Solutions that can become inflexible friends

March 14, 1997

Lucy Neville-Rolfe argues that business should not be over-regulated. The Government often comes under pressure to introduce further regulation in response to crises or disasters. However, regulation is not necessarily always the right solution. It can be an inflexible and expensive option.

The Deregulation Initiative aims to help policymakers achieve objectives while imposing the minimum necessary burden on business. It follows three principles of good regulation: ldon't make rules unless you are sure that small firms will be able to cope ldon't make rules unless the benefits justify costs imposed on business and others.

ldon't make detailed prescriptive regulations when you can simply specify the goal and allow the business to decide how to achieve it.

Rather than reducing risks at all costs, the aim is to ensure an appropriate balance between costs and benefits. Since last year the Government has required departments to carry out a Regulatory Appraisal, a structured assessment of the costs and benefits involved in removing or reducing risks for all proposals affecting business, charities and voluntary organisations.

However, incorporating risk assessments into decision-making is problematic. Decision-makers must be made aware that: lrisks are not necessarily straightforward to assess lit can be difficult to clearly identify and distinguish between cause and effect lquantifying and valuing the benefits of reducing some types of risk can prove especially difficult.

lthey need to take into account public perceptions of risk. Research has shown that people's perceptions of risk are affected by a number of factors, including how much they understand the risk and how much control they have over it.

Lucy Neville-Rolfe is director of the Deregulation Unit, the Cabinet Office.

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