Getting EU impact assessment right

Better regulation is the talk of the town in Brussels.

The leitmotiv is well known: Europe needs to be freed from the chains of regulatory creep, inefficient regulation, unnecessary red tape, in order to target competitiveness, sustainable development, economic and social prosperity. EU policymakers lose no chance to recall that only by simplifying the business environment will the 25 member states earn new miles on the Lisbon Agenda track. Traces of increased momentum can be found in the 2003 inter-institutional agreement on better regulation, in the 2004 statement by six consecutive Council presidencies on "advancing regulatory reform" and, lately, in the European Commission's Communication on Better Regulation for Growth and Jobs issued in March.

Even at the last US-EU summit held in Washington on 20 June, better regulation was constantly under the spotlight, and the next summit will call for closer co- operation, especially on impact assessment.

Impact assessment is the core of the European better regulation strategy. It heavily relies on the successful implementation of the ambitious new integrated impact assessment model introduced in 2003. This procedure mandates the ex ante evaluation of the economic, social and environmental impact of major initiatives included in the Commission's annual policy strategy or in the legislative work programme. It came to replace the infamous BIA, considered too narrow, arbitrary and simplistic, and wiped away after the 2001 White Paper on European governance. Now that the new procedure is in place, Europe might look at the future with less anxiety. At least, this is what UK Cabinet Office Minister John Hutton seemed to suggest when he took the floor at the better regulation conference in Edinburgh, on 22 September. "With a clear way ahead and a genuine will to reform, we have a golden opportunity to change our approach to law-making so we enhance both our social protections and our ability to compete in the global economy. We must take this opportunity in both hands," he said. A view echoed by Alan Johnson, UK secretary of state for trade and industry, who said: "It's crucial that we put impact assessment at the heart of policymaking. That we have a clear view of the effect that our new legislation will have on business, backed up by solid analysis." The message from Commission Vice-President Günter Verheugen is even more promising. "We will only put forward proposals that have undergone an impact assessment. This approach should guarantee that we know the full costs and benefits of future legislation," he said.

But can Europe really live up to the promise? Available evidence suggests that the way in which the impact assessment procedure has been implemented to date is disappointing. The quality of extended impact assessments appears to be low and is decreasing. Commission directorates-general (DGs) in charge of performing the assessment seem quite far from enabling greater awareness of "the full costs and benefits of future legislation". Of the 70 extended impact assessments completed before July 2005, only 28 quantified at least some costs and as few as 19 monetised all or nearly all costs arising from the proposal. Only in ten cases were business compliance costs assessed, whereas impacts on administration costs were estimated in 16 cases. And benefits? Only ten extended assessments qualified all or nearly all benefits expected from the proposed initiative. And when it comes to justifying the viability of a proposed new piece of legislation, things get even worse: net benefits were calculated in 12 cases, cost-effectiveness in six cases. DGs seldom compared alternative options and almost never assessed the impact of proposals on administrative burdens. The gap between reality and how it should be is huge.

Two decades of experience have shown that impact assessment is far from being a panacea, especially when built on shaky methodological and organisational grounds. Having a bad impact assessment is probably worse than having no impact assessment at all.

The Commission must take action now to increase the methodological soundness, transparency, cost-effectiveness and external oversight of its impact assessments. And similar procedures must be included in national Lisbon Agenda strategies.

The upcoming review of the impact assessment model, expected in early 2006, is crucial. If Europe fails to square the circle, the remedy is likely to become a Pandora's box, leading, on the one hand, to fertile ground for regulatory capture, on the other, to more 'scientific' attempts to defend the virtues of vicious pieces of legislation. In other words, a scapegoat for the regulator and the regulated.

Andrea Renda is senior research fellow at the Centre for European Policy Studies (CEPS).

Article takes a look at impact assessment which according to the author is the core of the European better regulation strategy.

European Commission: Secretariat-General: Impact Assessment http://ec.europa.eu/comm/secretariat_general/impact/index_en.htm

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