Taking forward the BRTF Report: Admin Burdens and the Standard Cost Model in HMRC Presentation to the BRCC Craig Richardson, HMRC Analysis Steve Webster,

Taking forward the BRTF Report: Admin Burdens and the Standard Cost Model

in HMRC

Presentation to the BRCC

Craig Richardson, HMRC Analysis

Steve Webster, HMRC Better Regulation Unit

Overview

• Quick recap of the policy situation

• Outline the methodology

• Where we’ve got to so far

• How we’d like to get the BRCC involved

Budget 2005

• Government accepted both the BRTF and Hampton Reports.

– Recommendation 1 of the BRTF report states: “The UK can

considerably reduce the regulatory burden on business by adopting the

successful Dutch approach to reducing the administrative costs. This

approach involves first measuring administrative burdens and then

setting a target to reduce them. The golden rule is that what gets

measured gets done.”

• Timetable is tight:

– By May 2006 measure the Admin Burdens (AB) and set a target

for reduction

HMRC Remit

• HMRC is not within the scope of either the BRTF or Hampton reviews

– But we are committed to measuring AB and setting ourselves a challenging but achievable target to reduce it.

– Chancellors’ Budget 2005 report states:

“…. both departments are already developing stretching targets that

will be consistent with the new department’s objective to ensure

that the tax system is fair for all business. They will be published

and progress against them monitored.”

How it fits together

Regulation

Information Obligation 1


Information Obligation n

Data Requirement 1

Data Requirement 2

Data Requirement n

Activity 1

Activity 2

Activity n

Internal costs- Hourly rate

- Time- Overheads

External costs- Hourly rate

- Time

Acquisitions(Monetary value)

Admin Burdens - The part of administrative costs that the businesses sustain simply because it is a requirement from regulation.


Regulation




Data Requirement 1

Data Requirement 2

Data Requirement n

Activity 1

Activity 2

Activity n


- Time- Overheads


- Time


Regulation - a rule with which failure to comply would result in conflict with the law or being ineligible for continued funding, grants and other applied for schemes


Regulation




Data Requirement 1

Data Requirement 2

Data Requirement n

Activity 1

Activity 2

Activity n


- Time- Overheads


- Time


Information obligation - a duty to procure or prepare information and make it available to a public authority, as well as a duty to facilitate the collection or preparation of information by others, e.g. by permitting and co-operating with an audit, visit or inspection.


Regulation




Data Requirement 1

Data Requirement 2

Data Requirement n

Activity 1

Activity 2

Activity n


- Time- Overheads


- Time


Data requirement - Each information obligation consists of a range of different information or data that the businesses shall provide in order to be able to comply with the information obligation


Regulation




Data Requirement 1

Data Requirement 2

Data Requirement n

Activity 1

Activity 2

Activity n


- Time- Overheads


- Time


Activity - Each activity is a particular task or process that must be completed. Several activities may be required to complete a data return.

Measurement Methodology

• Value each activity to required to return each piece of data:

– Admin Burden = P x Q

– P = Tariff (gross costs, wage costs and material and overhead

costs) x Time (how long it takes to perform the activity).

– Q = Number of businesses (the number of businesses that the

regulation applies to) x Frequency (the number of times that a

business delivers this each year).

– Burden for a regulation = sum of cost of all activities that make

up the data requirements that make up the obligations imposed

by that regulation...

Implementation

• Implementation of the SCM has two phases:

1. Mapping

– identifies which regulations HMRC has on stock

2. Measurement / Data collection

– attempts to place an indicative value on the cost to the

economy of firms complying with the information obligations

contained in the regulation

– mixture of face-to-face interviews and panels of experts to

work out how long activities take, and wages of those who

do them

Timetable

Sept 05 Oct 05 Nov 05 Dec 05 Jan 06 Feb 06

Start upPhase 0

Preparatory Analysis

Phase 1

Time and cost data and standardisation

Phase 2

Calculation, Data submission and reportsPhase 3

0 1 2 3 4 5 6 7 8

Preparatory analysis complete End of interviews First draft report submitted to HMRC

Mapping process

• Currently being carried out

– Large piece of work

– Identifying obligations where possible, rather than regulations

– Having to take a pragmatic approach, not much detail in the

actual regulations

– Aim to give consultants as much information as possible,

e.g. links to firms, guidance etc

• Aim to complete by early September

Measuring Costs (1)

• NOT designed to be a statistically representative process!

– Bringing in contractors to carry out the measurement

– Talk to at least 3 firms for each segment of the obligation

– identify the actual activities undertaken by business, the time

and level of resources required and particular irritations

– Aim to get a “standardised” estimate for a “typically efficient”

firm - if there’s a wide variety of estimates more interviews

will be needed

Measuring Costs (2)

– 40% of regulations will be covered by face-to-face interviews

– Smaller/lower priority obligations may be covered by telephone interviews, or a panel of experts

– Panels can extrapolate results from knowledge of processes

and also results from the face-to-face interviews.

– Interviews will also collect info on:

– irritation burdens

– Best practice

This is complicated by...

• Segmentation: Need to split results down (e.g. by firm size)

and ensure certain groups are covered (e.g. digital and non-digital

returns)

• One-off costs: e.g. start-up, closure etc. Different firms each

year, but still a recurring burden which HMRC needs to measure

• Visits/Inspections: may be hard to get a standardised

estimate of time taken to deal with

• Joint costs: Some costs, e.g. record keeping for incorporated

firms, may be split with or owned by other depts.

• Unincorporated firms/Partnerships: self employed in

particular may be hard to include

And there’s also...

• Internal and external costs: need to be identified, costed

differently

• Data that’s used for more than one regulation: need to ensure its only counted once

• Parts of the methodology are still being developed by Cabinet Office:

– Which regs are in/out of process?

– Aim to develop “case law” as work progresses

Progress

• Currently have an Invitation to Tender out in the field using the OGC S-Cat procurement process

– Looking for firms that can provide:

– Skills - knowledge of the tax system and how it translates

into business processes

– People - will require a considerable number of people to

digest the mapping results and carry out a large number of

interviews

– Tenders due in by start of August - aim to have contractor in place in early September

What will we do with the results?

• Use the baseline to set a target to reduce administrative burdens

• Identify areas where there is potential to reduce burden

• Provide a “cookery book” of costs

– Likely to be used to value future improvements as part of RIA

process, track against the published target

Involving the BRCC (1)

• We’d really like to have your support and involvement in this work. There’s a number of ways to get involved:

– Contacting firms: would your members be interested in being

involved with the measurement process?

– Quality Assurance: we would like to set up a sub-group of

the BRCC as an Advisory Group for the project

– updated on the progress

– asked to comment on emerging results

– Use your experience to help us to monitor the results and quality assure the outcomes

Involving the BRCC (2)

– Would people be willing to be involved as part of a panel of experts to help with the measurement?

– Feed into simplification plans

Documents

Taking forward the BRTF Report: Admin Burdens and the Standard Cost Model in HMRC Presentation to the BRCC Craig Richardson, HMRC Analysis Steve Webster,