Improving the Accuracy of UK Regulatory Cost Estimates

UK Government departments are required to undertake a Regulatory Impact Assessment (RIA) when introducing any policy change that places a burden on businesses, charities, the voluntary sector or individuals. Part of this assessment involves the appraisal of the costs (and benefits) associated with complying with all the available options, as well as the wider economic costs. Recent evidence has suggested that the compliance costs, when assessed ex post, tend to be lower than the ex ante assessment made beforehand (see e.g. Harrington et al 1999). Accurate cost estimates are important as errors can lead to under or over regulation. This, in turn, can result in growth and innovation being hindered or, in the case of under regulation, growth being achieved at the expense of the natural resource base (including human health and well being). In order to shed more light on the validity of RIA cost estimates and identify ways of improving their accuracy, Defra decided to commission a study comparing the ex ante and ex post costs of complying with regulatory changes. A total of eight case studies were carried out for this study, covering a range of recent environmental, agricultural and food-related regulations in the UK. Preliminary findings of this study indicate that while ex ante costs are often overestimated, there can also be significant underestimates. Reasons for errors in cost estimation are discussed and strategies for improving their accuracy suggested.