New Build Heat Standard 2024: business and regulatory impact assessment

Business and regulatory impact assessment (BRIA) in consideration of the introduction of the New Build Heat Standard (NBHS). Looking in detail at the economic impacts of moving to Zero Direct Emissions heating systems in all new buildings.

8. Scottish Firms Impact Test (SFIT)

111. The full list of questions put to businesses involved in the one-to-one discussions can be found in Section 19.2.

112. Businesses were broadly supportive of the introduction of the NBHS, noting that it was an important step in ensuring net zero emissions by 2045. One business noted that the Standard would avoid pre-mature scrappage of DEH systems having to be incurred, and that significant uptake of ZDEH systems in new-builds otherwise would not be accomplished in the absence of the policy being enacted. A recurring concern among three businesses was the timing of 1 April 2024, with the view being that the supply chain may be slow to respond.

113. When asked about trends in heating systems over the last 5 years, respondents generally noted that there has been a recent rise in consumer awareness of ZDEH technologies such as heat pumps, with some suggesting this as being the result of energy price volatility or concern about climate change. However, it was also generally noted that natural gas was the default option for new-builds with access to the grid. Following this, when asked whether anything would change over the next 5-10 years assuming the NBHS were not adopted, 8 of the 12 respondents strongly suggested that no change from the past 5 years would be observed; in other words, mains gas would remain dominant.

114. Depending on the sector they operated in, businesses viewed the Standard as bringing with it opportunity on the one hand, or increased costs on the other. With opportunity came suggestions of increased sales and business, certainty over the direction of travel for the market, and positive effects on training and upskilling. It was noted that adverse impacts on the DEH market could be mitigated by businesses investing in retraining and pivoting towards the production and sale of ZDEH technologies. Costs associated with the Standard predominantly stemmed from the currently higher capital costs of ZDEH technologies relative to DEH technologies, as well as costs associated with retraining. Higher capital costs faced by property developers were likely to be passed onto buyers or landowners (in the case where the developer is purchasing land).

115. All 12 businesses pointed to heat pumps being a key technology for installation in new-builds in the presence of the NBHS. A number of businesses also suggested solar PV with storage, as well as heat networks and communal heating arrangements. However, it was noted that the current regulatory framework for district heating made it a less attractive option. Hydrogen was also tentatively identified as an option for heating.

8.1 Impact on Small Businesses

116. Table 3 below shows the number of enterprises located in Scotland operating in SIC manufacturing subsectors 25.21, 28.21, and 28.25, as well as construction subsectors 43.21 and 43.22.[113] These subsectors were discussed earlier in Section 5.3 and are deemed most likely to be impacted by the NBHS. As can be seen from the table, enterprises are heavily concentrated in the microbusiness end of the spectrum when it comes to their employment size. This finding echoes findings from Nesta which found that heat pump installation companies "tend to be small,"[114] though it appears this conclusion could be generalised to the HVAC sector as a whole beyond just heat pumps (at least in Scotland), as well as firms operating in Scotland's economy generally.[115]

Table 3: Enterprises in sectors deemed to be significantly affected (2021) (Scotland) [116]


Employment Size Band



(0 to 9)


(10 to 49)


(50 to 249)


































(% of 5,645)











(% of 175,400)










Notes: 25.21 corresponds to the sector "Manufacture of central heating radiators and boilers"; 28.21 corresponds to the sector "Manufacture of ovens, furnaces and furnace burners"; 28.25 corresponds to the sector "Manufacture of non-domestic cooling and ventilation equipment"; 43.21 corresponds to the sector "Electrical installation"; 42.22 corresponds to the sector "Plumbing, heat and air-conditioning installation"

117. Support is available through our enterprise agencies to provide support to Scottish businesses to adapt and respond to economic opportunities and challenges. This includes the Green Heat Innovation Support Programme[117] for companies with innovation to accelerate the rollout of green heat solutions.

118. In developing this BRIA, consideration has been given to the impact on micro and small businesses. To assist in this, the following issues have been considered:

  • The variation in the regulatory burden between a self-employed, micro, small, medium, and large business;
  • Whether compliance flexibility options could assist a micro, small, or medium business to meet the requirements of the proposal; and
  • The distribution of benefits of the proposal between a self-employed, micro, small, and medium business.

119. Of those organisations who participated in the SFIT, nine of the twelve companies classify as SMEs. Representatives of these micro-, small-, and medium-sized enterprises were supportive of plans to introduce the NBHS. This was not on a scale significantly different from the other organisations interviewed.

120. Across the interviews, there were points raised regarding how best to see acceptance and adherence to the new standard. Very little concern was expressed in terms of the impacts that would be likely to be felt by SMEs, on the whole. As demonstrated below, there were conflicting views around the impact of the regulations on smaller ZDEH installers in particular:

  • "Small businesses in these areas who are doing heat pumps, (I) can only see things improving for these types of businesses."
  • "SME heating contractors most impacted. Upskilling of whole workforce means change is forced. Options to leave the industries, retrain or leave the sector."
  • "Heat pump business area looking up, though some small heat pump companies may find difficulties."

121. The workshops hosted during both consultations did not bring up any further issues specifically relating to the impact on SMEs from the introduction of the NBHS.

122. The Future Homes Delivery Plan (developed to inform the UK Government's Future Homes Standard) did, however, highlight a number of challenges for small house builders.[118] While the Scottish Government's intention to regulate was initially announced within the 2019-2020 Programme for Government, and subject to two public consultations, we recognise smaller businesses may have less flexibility in responding to regulatory change.[119] We will continue to work with our external working group to support the successful implementation and delivery of the NBHS throughout 2023, and are seeking further evidence on whether further support is required – with engagement being a key part of this.

123. Furthermore, we are working to overcome supply chain constraints and fill the skills gap. Many of the core trades and professions needed to support our transition to net zero already exist across the Scottish economy, and can be supported through upskilling. We are actively considering additional ways in which we can support all businesses – of all sizes – to upskill their staff.

124. The extent of compliance by a self-employed, micro-, small-, or medium-sized business versus by a large business. No information is recorded on the rate of non-compliance with building regulations in terms of company size. Therefore, it is difficult to determine the extent of compliance by a self-employed, micro, small, or medium business versus by a large business.

125. The relative impact on a self-employed, micro-, small-, or medium-sized business of penalties for non-compliance. The maximum penalty for non-compliance with building regulations is £5,000 - £10,000 (Level 5 fine).[120] The level of fine is not influenced by the size of the organisation. The introduction of the NBHS will not amend the existing penalties imposed.



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