Hampton and the regulators
Howard Fidderman looks at what a new Treasury-initiated report might mean for the regulation and enforcement of health and safety.
During the past year, the spectre of the Hampton review has hung over all consideration of the future of health and safety regulation and enforcement. Rumours about what Philip Hampton, who is the chair of J Sainsbury plc, would recommend ranged from a complete overhaul of the health and safety system to little or no effect. In the event, the final report, published in March alongside the 2005 Budget1, is generally favourable about the approach of the HSC and HSE, less so about local authorities, and makes recommendations that will have an impact on the employers' experience of health and safety enforcement and regulation. In particular, Hampton emphasises that levels of health and safety fines are too low and that the amount of bureaucracy, paper work and unnecessary inspection must be reduced across all regulators.
In his 2004 Budget, the chancellor of the exchequer, Gordon Brown, asked Hampton to examine all business-regulator interactions, including licensing, inspection, form-filling and other means of enforcement. Hampton was to consider the scope for reducing administrative "burdens" by promoting more efficient approaches to regulatory inspection and enforcement (without compromising standards or outcomes).
In December 2004, Hampton published proposals for reform in an interim report (see When things go wrong: enforcement HSE style); the final report reflects subsequent consultation with businesses, regulators and other stakeholders on the proposals, but is largely in keeping with the interim report's findings. In the 2005 Budget, the chancellor confirmed that the government accepts in full all 35 of the report's recommendations and will bring forward early legislation to implement them.
Regulatory shortcomings
The Hampton review looked at the work of 63 national regulators and 468 local authorities (LAs). Between them, they carry out more than three million inspections a year. The HSC/E is the second largest national regulator by expenditure (behind the Environment Agency). Health and safety is the fourth most time-consuming aspect of the work of LA environmental health officers (EHOs) (at 10%, it is level with pollution control and behind food safety, housing standard and public health issues).
Across the regulators, Hampton finds "many examples of excellent, innovative practice" and "much that is good", but that the "system as a whole is uncoordinated and good practice is not uniform". In particular:
- use of risk assessment is "patchy";
- regulators give insufficient emphasis to providing advice in order to secure compliance;
- there are too many, often overlapping, forms and data requirements with no scheme to reduce their number;
- regulators lack effective tools to punish persistent offenders and reward compliant behaviour by business;
- the structure of regulators, particularly at local level, is complex, prevents joining up, and discourages business-responsive behaviour;
- there are too many interfaces between businesses and regulators; and
- small businesses are hit hardest by regulation, often considering it a hindrance to growth.
Hampton makes 35 recommendations to address these findings (see box 1), including the comprehensive use of risk assessment, greater consistency in enforcement and more appropriate penalties. It should be noted that Hampton tends to talk about regulation in general, and that when he mentions the HSE, it is usually to praise, not criticise, it. Indeed, some of the recommendations are based on what the HSE is already doing.
Where inspectors use risk assessment to determine their interventions, Hampton notes, they can release and direct their resources "where they can do most good", ending "unnecessary inspections or data requirements on less risky businesses". The elimination of unnecessary inspection, states Hampton, would mean "more resources could be directed to advice". The chancellor would appear to agree: the Treasury's 2005 Budget report2, which welcomed the report, observed that "regulators should focus greater resources upon providing comprehensive advice to businesses and do more to help them understand and comply with regulations easily and cheaply".
Hampton believes that the 35 recommendations could reduce the number of inspections by one-third (ie by one million) and the number of forms sent out by regulators by a quarter. Many of the changes will require legislation; all "require new executive impetus within government to drive the necessary changes" and could be effected over two to four years.
Enforcement
Hampton is in no doubt about the importance of enforcement: "The enforcement of regulations affects businesses at least as much as the policy of the regulation itself. Efficient enforcement can support compliance across [all] businesses, delivering targeted, effective interventions without unreasonable administrative cost to business. Inflexible or inefficient enforcement increases administrative burdens needlessly, and thereby reduces the benefits that regulations can bring."
Hampton therefore sets out 10 principles of inspection and enforcement (see box 2 ). These include the ideas that: businesses should not have to give the same information twice (to the same or different regulators); persistent offenders should suffer proportionate and meaningful sanctions; and regulators must allow for an organisation's economic progress when considering issues of protection.
Hampton reiterates one of the reasons for penalties: "Businesses and regulators have an interest in proper sanctions against illegal activity in order to prevent businesses operating outside the law from gaining a competitive advantage." But the review finds that "it is quite often in a business's interest to pay the fine rather than comply" because the penalty regimes are "slow and comparatively weak. Illegal operators have incentives to undercut honest businesses, partly because penalties are low absolutely, but more worryingly because penalties imposed often do not reflect the commercial advantage a business has gained from non-compliance". The incentive to risk prosecution "is especially true where a business feels able to shrug off the reputational risk of prosecution. If businesses face no effective deterrent for illegal activity, some will be tempted to break the law, and regulators will need to inspect more businesses" that think they can escape the regulators' attention. Higher penalties can, believes Hampton, "to some extent, improve compliance and reduce the number of inspections required."
In 2003/04, the HSE prosecuted 1,756 cases, and health and safety was the fourth most common area for prosecutions or formal cautions (animal welfare topped the table, with three times as many). The average fine on conviction secured by the HSE was £4,036 in magistrates courts, and £33,036 in the Crown Court. "The deterrent effect of such fines is likely to be low," concludes Hampton. "For any company other than the smallest, a £5,000 fine is likely to be an insignificant sum" (see table 1).
Fifteen of the regulators are able to impose "administrative penalties" without resort to a court (although there is usually provision for a judicial appeal). Hampton believes that: "The penalty regimes of these regulators allow for higher penalties, and higher average penalties, which are far more likely to remove economic benefits from offenders, and act as a deterrent." Such penalties, states the review, are quicker and simpler than court proceedings. As such they could "reduce the burden of time and worry placed on businesses under threat of prosecution, while allowing regulators to restrict prosecution to the most serious cases, where the stigma of a criminal prosecution is required. Administrative penalties are used widely in other countries, and can also allow regulators to eliminate the economic benefit of illegal activity more easily."
Making penalties bite
Hampton believes that penalties need to be stiffened, and recommends that the government extend to all regulators the proposals that it has already made to increase the maximum level of fines that can be levied in magistrates courts. It should also give magistrates more power to set fines that are an effective deterrent. Hampton does not explain how this differs from the government's proposals, which would essentially see the maximum fine for any health and safety regulatory breach rise from £5,000 to £20,000 in the magistrates court. Hampton might, for example, be contemplating fines in excess of £20,000 in a magistrates court. In practice, this is the only way - without nearly all cases going to a higher court - in which courts could impose penalties that meet Hampton's intention that fines should cancel out any economic gain from a crime.
Hampton further recommends that the Sentencing Guidelines Council should consider new guidance to courts on regulatory offences, including guidance on fine levels and setting fines that take full account of economic benefit gained (a magistrate will typically hear one health and safety offence every 14 years). In parallel, the new Better Regulation Executive (BRE - see box 3) should undertake a comprehensive review of regulators' penalty regimes, with the aim of making them more consistent and ensuring that penalty powers can deprive offenders "of all the economic benefit of long-term illegal activity".
Innovative approaches
In terms of innovative penalties, Hampton recommends that:
- the government introduces administrative penalties as an extra tool for all regulators, with the right of appeal to magistrates courts; and
- the BRE review should consider the possible benefits of introducing restitutive justice orders (whereby offenders are ordered to clean up the consequences of their actions, or to contribute in some other way to the restoration of damage) and/or restorative justice orders (whereby offenders and injured parties agree a mandatory scheme of action for the offender that will prevent future offences or ameliorate the condition of others affected)3.
Hampton emphasises that, overall, the penalty regime "should be based on managing the risk of re-offending, and the impact of the offence, with a sliding scale of penalties that are quicker and easier to apply for most breaches with tougher penalties for rogue businesses that persistently break the rules". Further, "early warning before enforcement action should allow companies to correct problems before going to court, and therefore cut the administrative burden".
Twenty-six national regulators, including the HSE through its prosecutions database and annual offences and penalties report (see When things go wrong: enforcement HSE style), publicise bad performance or prosecutions of dutyholders. But only 11 publicise good performance - generally through a press event, "approved status" or similar recognition. The nearest the HSE gets to a positive approach is with events such as the awards made as part of the annual European week for safety and health (although other initiatives, such as the Corporate Health and Safety Index and the "business case" company studies, might also have a role to play).
The Hampton review, however, regards "very favourably" schemes such as the food award scheme run by the Food Standards Agency. It recommends they are explored, and that they are most useful for businesses with a consumer presence and on particular issues. Where LAs run the schemes, they should be coordinated with national standards and branding.
Reducing paperwork
Hampton insists that forms "are a neglected element of regulators' interactions with business." Indeed, "for most of the regulators in the review's scope, forms are a much more common interaction with business than inspections". Of the 63 regulators, 47 require forms to be completed, with 2.6 million sent out in 2003/04. The HSE is the fourth most prolific, requiring 150,000 businesses to fill in forms.
Hampton bemoans the absence of standard design guidelines for forms, or any unified way of filing them electronically. Risk assessment, better form design and IT solutions can, he believes, all be used to reduce the burden. He recommends simpler forms, avoidance of duplication and standardisation. In the longer term, there is scope for a single regulatory database (to introduce a base immediately would be expensive and disruptive). A single database would be more efficient for both businesses and regulators, and would also allow detection of "patterns of unlawful behaviour".
The process of regulation
Hampton believes that regulations should be goal-setting rather than prescriptive and "self-enforcing" (using incentive structures) wherever possible: "If a regulation is clearly drafted and well publicised, with self-monitoring routines that fit with day-to-day business practice, and if checks on enforcement are known to happen from time-to-time, with condign punishments for non-compliance, then the regulation will, broadly speaking, be enforced of itself." To help this, Hampton recommends a Dutch process known as the "table of 11". This is a tool consisting of 11 factors that will increase (or decrease) the likelihood of a dutyholder complying with regulations (see box 4).
Reducing the regulators
The review accepts that some overlaps between regulators are "natural", highlighting as an example environmental and health and safety issues relating to the storage of hazardous chemicals. These need to be "worked through", but overlaps will be exacerbated where small, specialised agencies are created because of the absence of an agency clearly responsible for an issue, as happened with the Adventure Activities Licensing Authority (AALA).
This can result in duplication of information needed. For example, the HSE "requires data in a slightly different format from that required under the Controls Assurance Standard (an internal NHS management mechanism). This lack of coordination has led to NHS organisations maintaining two different sets of data". Nor do smaller agencies benefit from the range of expertise afforded by larger agencies. They are also more expensive to run and achieve less per pound spent.
Nevertheless the report rejects a single regulator or inspectorate. One officer, Hampton believes, could not understand the range of issues that need to be inspected. Instead, it is of the opinion that 31 of the 63 national regulators in its scope could be consolidated into seven existing regulators, resulting in a total of 32. Hampton envisages the HSE taking in four regulators, with detailed merger plans in place by September 2006 and completion by April 2009. The four are:
- the AALA (currently funded by the Department for Education and Skills, but with policy direction already from the HSE);
- the Gangmasters Licensing Authority (this has only recently been established and is likely to prove controversial, given the authority's remit goes wider than health and safety);
- the Engineering Inspectorate (a DTI body concerned with overhead power lines); and
- the inspection functions of the Coal Authority (six staff from the organisation whose remit is competence in mining operations).
As a result, the HSE will take on up to 167 staff (4% increase in staff numbers), and a budget of up to £32 million (1% increase in the HSE's total budget).
Local authorities
Strangely, Hampton does not list health and safety within the seven most important LA functions covered by the review. (These are fair trading, product safety, food labelling and standards, food safety, animal welfare, air quality and advice services for consumers and businesses). Nevertheless the recommendations and analysis will affect LA enforcement of health and safety.
Against the advantages of local services provided by LAs, the review identifies difficulties such as a lack of central setting of priorities, poor coordination between the centre and the local, cross-boundary problems, inconsistency in application of national standards and variations in activity. The number of premises per LA EHO in England ranges from 38 in Wokingham (Berkshire) to 1,500 in Lambeth. Even the lead authority partnership scheme - in which businesses with outlets in more than one LA area deal with a single LA - may have "improved consistency, but at the price of burdening authorities in areas where head offices are concentrated".
These shortcomings increase uncertainty and burdens for businesses. "The review does not believe that the present approach to LA regulation, in allowing such wide variations and inconsistencies in the application of national standards, is delivering what the regulations governing it require."
It also states that: "Where divisions of labour or standard practices are set in legislation, they have been slow to change as the economy has developed. The economy of 1974 is very different from the economy of 2004, but the division of health and safety between the HSE and local authorities dates from that time." Hampton believes that different regulatory structures can cause difficulties, pointing out, as an example, one small LA encountered by the review team that was responsible for safety at one of the largest industrial installations in southern England because it classified as a warehouse rather than a factory.
Hampton notes that the HSC has "less specific powers" over LAs than an agency such as the Food Standards Agency has over local enforcers. The HSC can advise the HSE and LAs on inspection activity and even take over failing authorities. "In practice, however, the HSC's powers to intervene are conditional on approval by the Secretary of State, which can be a slow process."
Given these misgivings, and his consolidation of regulators elsewhere, it is surprising that Hampton does not make any attempt to transfer some LA responsibilities to the HSE. Instead, Hampton merely recommends the creation of a new central partnership across all areas of LA regulation, called the National Regulatory Forum. The body would comprise government departments, national regulators and LAs, and be coordinated by the BRE. It would give individual members the lead responsibility for particular shared issues, looking at the boundaries between national and local operations, setting indicative priorities for LA work, sharing information on new initiatives and commissioning shared information resources and nationally branded programmes.
Impact on the HSE
Hampton clearly regards the HSE as one of the best regulators within his review. The interim report had, for example, already noted that: "The regulatory outcomes that the UK achieves are excellent - particularly in health and safety, where the UK is among the best performers in Europe." The HSE also embodies many of the recommendations of the review:
- all its inspection regimes - FOD and the high-hazard permissioning regimes - are based on risk assessment. The HSE targets its inspections through a planned programme and uses fixed criteria to determine which accidents to investigate, a risk-based rating scheme for businesses that sets inspection priorities, and blitzes based on high incident rates or local knowledge;
- the health and safety regime is already based on goal setting, rather than prescription;
- the HSE is some way into radically changing its approach to how it works with LAs;
- the HSE has long advocated higher penalties (albeit without success);
- premises new to the HSE are subject to a "contact process" involving health and safety awareness officers and inspectors (HSB 337 p.5). Permissioning directorates use information supplied in safety cases. "This means", notes Hampton, "that good performers falling under FOD are, in effect, subject to lighter inspection. Similarly, interventions in high-hazard industries are tailored to areas of lower confidence in management and higher risks"; and
- in terms of the balance between enforcement and advice, the HSE is analysing responses to a consultation document on the best ways of intervening and has recently published a statement to improve provision of advice (see Pick 'n' mix: the HSC names its intervention ingredients and HSE starts spreading the word).
"A vote of confidence"
It was not surprising, therefore, to see the HSE's director general, Timothy Walker, describe the report as a "vote of confidence" in the work of the HSE. His "initial assessment" is that the recommendations "dovetail well with much of what we currently do or work already in hand". The addition of the four small regulators, he said, would allow the HSE "to build on the synergies" between the organisations. The chair of the HSC, Bill Callaghan, added that many of the report's recommendations "align" with the HSC's strategy.
The HSE will also be able to use some of the recommendations to press its case to government, notably the inadequacy of fines. Innovative penalties such as administrative penalties and restorative justice orders have been discussed within the HSE since 2000, without making any progress, and it is probably not a coincidence that, within days of the Hampton report being published, the HSE started consulting on reforms to the reporting Regulations, including the desirability of using the Regulations to test administrative and fixed penalties (HSB 338 p.8).
Both men, however, stress that they need to examine the report's recommendations in detail. When they do so, they will find that there is much for the HSC/E to take on board, but little that will jar. The impact on LAs will be altogether more significant, however, and that will have an impact on the HSE. There will also be areas where the HSE may need to improve, particularly regarding the recognition of good practice and the possibility of offering some form of "approved status" to certain employers.
More worryingly, employers and unions should be cautious about the impact on HSE inspector numbers of Hampton's twin-track approach of reducing inspections by one-third and shifting the focus from inspection to advice. It is not too speculative to envisage a resulting decrease in highly qualified HSE inspector numbers and an increase in less qualified (and cheaper) health and safety awareness officers.
The overall impact, however, is nowhere near as marked as it might have been. The interim report had talked about proposing solutions "designed to modernise inspection and enforcement across the system, making a decisive break from the specialised, isolated inspectorates of the past." The interim report noted that the government needs to "move towards treating regulatory enforcement as a system in itself - a system that needs managing separately from the differing policy concerns of, for example, health, food safety, or the environment". Hampton may feel the recommendations in his final report will deliver this, but while they will undoubtedly have an impact on health and safety, they are likely to fall short of such a radical development. Indeed their principal achievement may be to reassure the HSC and HSE that they are on track, doing "the right thing".
1 "Reducing Administrative Burdens: Effective Inspection and Enforcement (Final Report)", Philip Hampton, March 2005, HM Treasury, ISBN 1 84532 088 3, www.hm-treasury.gov.uk/hampton. Enquiries about the report: Sowdamini Kadambari, tel: 020 7270 4674 email: mailto:hamptonreview@hm-treasury.gov.uk.
2 "Budget 2005. Investing for our Future. Economic and Fiscal Strategy Report, the Stationery Office, ISBN 0 10 293248 4, £45 or free at: www.hm-treasury.gov.uk. Chapter 3, which deals with the Hampton Review, is at:www.hm-treasury.gov.uk/budget/budget_05/budget_report/bud_bud05_report.cfm.
3 The HSC has already discussed both types of orders: HSC paper HSC/04/74, www.hse.gov.uk/aboutus/hsc/meetings/2004/080604/c74.pdf.
Howard Fidderman is a freelance journalist and editor of HSB.
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The table below shows a selection of fines of £100,000 and above that have been covered in HSB in recent years, together with the percentage of the organisation's pre-tax profits that the fine represents. The low percentages would appear to bear out Hampton's conclusion that the fines are insufficient to make an impression on all but the smallest organisations. |
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|
Date |
Company convicted |
Fine |
% profits |
HSB reference |
|
Jan 2005 |
McDermott Bros Contractors Ltd |
£150,000 |
>100% |
336 p.3 |
|
Nov 2004 |
BAE Systems |
£250,000 |
<1% |
335 p.2 |
|
Oct 2004 |
McGinley Recruitment Services Ltd |
£175,000 |
34% |
333 p.2 |
|
Oct 2004 |
Balfour Beatty Rail Infrastructure Services Ltd |
£150,000 |
<1% |
333 p.2 |
|
Sept 2004 |
First Engineering Ltd |
£200,000 |
2.1% |
333 p.3 |
|
July 2004 |
B&Q plc (Kingfisher plc) |
£550,000 |
<1% |
332 p.3 |
|
July 2004 |
Sunlight Services Group Ltd |
£325,000 |
1% |
331 p.3 |
|
July 2004 |
Cherren III |
£100,000 |
16% |
332 p.2 |
|
June 2004 |
John Laing Services Ltd |
£175,000 |
1% |
329 p.5 |
|
June 2004 |
Wates Construction Ltd |
£150,000 |
2% |
331 p.2 |
|
May 2004 |
Sovereign Rubber Ltd |
£175,000 |
7% |
330 p.2 |
|
May 2004 |
RMD Kwikform Ltd |
£100,000 |
<1% |
330 p.3 |
|
April 2004 |
Thames Trains Ltd |
£2 million |
5% |
328 p.1 |
|
May 2003 |
Nestle UK Ltd |
£220,000 |
<1% |
320 p.1 |
|
Nov 2001 |
Kvaerner Cleveland Bridge Co. |
£250,000 |
3.9% |
305 p.1 |
|
Aspects of spontaneous compliance:
Aspects of monitoring:
Aspects of sanctions:
1 "De 'tafel van elf': Beknopte toets voor de handhaafbaarheid van regels", Ministerie van Justitie (Expertisecentrum Rechtshandhaving), November 2004, www.handhavenopniveau.nl/Images/T11.Engels_tcm9-20432.pdf. |
