Health and Safety: All about the money

When news about health and safety ‘fees for intervention' broke in the mainstream media, the daggers were quickly drawn for the Health and Safety Executive, which has a public perception as killjoy-in-chief seemingly pervaded in perpetuity.

The HSE is facing 35% budget cuts, likely to amount to £80m a year, so the prospect of the regulator clawing back the shortfall through a new charging system has unsurprisingly met with negative headlines.

The HSE consultation documents on FFI reveal that the regulator anticipates an income of £60m from the process overall. However, no sooner had criticism commenced than the FFI's original implementation was postponed, just days before it was due in April.

According to the HSE, the regime will now come into force in October 2012, once a number of technical challenges have been ironed out.

It is these challenges that have been highlighted by the independent inspections industry and engineering insurers, many of whom strongly support the HSE, but fear its independence may be threatened by the need to generate income, while fees levied for a breach in the law without attention paid to due legal process could generate grounds for dispute.

Richard Hulme, chief executive at the Safety Assessment Federation, suggests that the delay in implementation has been caused by a range of factors.

"Those difficulties include discussions between HM Treasury and the HSE as to how much of the income it can keep for its operational costs and how it overcomes the difficulties of proving a material breach of the law, without due legal process," he says.

Charging for material breaches
The FFI system enables HSE inspectors to charge for interventions against material breaches of the Health and Safety at Work Act.

Graham Greaves, director of health and safety services at law firm Ellis Whittam, believes the government sees the charge as a way of raising much-needed funds and that it has even been accepted by unions.

"Even the Trades Union Congress gave tacit approval of the charge, recognising that, while the state should be paying for enforcement, it was important to maintain inspections and enforcement despite the current budgetary constraints on the regulator," he explains.

"The hourly rate could be as much as £124, while attempting to hit the companies that aren't complying with a real impact on their bottom line.

"I expect that the money raised is going to be considerable, as around 1000 prosecutions and 15 000 enforcement notices are handled by HSE every year."

The HSE itself would not be drawn on how much of the income it will keep from FFI, saying only that "receipts from FFI will make a significant difference in helping to maintain health and safety regulatory activities throughout the spending review period".

Pilot project
The body has carried out a pilot project, about which Phil Wright, chief engineer at Allianz Engineering, recounts the words of one customer on the dry run: "Minor infringements were found and the inspector's words were ‘Just be warned. Next time I could be charging you for this.'

"There is a concern among our client base that they could be facing charges that are almost impossible to avoid."

While not hugely illuminating, this customer's experience indicates a belief that the net for charging will be cast far and wide.

Steve Haines, risk management surveyor at broker Caunce O'Hara, echoes this, explaining that inspections could become the ‘speed cameras' of health and safety.

"There may be the temptation for overzealous inspectors to treat businesses as ‘cash generators'. "We experience inconsistency by statutory inspectors, such as fire safety officers or HSE inspectors, perhaps in common with other external auditors, such as insurance surveyors," he says.

"While recognising the need to enforce health and safety legislation to protect employees, the HSE needs to take a standardised, fair approach."

Peter Milton, managing director of the engineering division at HSB Engineering Insurance, and chairman of the Safety Assessment Federation, remains confident that the HSE will find a path that suits everyone, but says that its independence must be maintained.

"In terms of policing the regime, it will take time to settle down. Provided there is an open approach, the HSE will get FFI to a point where it is consistently applied. The only request I would have is that the HSE ensures the independence of any appeals process, which is critical to its success," he says.

The extent to which engineering insurers' own reports will be used as source material for the FFI regime has also been raised as a potential concern.

Wright has a particular question regarding imminent danger defect notices. "IDD notices under Lifting Operations and Lifting Equipment Regulations and Pressure Systems Safety Regulations require us to notify the HSE along with the duty holder when an imminent danger is revealed by a thorough exam," he says.

"We send a copy of this report to the enforcing authority and approximately 100 000 of these are issued every year by companies like ourselves, which could potentially be a wonderful and steady source of revenue for the HSE if it decides to intervene on every notice issued.

"This could cause our clients a lot of grief because it might encourage further inspection and the identification of tiny problems that would normally be overlooked."

In response, an HSE spokesman says it uses "a range of information in deciding where to target its activities and which sites to visit, including the type of business and industrial sector they operate in; information obtained from previous HSE visits; notifications (including accident reports) from outside HSE; information from other regulators; and complaints about standards or working conditions. None of this will change as a result of FFI."

While there is a grudging acceptance of the HSE's motives for introducing FFI, with union groups such as the TUC giving it their backing, many commentators are concerned about what actions may constitute a ‘material breach of health and safety law' and thus likely to attract fees for intervention.

Atiyah Malik, a partner at Berrymans Lace Mawer, says: "The HSE says material breach will apply where there has been a ‘contravention' - formerly a ‘material breach' - of health and safety law.

"This wide definition will no doubt be of great concern to all duty holders, and the HSE's further guidance on the issue is keenly awaited."

The definitions of ‘material' and ‘technical' breaches are, in practice, likely to be blurred, according to Haines.

"While there may be an initial effort to check that written documentation is in order, we may find that punitive action is taken against those businesses that don't back up what is written in risk assessments with tangible measures to eliminate, reduce and control the risks," he says.

"For example, the HSE has promoted the use of ladder policies and, although we find on some risk management surveys that a policy has been established, this falls apart because auditing and information, instruction and training is not strong enough.

"We find the average manufacturing site is littered with ladders left idle. This is a simple policy to get right. But so often we find it is poorly implemented."

What is puzzling health and safety experts everywhere appears to be the confusion between administrative charges in the form of FFI and the lack of due legal process likely to be taken by the HSE when doling them out.

Hulmes explains: "Health and safety legislation is criminal law and must be subject, among other things, to due legal process, including sufficient evidence, public interest, proof of a breach beyond all reasonable doubt, and an independent courts process.

"This proposal changes the current ‘administrative' nature of the warnings and notices and, by way of charging, makes them more accountable and subject to the criminal law provisions.

"To suggest, as has been by done the Minister for Work and Pensions, that the recovery of fees would be a civil action is misleading."

However, despite Hulmes' warning, the HSE rejects these concerns, saying that costs under FFI are "only recoverable through the civil courts, as is normal with debt recovery, rather than through the criminal courts".

Hulme is, therefore, convinced this will be challenged. "The civil court would be asked to make a judgment on a criminal matter, which has not been through the criminal procedure," he says.

"Therefore, the proposal to merely ‘announce a breach' - which is effectively ‘guilt', in the opinion of the inspector - and charge would not be legally acceptable and could lead to alleged breaches based on hypothetical possibilities, where there may be no clear prime facie case.

"This is particularly difficult due to the enabling nature of health and safety legislation, which includes opinion or judgment on phrases such as ‘so far as is practicable', ‘so far as is reasonably practicable', ‘suitable and sufficient' and terms such as ‘competence', ‘imminent danger' and ‘risk of injury' among others."

Yet there are no legal questions about implementation. "FFI will commence at the next available opportunity, which is expected to be October2012," the HSE spokesman says.

"We need to conclude discussions about technical issues associated with the scheme. These are standard inter-departmental discussions associated with technical accountancy issues and not about the substance of the scheme itself. There was insufficient time to complete the parliamentary processes for an April implementation date."

Changing dynamic
Undoubtedly, the dynamic between inspectors and the inspected will change once FFI is implemented.

Mark Savill, a partner at Lyons Davidson, says: "The relationship between inspectors and duty holders is likely to be put under increased strain. Pressures that are absent now will be placed upon both sides."

The HSE has promised detailed guidance for employers and organisations on its website ahead of implementation, explaining how FFI will work and what it means by ‘material breach', and says it will include examples of material breaches in different situations.

But Haines urges companies to prepare for the HSE to take a robust stance. "UK businesses need to invest in more information, instruction and training, and integrate health and safety within the management structure," he says.

"Health and safety officers require support and resources to counter aggressive inspection by the HSE. Further cutbacks within the HSE will provide incentives for an overzealous, punitive approach."

While engineering insurers' gripes with FFI have been clearly aired, the concerns of liability insurers - as it is they who compensate for employers' negligent actions - appear to have taken a back seat on the issue.

For example, coming as this does at the same time as the Health and Safety Review carried out by Professor Löfstedt, it is worth acknowledging that there are now two million sole traders that are about to be exempt from health and safety provisions.

This government-led "assault on the health and safety culture" has apparently misinterpreted its own report recommendations, according to Hulme.

"This was not what Professor Löfstedt meant, as he was at pains to explain to the minister that this should only exempt those in low-risk activities, for example those working from home, such as web designers," he explains.

"It was never meant to exclude the sole trader car mechanic, carpenter, electrician or construction site consultant, but this appears to have been misinterpreted and swept up with the political agenda to reduce ‘the burden of health and safety' on business."

Out from under the radar
So, with the FFI regime likely to have an impact only on larger businesses in terms of employers' liability insurance, Milton says the market would be advised to keep an eye on this area to ensure it doesn't have insureds that effectively come out from under the radar.

"I get what the government is trying to do - simplify processes and make sure health and safety is not too onerous for small businesses - but everyone in the workplace has an obligation to manage health and safety for themselves and their employees," he says.

"You could imagine that liability insurers would mirror that view and expect them to be able to demonstrate it. In terms of monitoring the efficacy of health and safety management in smaller businesses, perhaps this is something the insurance companies need to source comfort from elsewhere."

With two million small businesses subject to no health and safety inspections at all, a vacuum could be created that leaves insurers significantly exposed, unless the private inspections sector, including the likes of engineering insurers, pick up the slack.

This is certainly a space for insurers to watch in the immediate future.