Unintended consequences

Policies or regulations change people’s behaviour, but not always in the way that is intended (for example, in raising alcohol duties, the Government did not intend to increase smuggling of alcohol from the Continent). Unintended consequences may or may not be predictable at the policy development stage and they may be beneficial or costly, resulting in winner’s and loser’s. Considering all possible consequences of a policy proposal early on should help in refining options to avoid or minimise unwanted outcomes. Unintended consequences may occur for a number of reasons.

Examples:

• People may not comply with the regulation (may act illegally) where the penalty for doing so is lower than the cost of compliance, or where enforcement is weak.
  
• People may find ways of legally avoiding the regulation (loopholes). An example of this is a 1970 US regulation that required children’s pyjamas to be ‘flame-resistant’, ruling out the use of cotton. Parents wanted comfortable cotton sleepwear for their children so manufacturers relabelled pyjamas as ‘brushed cotton sets’ to avoid the regulation. In 1996 the regulation was revised to require them to be tight fitting to avoid burns. Parents now buy larger sizes.
  
• Polluting industries might relocate to another country to avoid regulation. As a result, the regulation may have a negative impact on the UK economy and be of no benefit to the environment as intended.
  
• As a result of a ban on an environmentally harmful product, firms or consumers may switch to another environmentally harmful product. For example, substituting from an ozone-depleting product to one that causes climate change.
  
• Firms may exit or not enter a market because regulatory standards increase firms’ costs.
  
• There may be ‘offset effects’. For example, consumers or workers may become less vigilant about safety as they feel they are protected by regulation.
  
• Firms or consumers may not be given enough time to prepare for a new regulation coming into force. As a result there may be short-term constraints on behaviour or even unavoidable illegal activity. For example, if things are banned before substitutes can be developed or if the recycling of certain products is made law before equipment can be put in place to deal with them, in which case stockpiles may develop.
  
• In some cases an unintended consequence may take time to manifest itself. A hypothetical example is the introduction of a policy that makes all trains run at 30 mph to improve safety. As a result, more commuters travel by car leading to increased pollution and more road accidents. Train companies income from ticket sales falls, restricting spending on rail infrastructure improvements. The outcome is reduced safety both on the roads and railways, the opposite of the policy objective!

Hints and tips

To identify a wider range of consequences:

• Make sure you consult with other government departments
• Involve stakeholders at an early stage of policy development
• Ask DRIUs and CO RIU
• Speak to your departmental economist
• Clearly outline your assumptions about the unintended consequences of the policy proposal in your consultation document and ask respondents to consider / challenge your assumptions.

For further information and examples of unintended consequences please see page 16 the Better Regulation Task Force report ‘Imaginative Thinking for better regulation’.