Inside Track

 Today, Lord Chancellor, Ken Clarke, launched a consultation on major reform of the compensation system.  Stories of a ‘compensation culture spiraling out of control’ are often over-played.  But the compensation system does have some serious flaws and is responsible for many of the problems in health and safety that are wrongly attributed to regulations.

A good compensation system should ensure that people who deserve compensation for harm caused by the negligence of another, get it quickly and this is delivered in a cost-effective manner.  Decisions should be made on the basis of how well risks were controlled in practice, not the quantity of paperwork involved.  Unfortunately that is all too rare.

The consultation launched today proposes the introduction of a fast-track system for small compensation claims as well as imposing a limit on legal fees that may be paid.  At present small claims come with big legal fees – a £5,000 settlement will frequently involve £10,000 costs and take manymonths, if not years.  And much of that cost and time is incurred before the employer is even notified of the claim. 

In 2005-6 EEF campaigned alongside the Association of British Insurers for the introduction of a fast-track system for employers’ liability claims that would result in the great majority of cases being settled quickly through mediation.  This would deter speculative claims for compensation by taking the profitability out of the system, as well as ensuring that those who deserve recompense get it far more quickly.  We came close to succeeding in the campaign, but in the end the system was restricted to small motor claims. 

We need to work through the detail, but it looks like the governments proposals would introduce the kind of fast track system for which we campaigned.  It builds on an earlier consultation which proposed banning the payment of referral fees where a third party is paid (typically several hundred pounds) for referring a claim to a solicitor. 

The proposals so far are very welcome and appear to go a very long way to meeting that test of delivering compensation promptly and in a cost-effective manner.  But what isn’t being addressed at present is the over-reliance on paperwork that I mentioned.  On its own paperwork never saved a single life – it is practical action that makes the difference. 

Whilst the Health and Safety Executive continues good work to reduce the bureaucracy involved in complying with health and safety regulations, defending compensation claims continues to be very much about producing paperwork rather than about identifying the action that was actually taken.  Much of this stems back to what are know as ‘the Woolf Lists’ of documents that may be relevant to a claim.  Instead of being a useful aide-memoire these seem to have become requirements without which a claim cannot be defended. 

The Government deserves credit for the action it is already taking.  If it will turn its attention to the Woolf lists as well we may hear rather less about a ‘compensation culture’.

Something slightly overlooked in the Budget this week, was the clear sign that government will not be looking to reduce the number of sectors that are currently eligible to enter into a Climate Change Agreement (CCA), once the current scheme ends in 2013.

The specific CCA HMRC briefing, issued on Wednesday, states “The Government announces that the CCA scheme will be extended to 2023 and the 54 participating sectors will continue to be eligible for the scheme.”

I believe that government had held fairly developed internal discussions about reducing the number of sectors that might be eligible to enter into a CCA from 2013. But, speaking to a few government officials since Wednesday, the message was that government had, for now, decided against this.

We think Government could go further. In fact, EEF believes there is room to expand CCAs to cover more manufacturing sectors to incentivise energy efficiency, a key policy position that we set out last June in our report ‘Changing the Climate for Manufacturers’, only weeks after the Coalition came to power.

Within all the myriad of speculation of what will be in the Budget later today, I hear that government might use compliance with the revised Energy Taxation Directive, which is due to enter into force from 2013, as an excuse for introducing the Carbon Price Floor tax on the generation of electricity in the same year.

Surely the Chancellor can’t use this as justification of introducing a unilateral UK carbon tax as they are mutually exclusive.

The Energy Taxation Directive proposes an EU wide minimum tax of €20 per tonne of CO2 on direct emissions, levied at the end user. But crucially emissions covered under the EU Emissions Trading Scheme are excluded from this tax. Yet it is these emissions that are targeted by the proposed Carbon Price Floor. The Treasury proposed to levy this tax upstream on the electricity generators on the fuels they use to generate electricity. These emissions are also caught by the EU Emissions Trading Scheme and therefore excluded from the Energy Taxation Directive.

This morning Employment Minister, Chris Grayling, made a major announcement on the Government's approach to health and safety. There will be an independent review of all health and safety legislation, the number of inspections will be cut by a third by focussing more tightly on high-risk sectors and those who manage risks poorly, and companies found to be putting people at risk will be charged for the cost of their inspection and follow-up action. 

EEF has welcomed the announcement that builds upon the 'Common Sense, Common Safety' report produced by Lord Young last autumn. 

Independent Review of Legislation

The Minister confirmed that Professor Ragnar Lofstedt, of Kings College Centre for Risk Management, has been appointed to lead an independent review looking at health and safety legislation with a particular remit to tackle duplication and unnecessary legislation.  He is due to report in the Autumn. 

This is a welcome step to review a whole regulatory area, rather than piecemeal changes to individual regulations.  It provides the opportunity to identify duplications, inconsistencies and inefficiencies produced by layers of different regulations and is the kind of approach we are keen to see taken in other regulatory areas, including climate and environment.  

Unlike the Young review, European legislation is very definately within scope.  In answer to my question on this, Chris Grayling recognised that EU legislation is far too often disproportionate.   He went on to indicate that the report will be made to both the UK government and European Commission and that he will be using it to inform negotiations.  This is a particularly welcome development.

Modernising the inspection regime. 

The Health and Safety Executive and Local Authorities will more tightly focus their proactive inspection – aiming at high hazard and high risk sectors as well as companies with poor records.  This will result in 33% (11,000) fewer inspections by HSE.  The Local Government Association today wrote to local authorities calling for a similar approach.  However, HSE's enforcement policy will remain the same as will its activity in investigating complaints and injury reports.      

A system - sometimes referred to as 'fee for fault' - will be introduced to charge companies for inspection and associated work if they are found to have significant failings (but not mere technical breaches).  In principle it certainly makes sense that if someone is to pay, it should be the companies who are taking an unfair short-term advantage by putting employees at risk.  Of course getting that targetting to work effectively in practice presents some challenges.  We are already engaged with HSE on this and are expecting a consultation in the summer, with implementation of a system not expect until spring 2012 at the earliest.  

Putting all of this together, good employers in most manufacturing sub-sectors can expect to see less of the regulator, but a company who does badly at an inspection can expect to be charged for the privilege and will receive a poor rating from the regulator, meaning they will be on the list for future visits.  

 Tackling the health and safety 'cowboys'

The Occupational Safety and Health Consultants' Register (OSCHR) goes live today, it has been created by a partnership between 5 professional organisations and the Health and Safety Executive.  Businesses can now search an online directory of consultants who have degree level qualifications, at least 2 years experience, complete continual professional development and are subject to enforceable codes of conduct.  1600 consultants have been accepted on the register, including over 20 of EEF's own health and safety advisers who provide consultancy support and training to businesses. 

Whilst not a legal requirement, registration is a strong indication of competence.  However, the true test will be whether the professional organisations, who are responsible for policing the register, are prepared to be robust in tackling those who oversell their services or are excessively risk-averse.  Without this, the register will bring no additional benefits.

Simplification of Compliance

Work will continue to help lower-risk small businesses comply with a minimum of fuss.  Having already issued simplified guidance and risk assessment tools, HSE today launched a new microsite called 'Health and Safety Made Simple - the basics for your business.'  This is something EEF has had input to through HSE's Small Business Trade Association Forum.

As ever, the proof of the pudding will be in the eating, but overall it was a welcome announcement that recognised the importance of effectively managing substantive risks, whilst avoiding disproportionate responses and unnecessary burdens.  Or, as the Minister put it, 'tackling the rogue employers, whilst removing red tape from the vast majority of employers who play by the rules'. 

British business can expect to save a staggering £23 billion a year through low-cost/no-cost methods simply by improving the way they use energy and water and by reducing waste, according to a new report which emerged from the environment department on Friday.

It’s a huge number. And it’s significantly higher than the £6.4 billion estimated by consultants Oakdene Hollins and Grant Thornton when they initially conducted the study in 2006. Yet the numbers keep on growing. On top of the £23bn low-cost savings, those opportunities with a payback greater than one year have been estimated at an additional £33 billion.  

We must be careful about interpreting the report literally. It was not based on any site-audit data. Nor did it use any case studies. The figures were developed by using existing data from a variety of sources. But they do serve a useful reminder that lean manufacturing and resource efficiency can potentially have a profound impact on competitiveness.

But over £55 billion worth of savings? You would have thought manufacturing, of all sectors, would be alert to those kinds of savings. But of course there are a range of factors that prevent businesses from realising the fruits of resource efficiency. The researchers in fact have created four lists of reasons. These range from access to finance to difficulties implementing changes because of the need of specialist advice to the prevalence of behavioural barriers, or because businesses simply are not aware of (or have access to) information about the costs and benefits of particular measures. 

Either way, it smarts to be told all this at the same time as the government is stripping away many of the business support schemes it had developed in an attempt to overcome these entrenched barriers. While our training on resource efficiency effectively deals with the information gaps the researchers referred to, last week, the Carbon Trust, in an address to EEF's Climate and Environment Policy Committee, confirmed it would no longer be offering its free on-site energy audits, would be discontinuing the well-received Industrial Energy Efficiency Accelerator and scrapping its 0% interest-free loans*. In short, the Carbon Trust is now offering very little (bar its frequently excellent publications) to business.

While it is true the Trust has its funding cut by £50m, it is also true that this brings its funding in line with what it received three years ago. Yes, some of the Carbon Trust’s offerings to business needed reform – but to scrap (what seems like) everything? I can’t help feel that if the Carbon Trust vacated its plush offices in central London it could a better start to address the funding “shortage” without cutting services to business. Sure this would prove to deliver greater levels of resource efficiency?

* A new “green finance deal” worth £550m has been announced over the next three years, to businesses of all sizes, from 4 April 2011 following a deal between the Carbon Trust and Siemens Financial Services Ltd. Interest rate levels have not been confirmed. See here for more information.  

If there’s one thing we know for certain, it is that the private sector needs certainty. Certainty of future policy direction. Certainty of how government actions will impact their business operations and costs. Certainty not just for the short term, but for the long term, that can be factored into business investment and planning cycles that reach far out into the future.

Although the publication of the European Commission low-carbon roadmap on Tuesday (8 March 2011) was welcome because we finally received confirmation that the Commission will not pursue an emissions reduction target of -30%, it nevertheless provides only partial certainty.

Whilst the political road to Tuesday’s announcement has been a rocky one, it ended with an almost sensible outcome with the Commission finally acknowledging a firm evidence base is needed ahead of any target announcements being made. We have gone from DG Climate Action “leading the way” by forcing the EU to move to tighter top down targets for 2020, to sensible voices in other parts of the Commission and Member States calling for a better understand of what such a move might do to the EU manufacturing sector. Therefore, for now, the 2020 target remains at 20%.

But what is still highly uncertain is the intention by the Commission to consider setting aside a significant amount of carbon allowances in the third phase of the emissions trading scheme (ETS), which begins in 2013 and runs until 2020. Why can’t the Commission just tell us: Is it going to take some 800 million allowances permanently out of the system or not? Whilst we firmly believe that this is a market and should be left as one, the uncertainty of whether the market is going to be artificially tempered with or not is even more unwelcome than disrupting the market itself.

Surely such indecisiveness will not help us meet our climate change goals, but delay action and make Europe an uncertain place for future investments.

The coalition government have slammed on the brakes for the planned extension of civil sanctions to the environmental permitting regime. Or rather Oliver Letwin has.

Civil sanctions, being trail-blazed by the Environment Agency, allows it to exact certain powers without the hassle of going to court. These range from fixed monetary notices and stop notices to restoration notices and "enforcement undertakings." The latter being an agreed course of corrective action to bring a company back into compliance without having to face prosecution.

But while the Agency can apply its new powers to some offences there are some important exceptions - not least environmental permitting. Secondary legislation enabling this to take effect from 6 April was due to be laid before Parliament this month. But Letwin is not convinced this is the way forward. Progress, therefore, has been halted.

This is not the only area where Letwin is making his mark. In his capacity as minister for government policy at the Cabinet Office he is reading everything that is passing his desk and isn’t afraid of halting the progress of policy if it doesn’t stack up, according to sources in Whitehall.

Let’s hope so. We wrote to him last week highlighting the findings of our 2010 telephone survey of members which found half of those interviewed thought the sheer burden of regulation was a barrier to growth. We highlighted how the poor quality of impact assessments required a change in policy-making culture and that even a small increase in the transparency of how impact assessments are developed would help restore credibility in the system.

No more plainly is this evident than in climate change regulation. Currently, government is reforming Climate Change Agreements and the CRC Energy Efficiency Scheme. New duties to report greenhouse gas emissions are being considered. Alongside this a carbon floor price and energy market reforms. We are concerned that this work is being carried out in a piecemeal way, and we have had little evidence or reassurance that the impact of the work in this area is being considered strategically. The recent consultation on the carbon floor price did not even seek to understand the potential impacts on manufacturing (see a summary of our response here).

Let’s hope that Letwin kicks this into touch. We need a strategic vision. We need certainty of policy direction. And we need to see climate change and energy policy implemented cost effectively if manufacturing in the UK is to remain viable for the many.