Guidance on Costs and Benefits

Part of New clause 3 – in the House of Commons at 5:30 pm on 27th June 1995.

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Photo of Matthew Taylor Matthew Taylor Liberal Democrat Spokesperson (Environment) 5:30 pm, 27th June 1995

Clause 38 has been a fundamental issue of concern from an environmental perspective throughout the consideration of the Environment Bill. On the face of it, the requirement to have regard to costs and benefits looks entirely reasonable. However, as hon. Members in all parts of the House have pointed out, the practicalities are another matter. I do not believe that Ministers have addressed the concerns successfully at any stage because there is no answer to the fundamental concerns about that issue.

In Committee, the Minister admitted that many of the concerns raised about clause 38 would be unacceptable to the working of the agencies. He agreed that it would be unreasonable to require the Agencies in every case to undertake vast examinations of all possible costs and benefits and that a requirement on the Agencies always to demonstrate that the benefits outweigh the costs before they could act would be both damaging and unworkable". He also agreed that it is essential to avoid a position in which the Agencies are unable to exercise their judgment or are obliged to exercise it in ways that give undue weight to short term or financial cost for fear that they would be unreasonably exposed to challenge in the courts."—[Official Report, Standing Committee B, 18 May 1995; c. 283–84.] While agreeing on those points, the Minister failed to explain at any stage how to avoid that situation. It is the first time in legal history that statutory environmental agencies are being charged with a duty to place cost considerations ahead of the environment in the decision-making process. No other environmental agency—whether it is the National Rivers Authority, English Nature or the Countryside Commission—has that statutory requirement. The Minister has not produced any examples of where that has been a problem in practice and he has not given any examples of how the application of a cost-benefit analysis would have led to a different conclusion.

6.15 pm

I believe that the duty may open up the agencies to judicial review. Constant legal challenge to the agencies—whether from environmental or industrial interests—would undermine the possibility of their operating satisfactorily. In response to that concern, Ministers have argued that the likelihood of judicial review is slight given alternative appeal mechanisms. Frankly, being bogged down with alternative appeal mechanisms will not resolve the problem satisfactorily—particularly when that process could end in judicial review at enormous cost to the agencies.

As many hon. Members have argued already, Ministers have not explained how environmental—as opposed to financial—benefits and costs can be measured properly. I will not elaborate on that argument because it has been well made today by many hon. Members—including the hon. Member for Lincoln (Sir K. Carlisle). A cost-benefit analysis may be useful in circumstances where it is possible to identify the costs and the benefits, but overwhelmingly the agencies will be dealing with matters where that is not the case.

It goes even further than that. When it is possible to identify environmental costs and benefits, it is likely that the financial costs and benefits will be taken more seriously. The Government inquiry "Next Steps New Agencies" makes that point, and notes: Financial targets are given a much higher priority. This appears when New Agencies wish to invest in order to improve quality. Chief Executives do not always feel allowed to make such investments. Furthermore, they believe they are only judged on the result of financial targets". The guidance issued by Ministers recognises that problem. It states: it is not always possible to quantify the value of improvements or losses to the environment. Moreover, it is not always obvious what the environmental impact of a decision will be, even in physical terms". Having noted that problem, however, the guidance fails to set down any solutions. It does not set down factors which should be taken into account when setting agency criteria and objectives. The importance of using the best available science is mentioned in respect of risk assessment, but a clear and more widely applicable framework is not included in the guidance or the Bill as a duty of the agencies. As there is no accepted methodology, it remains more an art than a science. Therefore, I do not believe that it will work in practice and it certainly should not be applied as a statutory duty on the agencies.

The costs and benefits which must be taken into account may also get bogged down in individual detailed decisions. Will they apply to individual cases or will they apply only to overall policies and strategies? The Minister, whose comments I quoted earlier, seemed to accept that it would be impractical for the agencies if they were to apply in every individual case. However, clause 38 refers to particular cases and the guidance refers to the impact on individual companies and industry sectors. That suggests that the Environment Agency will be expected to apply cost-benefit considerations case by case in exercising its powers.

Does that mean that the Department of Trade and Industry will offer advice about how to cost the value of water for every possible use so that the agency can assess the costs and benefits to individual companies and industry sectors as required by the guidance? If the agency must rely on information that is provided by the company or the individual concerned, how will it assess the accuracy of the information supplied? I do not see how a statutory duty to take costs and benefits into account can realistically be placed upon the agency, especially if it requires that sort of detail.

If the Government refuse to delete clause 38, they should at least place a duty upon the agency to take the "best practicable environmental option" in discharging its duties, using its powers or pursuing its objectives. While cost-benefit analysis has a role in the work of the agency, it should be used only to find cost-effective ways of implementing agreed standards and not for deciding what those standards should be. That distinction should be made clear in the Bill and the guidance.

The Government should ensure that other criteria also play a part in setting the standards and targets to be achieved by the agency. Cost-benefit analysis can only be part of a multiple-criterion system. Without that, the Minister and the Government remain guilty of seeking to apply cost-benefit analysis for the sake of looking good to their business sponsors, without having explained to the House the way in which it will work or considered the way in which it may affect those business sponsors.

As I have argued previously, the environmental movement may have a greater interest than business in pursuing some of those issues. It wishes to test the effect—which may be detrimental—of cost-benefit analysis on the environment, whereas business hopes to benefit from it.