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Flood defence spending review

August 20, 2001

Oxera was commissioned by the Department for Environment, Food and Rural Affairs (Defra) for a steering group consisting of the Treasury, the National Assembly for Wales, and the Environment Agency to review the arrangements for funding flood defence in England and Wales.

The first study of its kind for over a decade, the project collated data from across government, evidence from interviews and published literature, and prepared new economic analysis from first principles. It contained a comprehensive description of existing flood defence funding and operational arrangements, and presents alternative funding arrangements together with a discussion of their pros and cons. The steering group said about the report:

[we] were grateful to Oxera for the deep analysis which underpins their report. They explored a number of issues in depth and, owing to their comprehensive and informed study, the Steering Group’s task in identifying and evaluating potential candidates for further funding options was facilitated. In addition, Oxera’s findings and views on the current funding arrangements have provided useful material for the Group in producing its assessment of the existing institutional arrangements for flood and coastal defence in respect of both funding, strategic management and operations’. (Defra (2001), ‘The Flood and Coastal Defence Funding Review: Report to Ministers by the Review Steering Group’)

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Fundamental review of the generic drugs industry

July 20, 2001

The Department of Health commissioned Oxera to undertake a fundamental review of the supply and distribution of generic medicines. This review arose from the Department’s concerns about the generic medicines market in the UK, and, in particular, the significant price rises in an unusually high proportion of generic drugs during 1999. The aim of the review was to provide the Department with remedial and radical options for reforming the existing market structure and government procurement arrangements, in order to deliver the Department’s objectives.

Oxera undertook a high-level analysis of the generic manufacturing and supply industry, and the wider pattern of relationships for wholesaling and retail of medicines for the National Health Service (NHS). This involved substantial primary research, including around 200 interviews with companies and regulators in the UK, the USA, the Netherlands and New Zealand.

The study covered a detailed investigation of ownership links, an analysis of operational characteristics at all levels of distribution and supply, and an examination of how the NHS reimbursement arrangements and distribution margins affect participants’ behaviour. It explained the incentives at each stage in the distribution chain and considered how these are changing through time. The first stage of the report developed a set of remedial and radical reform options for the distribution and supply of generic medicines. The second phase focused on investigating the working arrangements for the preferred options.

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Impact of stamp duty on the real economy

June 20, 2001

The London Stock Exchange commissioned Oxera to examine how the abolition of the UK stamp duty on equity transactions would affect the cost of capital and investment levels of UK publicly listed companies. The report drew on a variety of methodologies to estimate the potential impact of changes in the stamp duty regime.

In particular, it incorporated:

available academic literature on the impact of transaction costs on share prices and the cost of capital, as well as the relationship between the cost of capital and investment;
new research conducted by Oxera on the impact of changes in the stamp duty regime;
knowledge acquired through interviewing a large number of practitioners.

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External efficiency review of utility regulators

January 21, 2001

HM Treasury commissioned Oxera and WS Atkins for this study. This efficiency review examined the four utility regulators in Great Britain—the Office of Gas and Electricity Markets (Ofgem), the Office of the Rail Regulator (ORR), the Office of Telecommunications (Oftel) and the Office of Water Services (Ofwat). The review focused on inputs (procedures, processes and resources) rather than outputs (regulatory effectiveness), with three specific objectives:

to examine the way in which the regulators define, plan, and prioritise proposed areas of work from which programmes and projects are developed;
to evaluate the management of programmes and projects from inception to closure;
to assess their overall cost efficiency and that of support functions, such as corporate overheads, human resources, finance, information technology/ information services, library facilities, procurement/use of consultancies and press-office functions.

The study involved process benchmarking, in terms of the management, planning and monitoring of the regulators’ work, and metric benchmarking, in terms of the costs of common support function. In addition to obtaining data for analysis from information requests of the regulators, Oxera obtained views from the regulators’ various stakeholders (eg, regulated companies, consumer representative bodies, environmental lobby groups, and the City) and to rate the regulators against a set of 29 criteria. To provide external benchmarks, information was collected and comparisons undertaken of the costs, staffing, and management of support functions in comparator organisations, including other UK and overseas regulators.

Following this review, recommendations were given aimed at improving the performance of the regulators where it was identified as being lacking.

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Risks and regulation in European asset management: is there a role for capital requirements?

January 21, 2001

In April 2000, Oxera, with Professors Julian Franks and Colin Mayer, produced an independent research report commissioned by the European Asset Management Association on capital adequacy requirements in asset management businesses across Europe.

The report, published in January 2001, aimed to identify the main sources of operational risk in asset management and examine the appropriate regulatory response. There is considerable debate on the ability of capital requirements to provide investor protection against operational risks. In November 1999, the European Commission published its proposals to revise the capital adequacy requirements already imposed on credit institutions and financial firms. More recently, the Basel Committee on Banking Supervision published a second consultation document proposing to implement an additional capital charge for operational risk for banking groups.

Details of the structure and regulatory framework of asset management industries in eight countries (France, Germany, Ireland, Italy, the Netherlands, Spain, the UK and the USA) are contained in the report, together with a review of relevant academic literature. Interviews were also held with asset managers and regulators. Information on losses arising from operational failures was obtained through a survey of 39 asset managers.

The report concluded that the main sources of operational risk in asset management are informational asymmetries and fraud, not, in general, systemic risks. These market failures should be corrected directly by a combination of disclosure, auditing, enforcement, insurance, custody and trustees, rather than indirectly through capital requirements. The report also highlighted the impact of imposing capital requirements on the competitiveness of European asset managers, compared with their counterparts in the USA, where no capital requirements are imposed at the federal level.

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Policy, risk and science: securing and using scientific advice

October 20, 2000

The objective of this study was to identify good practice in securing and using expert scientific advice for policy-making. Co-sponsored by eight government bodies, the study offered recommendations for improving the quality of scientific advice received by government and used in policy development.

Although scientific methods are well established and scientific theories successfully inform policy decisions, this study was concerned with weak evidence, novel and incompletely known risks, hypotheses and gaps in data.

On the basis of a literature review, case studies and informal interviews with a wide range of interested parties, a set of recommendations was formulated in the form of:

principles—these are fundamental and comprehensive;
a model process—the clearest way to secure scientific advice that is fully compatible with the principles;
supplementary notes—these include detailed recommendations for some aspects of the process.

The report, published by Health & Safety Executive, called for significant changes in the operation of existing mechanisms, which should result in more robust advice. This should lead to more informed policy decisions and a system of policy development with a higher level of public confidence and the support of the scientific community.

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The wider impacts of rail and road investment

March 21, 2000

Appraisal of the environmental impacts of rail schemes for a client in the rail industry

Drawing together the work of academics, government and others into a single reference guide, this appraisal of the environmental impacts of rail schemes contributes to the debate on the appropriate level of public support for rail services. It contains an introduction to future transport problems, a guide to assessing public support for new transport services, and estimates of the financial and environmental costs of road and rail passenger transport. It also includes analysis of the marginal costs of travel by road and rail in the long run—the appropriate measure of the cost of meeting future demand.

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