This section of the toolkit has 3 elements: option development; sectors and groups affected; costs and benefits. This is the one of the main analytical components of the BRIA, as it provides evidence to:
- compare the costs and benefits of policy options aimed at addressing the problem; and
- support your final policy recommendation and help determine whether the benefits from the policy options justify the costs.
- what are the options for doing this other than legislation ie voluntary regulation?
- why has each option been accepted or rejected?
- is there more gold plating than elsewhere in UK or EU? If so, why?
Analytical colleagues will be able to provide detailed advice and technical support and should therefore be consulted at the earliest possible stage.
At the early stages of policy development all the options should be identified, together with their potential for achieving the stated objectives. Options must be assessed against the status quo or ‘do minimum’ situation. This would help draw out the implications of no or minimal action and also act as a baseline against which to assess the other options. However, only genuine policy options should be described in this section of the BRIA. In some cases, more options will be necessary; in others (e.g. transposing an EU directive with very limited national discretion) fewer may be sufficient e.g. ‘Do nothing’ or transpose the directive. Guidance on implementation of EU directives is available on request from the Scottish Government, please contact BetterRegulation@gov.scot. Further information from the UK Government website can be found here.
For regulations that affect business, you should also consider alternative approaches (e.g. additional flexibilities or exemptions) for regulating small and micro-firms with fewer than 20 full time employees. In considering whether alternative approaches may be appropriate ensure early and appropriate discussion with relevant businesses, consistent with the ethos of the BRIA. The Scottish Firms Impact Test contains more information on how to consult businesses and the types of issues to explore in assessing whether or not alternative approaches may be appropriate.
It is also important for non–regulatory options (for example service charters, quality marks and codes of practice) to be considered at the outset.
Voluntary regulation is a mechanism that can be used within a regulatory framework as an alternative to statutory regulation, to achieve a particular outcome through a change in behaviour. It typically involves industry and/or professionals developing voluntary agreements or standards, pledges, codes of practice, certification and accreditation schemes, to regulate behaviour or standards to achieve a particular outcome. Government involvement may vary from no involvement to the measure being Government sponsored. Voluntary regulation provides an alternative to statutory regulation. It can be a more agile form of regulation in that it can be put in place faster, can be more flexible and adaptable to introduce and update, and requires a commitment from those involved.
Non regulatory options should always be considered at the outset of any policy development and a Business and Regulatory Impact Assessment completed to ensure the costs and benefits of each option are fully considered and compared. Liaison with other departments is also recommended to ensure consistency in any cross-cutting policy areas.
The principles of better regulation (that it should be transparent, consistent, proportionate, targeted, and accountable) apply to all regulation – whether it be voluntary or statutory.
The Scottish Government supports the approach set out in the Scottish Retail Consortium’s Framework for Government Sponsored Voluntary Regulation which sets out the following principles:
- An evidence based problem or objective.
- A clear outcome.
- A practical, proportionate and targeted proposal.
- A Business and Regulatory Impact Assessment.
- Monitoring and Review.
- Application of the Better Regulation Principles.
Sectors and groups affected
You should consider the impact of each option on different sectors and groups. The options under consideration may have beneficial impacts on some groups and negative impacts on others. It is important to be as specific as possible and to work with stakeholders to validate assumptions. All significant groups affected by the options should be considered – particularly businesses.
Use informal consultation at an early stage to help identify groups likely to be affected. Include groups that benefit as well as those that bear costs, including those affected directly and indirectly e.g. a policy to reduce pollution will have a direct effect on a polluter who has to behave differently, but may have an indirect effect on the general population in the longer term as pollution is reduced and the environment improves.
Identify where different options impact on different groups and consider whether the options change the distribution within and between groups.
Think about the impact on:
- Local Authorities – The roles and responsibilities of local authorities are many and diverse, and include a range of regulatory roles. Early and ongoing engagement with COSLA and a range of local authorities is likely to be an essential element of developing options and assessing their relative impact.
- Consumers / Competition Assessment - When considering the impact of policies, the effect on the ability of businesses to compete in the market and what effect this might have on consumers should be considered. Introducing competition in the delivery of your policy may add value to the policy. The Scottish Government Consumer and Competition Policy Unit is able to provide advice and useful contacts. They can be contacted at CompetitionPolicy@gov.scot.
- Consumers – considering the potential impact on consumers of any new initiative can prevent consumer protection issues arising after implementation, and support regulators and businesses to deliver improved outcomes for consumers as well as economic growth. The Scottish Government Consumer and Competition Policy Unit is able to provide advice and useful contacts.
- Regulators – including, in particular, consideration of the impact on existing activities and performance, and the resource and skills implications of the various options.
- Businesses – see Scottish Firms Impact Assessment.
- Organisations in the third sector - Policy options might also have an effect on the voluntary and charitable sectors. It is important that these are duly considered. Colleagues elsewhere in Government may already have links with these organisations so you might be able to use their contacts. Alternatively, contact organisations directly. The Scottish Council for Voluntary Organisations could be a useful starting point.
Costs and Benefits
- What benefits will it bring if enacted?
All the potential benefits and costs of each option over and above the status quo or ‘do minimum’ option should be recorded in this section.
Describe all the costs and benefits of each option, compared with the status quo or ‘do minimum’ option. For each option, you should cover:
- The sectors and groups affected;
- Whether there will be disproportionate impacts on particular groups or on the environment;
- As far as possible, monetary values.
As it is often difficult to predict accurately the exact costs and benefits you can use estimates and/or ranges. You should state whether these estimates/ranges represent extreme values or the most likely range of outcomes. Where there is uncertainty, make it clear and spell out any assumptions used to arrive at your estimates/ranges.
You should try to identify any related or overlapping regulations that already affect those organisations and individuals likely to be affected by your proposal in order to work out the impact of your proposal. Consider the cumulative effect each option may have and any interactions there may be with other regulations. You should spell out and test any assumptions, and provide references to any data sources or methodologies used.
You must show costs and benefits as monetary values where this is possible. This will allow easier comparison between the costs and the benefits of each option. The direct costs – i.e. costs directly attributable to the policy or intervention of each option must be expressed as monetary values.
Where prices for goods and services are involved, finding monetary values is usually straightforward. In the absence of prices, you should, in consultation with economists, consider if monetary quantification using economic valuation techniques is possible. Analytical colleagues can also provide advice and guidance on other forms of quantification which could be used where appropriate. For example, number of lives saved, increased manpower requirements, changes in emission levels or new equipment needed. Such measures should allow options to be compared but may not allow the relative costs and benefits to be weighed up.
It is just as important to identify and quantify the benefits of the policy as well as the costs. You can identify the benefits by thinking about the aim of the proposal and the risks being addressed.
Describe the process by which the changes in behaviour or activity or the act of complying are expected to lead to achieving the goals.
Some benefits will be easier to estimate than others. Consult your economists for advice as early as possible about putting a monetary value on the benefits. Examples of the types of techniques you can use include:
- Time – you could use wages multiplied by the hours saved.
- The environment – you could use surveys that show people's willingness to pay (how much people would pay for a clean river, fresh air or a national park) or their willingness to accept (how much people would be prepared to accept in compensation for suffering from pollution).
- Life/health – you could use estimates of the willingness to pay for a longer / healthier life.
- Social benefits – you could use surveys, e.g. showing people's willingness to pay to have a more equal distribution of income; and again people's purchases might give some idea of people's values.
- Training – you could use surveys of firms' increased revenue and productivity gains following training; or use analysis of the higher wages that trained staff can command.
- Whether indirect benefits should be considered (e.g. changes in behaviour that can have additional effects, e.g. more firms setting up in business as a result of reduced hiring costs or more people entering the labour market as a result of tax changes).
Identify the costs by thinking about the aim of the proposal and what you will be requiring firms and consumers or the public sector to do.
Once you have identified the costs then you should quantify them wherever possible. Where there is uncertainty make it clear and spell out the assumptions you use to arrive at your estimates.
Some costs will be easier to estimate than others – e.g. increased labour costs. Ask your economists for advice as early as possible. Examples of the techniques you can use to put monetary value on the costs include:
- Labour costs – (familiarisation with new legislation, training, new working practices, time spent taking inspectors around the firm etc.).
- Cost of new equipment or new production processes – formal/informal consultation with those likely to be affected might provide the best data here.
- Collecting information and providing proof of compliance – use labour costs, plus the cost of new equipment required to do this.
- Cost of getting licences – these will involve estimating the fees plus administrative costs. Regulators and enforcement authorities should be able to help with providing estimates.
- Cost of additional legal, accountancy or other consultancy advice – again consultation or colleagues' experience might be informative.
- Indirect costs – i.e. costs not directly attributable to the intervention – may need to be considered. There may be changes in behaviour such as fewer firms setting up in business, reduced consumer choice, less competition between firms, less innovation etc.
Coverage of Costs and Benefits
In general, the analysis of costs and benefits will need to quantify only the first–round effects of proposed measures. For example, if a proposal requires firms in a particular industry to buy new safety equipment, the economic costs to society can be measured by the costs to the firms (both in money and extra management and training time) of buying and using the new equipment; and the benefits to society by the health benefits (measured as improvements to health quality and statistical lives saved).