“It’s time to re-examine the existing regulations from the perspective of the SME entrepreneur.”

När Näringslivets Regelnämnd besökte Nederländerna på studieresa i höstas besökte man bland annat SIRA Consulting som arbetat med ett SME-indikatorprogram där man kartlagt regelbördan för små företag runt om i Nederländerna. Regelbloggen har intervjuat SIRA Consultings ägare och grundare Peter Bex för att få veta mer.

Could you tell us a little about SIRA Consulting and your work with measuring the regulatory burden to business, in particular about the model that you have developed for measuring the cumulative regulatory burden to business using an SME indicator programme.

Sira Consulting was founded in 2002 with the idea to assess the impact of regulation and to advise the government on enhancing regulations and legislation. In those early days we developed the standard cost model for calculating the administrative burden of laws and regulations on behalf of the Dutch Ministry of Finance. Over the years, we have calculated the regulatory burdens and set up reduction programmes to reduce it. We have done so in the Netherlands and many countries abroad.

Sira Consulting evolved into a team of 25 advisors with one mission: we strive to make policies and regulations practical and effective. Our scope extends beyond mapping out policy impacts; we also conduct policy evaluations.

Exploring and finding solutions to regulatory burden is a topic that returns to the political agenda. In recent years, businesses and also citizens report that the regulatory burden is increasing. Despite the efforts of many governments and the EU to reduce the regulatory burden, the problem persists. That’s why we took a critical look at our own methods and solutions.

Using the standard cost model, governments map the regulatory burden per law or obligation (P) and multiply it by the number of entrepreneurs who have to comply with it (Q). With this PxQ calculation we know what causes regulatory burden, however, it is not clear what regulatory burden actually means for entrepreneurs in their daily business operations.

Our more qualitative ‘bottleneck approach’ also solves specific problems of legal obligations. But here, too, it is not clear what this noticeably contributes to less regulatory burden or a better business climate.

We have therefore developed a methodology that provides both quantitative and qualitative insight into the impact of legal obligations at company level. This is the so called cumulative cost methodology for SME Indicator companies. 

How can your model and measurements contribute to Better Regulation in the Netherlands?

The research method for the Cumulative Cost Methodology was set up to map out, for an SME indicator company, the annual costs of each obligation and how the entrepreneur perceives the workability. Workability refers to any problems the entrepreneur experiences in being compliant. Tackling the regulatory burden therefore focuses on the legal obligations that have the greatest cost (quantitatively) and/or impact (qualitatively) on the entrepreneur’s business operations.

The idea behind the SME indicator companies is that we cannot measure all the regulatory burden of all types of companies to get a picture of regulatory burden in a country. To solve the problem, we took inspiration from biology. In biology, indicator species are used to study the quality of an ecosystem. If those indicator species are doing well, it is likely that the ecosystem is also doing well.

We apply this principle to the SME indicator companies approach; we have specifically selected sectors. If we reduce the regulatory burden for these sectors, this will have an impact on the whole economy. The Better Regulation program is thus much more focused on improving the business climate than just solving individual bottlenecks with legislation.

Weaknesses and strengths of the model?

One of the key advantages of the cumulative cost methodology is its ability to provide outcomes at the SME (Small and Medium-sized Enterprise) level. This allows for the evaluation of regulatory burdens in relation to revenue or profitability, thus making issues more apparent and aiding in the identification of potential solutions.

Moreover, we have found that just having an overview with all legal obligations adds value. Both for the government and for the companies that participated in the survey.

Another advantage is that the SME Indicator programme can also be used to monitor the regulatory burden and even set reduction targets. Thus, the effects of new obligations can be made visible at the level of the entrepreneur. But of course it is also possible to visualise what implemented reduction measures noticeably benefit entrepreneurs.

Of course, there are weaknesses with this method. First of all, it is important to carefully select the sectors and SME indicator companies so that the method also has as much impact as possible.

In addition, it is important to realise that this method cannot cover all legal obligations. There will be very specific obligations that apply to a limited target group and fall just outside the spectrum of the selected SME indicator companies. However, the impact of these obligations will be limited.

Could this model be used on an EU-level for measuring the cumulative regulatory burden of EU-legislation and if so, what would this require?

Certainly, this model is applicable at the EU level for quantifying the cumulative regulatory burden imposed by EU legislation. Moreover, the methodology enables us to identify golden standards throughout Europe. By concretely comparing at the SME indicator company level how member states have implemented European obligations, these golden standards become visible. We have already done this by comparing SME Indicator Hotels in the Netherlands and Germany.

You talked about goals regarding regulatory burden, qualitative and quantitative. In your experience what implications may the choice of goals, quantitative or qualitative, have on the outcome of the work on reducing the regulatory burden?

We investigated which Beter Regulation programmes in the Netherlands have proved most effective in tackling regulatory burden over the years. The programmes with concrete reduction percentages of 25% have overwhelmingly had the most effect. However, we have to realise that such programmes have a certain shelf life.

We think that larger societal developments (such as climate change, privacy issues, security, migration, etc.) have increased the regulatory burden and worsened the business climate in the Netherlands and very likely in other European member states as well. Measures to reduce this new regulatory burden have not had sufficient effect. In short, it is time to re-examine the existing regulations from the perspective of the SME entrepreneur. So we think it is time again to set quantitative target for the Cumulative Costs and aim for tangible burden reductions for SME’s.