the deregulation of various markets later and more slowly than many of our EU counterparts. This means we have created regulators for specific sectors later also. It is difficult to tell whether we might need fewer regulators after a decade or two. It is possible that the bulk of their functions might be carried out by the Competition Authority.
People discuss the cost of individual regulators, but there is no evidence suggesting they are excessive in the costs of their own administration. Despite the potential for duplication or overlap, it has never been brought to my attention that a particular regulator is making one decision while another is making a contradictory decision.
The Department of the Taoiseach has no function in such matters, as Mr. Kelly said earlier. It does not have a policy function in any of the regulatory regimes. Therefore, such matters would not come to Mr. Kelly's attention.
Would Mr. Kelly agree that separate legal, accountancy and administrative departments in all of these regulators represent an inadequate response given the resources they consume? Duplication is, surely, inevitable regarding many of the functions of these regulators. Why should expertise be built in an empire-building fashion in each regulatory authority to achieve results that could be achieved in-house through a central accounting or legal section?
The argument for shared skill sets between the different regulatory bodies can be made. However, the diversity of the areas they regulate would not lead to great synergy. Regulating travel agents, taxi drivers, airports, ports, food safety and so on may involve similar principles in each case, but they are quite different in practice. We regularly hear complaints from different sectors. Most recently the financial services sector complained that the financial regulator did not have sufficient business expertise or depth in its staff. Very specific knowledge of a sector is required if it is to be well regulated and this supports the argument for independent structures in the regulators.
In Ireland we do not yet have companies in, say, the telecoms business that are also in the energy business that would have to deal with two separate regulators. If one saw horizontal integration among firms there might be reluctance to deal with many separate regulators. At the moment such companies do not exist in Ireland. The Taoiseach seeks to emphasise the quality of the regulatory decisions made and not be so hung up on structures. If we had a single super-regulator there would be calls for dedicated, specific, knowledge-intensive sector regulators.
We have a new buzzword: horizontal integration.
That phrase caught my fancy too.
It used to be cross-cutting issues and now it is horizontal integration. That is the business we are in.
The Department of the Taoiseach is heavily involved in training, which I welcome regarding regulatory impact assessments. Could Mr. Kelly give the committee an idea how this works with legislation proposed by Government, a regulation proposed by a Department or a directive from the EU?
I will begin by addressing the case of an EU directive. The Commission, at the urging of Ireland and other member states, has taken upon itself a system of impact assessment of all draft directives. When draft directives are published they will also have an impact assessment prepared by the Commission along with them. At a meeting of the Sub-Committee on European Scrutiny in March 2006 we suggested the information notes produced for the sub-committee should take account of EU impact assessments. We felt this might be a starting point in Ireland for an impact assessment of a draft directive, even while it is under discussion at EU level, before it is confirmed as a directive. This would give early notice of the detailed impact a directive could have in Ireland. The Commission's impact assessment focuses on society at a European level, rather than that of an individual member state.
Regarding a legislative proposal by Government, the guidelines on impact assessment require that people set down specific objectives for the introduction of legislation and explain why an alternative such as taxation, a grant, an information campaign or another non-legislative measure would not achieve the same policy outcome. If they insist the policy objective must be achieved by legislation we ask them to highlight the options they have considered regarding the form of that legislation. We request they set down the burden of compliance on the consumer and on business and also the burden on the Exchequer in terms of inspectorates, prosecutions and so on. We seek to avoid situations wherein we decide to regulate something only for a row to ensue subsequently on whether we should resort to the inspectorate, prosecution and so on or the burden of compliance.
This is the kind of information that would have gone to Government as a matter of form, although perhaps not in a very systematic way. We have also suggested, where the impacts of a potential piece of legislation are significant, a public consultation be conducted. In going to Government, key points and responses might be recorded. We advocate, through our consultation guidelines, that all of the submissions received be published so there is a transparent record of the Government's original proposal and who suggested what to Government. This should be available for perusal on the Internet.
This is the process by which somebody finally comes to Government requesting legislation. They can show who has been consulted, the results that are intended and the benchmarks which will show the legislation to have been successful.
Except now the audit exemption threshold has been raised. That is the process of consultation through the Company Law Reform Group.
What type of training do staff undertake in terms of a regulatory impact assessment? Mr. Kelly may have already mentioned some of the areas.
We are training people to undertake impact assessments. We are taking them through the impact assessment guidelines and also completed impact assessments. We are training people on conducting cost-benefit analysis and other assessment techniques. We aim to direct people on finding sources of statistical data giving an insight into the impact on sectors of the economy or marginalised groups in society. Unlike other member states, our impact assessment aims to show all of the impacts of a piece of legislation, not just those of economic or a business significance.
Mr. Kelly mentioned the Minister for Enterprise, Trade and Employment is keen to adopt a Dutch model on setting targets and reducing red tape and regulatory impediments to small business. The Dutch set a target of 25% over a five-year period. I am sure Mr. Kelly has engaged with the Dutch authorities on this matter. Does he see any scope for lessons to be learned in this jurisdiction from the Dutch model?
The Dutch have followed this model for many years. They have come here to speak to the business regulation forum. Our UK colleagues who are adopting the same model are coming tomorrow to talk to the business regulation forum. What is not clear is what level of resource is required for this model. If one takes every item of legislation and every regulation and tries to measure the exact administrative burden that might impose on people, it appears like a charter for hiring endless consultants to go out and measure all of this.
The process is good but we must be targeted in how we go about it. It is important to consult businesses on where the shoe is pinching them and have a look at the forms and procedures that take up most of their time or force them to hire expensive consultants in order to comply with Government requirements. A targeted approach is probably required. A holus-bolus approach would be extraordinarily expensive and it is not obvious as yet what would be the cost or benefit of doing that.
Mr. Kelly said we are behind other EU states. Does he include France and Italy in that regard?
No, I do not. What I mean is that the process by which we have opened up or liberalised markets and put in sectoral regulators is behind some other member states which have longer experience in managing regulators and their design. They have gone through expansion and contraction phases in regard to the regulators. We are not at a stage yet where markets are functioning at such a rate that we would tend to be either collapsing or reducing the mandate of a sectoral regulator but that time may come and at that point it may be the case that many of the functions of those regulators would simply be exercised as matters of competition policy by the Competition Authority.
Like Deputy Hogan, I am worried about the cost of regulation and the duplications that may be made. This matter should be examined with a view to simplifying things as much as possible. Does Mr. Kelly work with business or take a heavy handed approach? I am a strong believer that there should be a "yellow card" approach in every system of regulation so that people are given a chance rather than penalised and forced to close for a small infringement that could be resolved through negotiation.
The thrust of the Government's desire to have a business regulation forum is to work with business. However, even in Deputy Hogan's paper it is pointed out that in the area of people's rights and entitlements to non-discrimination, such as in terms of employment etc., the approach must be absolute and apply whether a company is big or small but in terms of VAT thresholds, payment, frequencies of filing returns etc., a graduated approach is required. The pressure is on within Government to ensure we have that type of differentiated approach to business size, having a graduated or differentiated approach in regard to compliance, form filling or thresholds.
I welcome Deputy Devins who is here in substitution for the Vice-Chairman, Deputy Brady. I thank Mr. Kelly and his team for attending this morning's committee meeting. We are in safe hands under his stewardship. We were most impressed with his presentation. I am sorry about the time constraint. We look forward to him providing an update at some future time. It is great to hear the Government has been insisting on this issue. It augurs well for the country in the future.
I thank the Chairman.
The joint committee went into private session at 12.14 p.m. and adjourned at 1.38 p.m. until 2.15 p.m. on Thursday, 27 July 2006.