As the costs and charges payable by the industry to regulators continue to rise, Peter Newport, Chief Executive of the Chemical Business Association (CBA), is calling for a change in approach.
The organisation has written to Claire Perry MP, the Minister responsible for the chemical industry at the Business Department, calling for a new approach to the regulatory costs and charges paid by the chemical industry.
Member companies have expressed concern that continued pressure on public spending is resulting in government departments and their agencies compensating for departmental budget cuts by increasing levels of regulatory costs and charges on business. CBA believes that, if this trend continues, it will become unsustainable and self-defeating in terms of future economic growth.
CBA’s Chief Executive Peter Newport said: “One of CBA’s key strategic objectives is to minimise the cost of regulatory compliance for its member companies. There is a balance to be struck between the industry’s ability to deliver economic growth and the costs and charges it has to pay to regulators.”
As one of the most heavily regulated business sectors, the industry is subject to a complex regulatory framework overseen by the Department of Environment, Food and Rural Affairs, the Department for Transport, and the Department for Work and Pensions through its Executive Non-Departmental Body, the Health & Safety Executive (HSE).
With the exception of the Department for Transport, these bodies operate a charging regime, based on an hourly rate, for inspection and enforcement work. These rates are based on a ‘full cost recovery’ model for the work involved and derived from an internal formula involving notional overheads, salary costs, consumables, and bad debt.
Poor track record
Government Departments attempt to create a budget for the regulatory income from industry. In recent years, the annual out-turn figures show these calculations have resulted in the significant over and under recovery of costs.
To take HSE’s total annual COMAH charges as an example, they have ranged from a surplus of £1 million (2011-12) when the charged hourly rate was £171 to a deficit of £1.5 million (2013-14) when the charged hourly rate was £155.
Clearly, there are other variables at play, but the forecasting and cost recovery models used by Government Departments do not seem to be fit for purpose. These charges lack transparency; they are unpredictable, as well as being unchallengeable and uncontrollable.
Continuing cuts to public expenditure have resulted in the growing concern that these charges are not intended just to recover costs, but are designed to generate surpluses and to compensate for departmental budget cuts.
Peter Newport said: “Over recent years, these regulatory charges have risen to the extent that member companies feel they are crowding out productive investment in their businesses.”
To take HSE’s COMAH charges as an example, their overall value has almost doubled over recent years. For 2009-10 they totalled £7.6 million, in 2012-13 they totalled £10.5 million and in 2013-14 (the last year for which CBA has official data) they totalled £12.6 million.
This runs the risk of fundamentally changing the relationship between the regulators and the industry they regulate. Inspectors, particularly in an enforcement context, are placed in the unenviable position of being under pressure to generate revenue whilst maintaining the pretence of the impartial enforcement of regulation.
The system of regulatory charging is becoming overly-complicated with a range of charges for different types of work from different agencies. CBA has suggested that greater transparency is required in the formulae used to calculate regulatory charges and that the charging structures should be simplified.
Industry requires a better understanding of the departmental cost elements it is being asked to fund, what ‘cost recovery’ actually means, and given the reassurance it is not being asked to subsidise unrelated costs.
CBA has proposed the development of a simple two-tier charging system, with one charge for planned inspections or standard recurring work and a second charge for any enforcement processes – this brings the ‘polluter pays’ principle into the equation.
This approach would also require the introduction of a process allowing industry to dispute any charges made. This disputes process should be independent of the department concerned and involve a panel with a legally trained Chair and two industry nominees.
The uncertainty caused by Brexit complicates the question of regulatory charging. As the European Chemicals Agency recently made clear, the UK becomes a ‘third country’ post-Brexit and much of the chemical industry’s current regulatory framework ceases to exist. REACH registrations, in ECHA’s words, become ‘non-existent’.
This is a more serious issue for the chemicals than other business sectors. It is not simply a question of tariffs. For chemicals, regulatory compliance is the key to market access. Authorities in target markets determine the nature and extent of the compliance required. It is non-negotiable: without market access there is no trade. Achieving regulatory equivalence with the European Union post-Brexit is, therefore, essential in order to maintain market access.
The CBA has copied its letter on regulatory costs and charges to the responsible Minister at the Department for Work and Pensions, the Chairman of the Health & Safety Executive, and the relevant Minister at the Department for the Environment, Food and Rural Affairs.