Business and Regulatory Impact Assessment (BRIA) - Toolkit

Section 3: Costs, impacts and benefits

Officials should identify where different options impact on different groups and consider whether the options change the distribution of costs, impacts and benefits within and between groups. This will provide evidence to:

• compare the relative costs and benefits of policy options aimed at addressing the problem;
• support final policy recommendation and help determine whether the benefits from the policy options justify the costs;
• demonstrate the options than legislation i.e. voluntary regulation;
• show why has each option been accepted or rejected.

Impacts on businesses can be set out in both a quantitative and qualitative way. Officials should consider what they are asking business/ the public to do directly, and how this may change behaviour.

It is often difficult to predict accurately the exact costs and benefits so where necessary officials should use estimates and/or ranges. This should state whether these estimates/ranges represent extreme values or the most likely range of outcomes. Where there is uncertainty, this should be clear and set out any assumptions used to arrive at estimates/ranges and any plans to further address this.

Officials should 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 should be expressed as monetary values.

Where prices for goods and services are involved, finding monetary values is usually straightforward. In the absence of prices, officials can, 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.

Quantification of benefits is important but often challenging. Monetary quantification of benefits can use economic valuation techniques and economists can advise on this. 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 staff requirements, changes in emission levels or new equipment needed. Such measures should enable options to be compared but may not always allow the relative costs and benefits to be weighed up.

Cost considerations should not be limited to only those that can be enumerated. Identifying the order of magnitude of costs that cannot be specifically identified will be helpful. Setting out the qualitative description of what is expected will also be important in providing a complete description of the impact and allowing businesses to understand what is expected of them.

Qualitative description of the impacts should also be used to support quantitative analysis and where quantitative impacts are not available or applicable. For example, officials may be able to identify changes in behaviour that may affect how businesses operate but cannot initially put a cost on it. Engaging with businesses using this approach can also help to better understand the direct costs and monetary value of the impacts.

While officials are expected to identify and set out costs, benefits and impacts, it is important to note that these should be balanced with the overall aims/ objectives of the policy. The existence of costs should not prevent policy decisions from being taken, but they should be used to determine the best course of action overall.

Quantified Costs to Businesses

Direct costs are likely to be things businesses will need to pay for to meet the specific aims of the policy/ regulation – licenses/ registration, conformity assessment, changes to premises. It should also cover direct identifiable impacts to business incomes/ outgoings - for examples if prohibiting/ limiting the sale of a specific type of good, setting out the current market figures.

Officials should set out how these costs impact across different businesses/ sectors. Side by side comparison the direct costs to businesses from each proposed option will help evaluate their overall impact.

Indirect costs will be those which are not a core part of the stated policy/ regulation but will result from its implementation within businesses or through the supply chain. For example, businesses may need to increase staff levels or provide additional training to staff to ensure they comply with the policy/ regulation. Similarly, where a business is not directly covered by the policy but relies on goods/ services from a sector that is, they may be impacted by higher costs or more difficulty accessing the goods/ services.

Other impacts

Officials should set out the additional impacts that have been identified, but where a cost/ economic impact has not (or cannot) been quantified. This may include changes in behaviour, such as business changing focus/ sector that may result from the policy. Some of the impacts in this section may be quantified via engagement with businesses.

Scottish Firms International Competitiveness

Officials are expected to consider both competition impacts from the consumers' perspective and international obligations in the relevant sections below. However, when considering the costs/ impacts on businesses they should set out how it may affect the competitiveness of Scottish firms internationally from the perspective of those firms.

Impacts will be relevant where Scottish firms operate internationally and are in competition with businesses not subject to the policy (i.e. those that do not operate in Scotland). Policy proposals that add costs or restrictions to Scottish firms that do not apply to international competitors may affect their ability to compete, by increasing costs or limiting the goods or services they are able to offer internationally. Note that under World trade Organisation (WTO) law, regulations should not be applied to imported or domestic products in a manner which would provide protection for Scottish business.

Scotland's ability to compete internationally to attract global capital investment should also be considered. Investors have a choice where they invest and there will be global competition for capital investment.

Benefits to business

In addition to the negative impacts of additional costs, officials should set out how businesses may benefit from the policy/ regulation options being considered. Some benefits will be easier to estimate than others. Consulting economists for advice as early as possible can help put a monetary value on the benefits. Examples may be reduced costs for business, improved access to goods/ services, or more streamlined processes saving staff time.

Small business impacts

Small businesses make up most businesses in Scotland, and at the same time have fewer resources available to respond to new policy/ regulations.

Officials should consider specifically how the policy proposals will affect small businesses. Key issues for this group will be any requirements on businesses that are likely to be resource intensive (taking up staff time or additional costs and changes to operations) given they are more likely to have limited capacity to absorb.

The assessment should set out whether costs scale with the size of affected business, or whether there is a fixed minimum cost for all businesses. It should also note how the distribution of benefits of the proposal could be spread between a self-employed, micro, small, medium business.

In addition to costs, officials should consider how the regulatory burden varies between businesses of varied sizes. Significant reporting/ compliance requirements will be harder for small businesses to meet. Similarly, the relative impact on a self-employed, micro, small, or medium business of penalties for non-compliance can be detailed, for example by expressing costs as a percentage of turnover.

Appropriate engagement with small businesses will be vital in understanding the impacts on them, including indirect and secondary effects. For example, changes in turnover (which may not affect net overall profits) may affect businesses standing with regards to VAT registration. This can result in additional costs and burdens on small businesses not directly associated with the policy.

Officials should consider whether flexibility options/ exemptions could assist a micro, small, medium business to meet the requirements of the proposal in a way that still ensures the overall aim of the policy/ regulation is being met. More information on how such exemptions have been considered should be set out in the Enforcement and Compliance section of the BRIA

Investment

Large scale private capital investment is needed to enable Scotland's just transition to net zero. The First Minister's Investor Panel provided proposals to help to make Scotland a globally competitive investment destination. This includes ensuring the implications for investors and investor sentiment are taken into consideration when policy is formulated or legislation developed across all of Scottish Government. This also needs to apply to how policy is delivered

At a national level, Scotland is seeking to achieve an economic and investment landscape which has a competitive advantage in attracting private capital investment into key strategic sectors. Consideration should be given to the investor friendly landscape Scotland is trying to create, and give every effort to creating and promoting this competitive advantage.

At a sectoral level, such as renewable energy and the hydrogen economy, Scotland is working to create and support sectors which have the potential to become world leading industries, where our competitive advantage would see us operating as a leading exporter. Officials should consider how this policy would impact the competitiveness of Scotland's leading sectors.

Officials should set out how the proposed policy aligns with the recommendations of the First Minister's Investor Panel to make Scotland a globally competitive investment destination. They should consider whether the proposed policy or regulation has the potential to make Scotland a more, or less, attractive place for global investment. Where there is an impact on investors and investment sentiment, officials should identify whether there is scope for mitigation and how this has been considered

Workforce and Fair Work

The Scottish Government is committed to the principles of Fair Work. Officials should consider any identifiable impacts the policy options may have on the workforce, for example supporting inclusive recruitment or improving job satisfaction.

When considering the impact on businesses from new policy/ regulations, officials should consider how these align with Fair Work First principles and how implementing them may affect businesses ability to act in accordance.

For example, officials may want to consider whether increased costs will reduce the ability/ likelihood of paying workers the Real Living Wage.

Officials should also consider how the different policy options may promote the Fair Work First principles by making it easier for businesses or otherwise encouraging them to take positive steps towards embedding them.

Further information on the seven Fair Work First principles is available on the Scottish Government website.

Climate Change and the Circular Economy

The Scottish Government is committed to reaching Net Zero by 2045, and promoting a Circular Economy in Scotland

Officials should consider whether any of the proposed policy options are likely to impact on businesses ability to contribute to deliver a Circular Economy in Scotland.

For example, officials may wish to consider for each option

• Does it align with the aims of the Circular Economy & Waste Route Map?
• Will the policy contribute to responsible production and responsible consumption?
• Will the policy drive sustainable reduction, reuse or recycling of resources?
• Will it increase or decrease goods or services consumed in Scotland?
• How can the policy options under consideration be used to promote Circular Economy aims to achieve maximum positive impact for communities and businesses in Scotland?

Officials should also note that businesses may have their own plans for moving towards net zero, and their own circular economy plans. Any potential impacts that may prevent businesses meeting these aims should be set out.

Competition Assessment

In addition to looking at the impact on individual firms, it is important to consider the impact that a regulation or policy might have on competition between firms. Where regulations restrict competition – for example by making it harder for new firms to enter a market – this can increase costs for consumers or other businesses in the supply chain for these markets.

Policy proposals can also have the outcome (by design or not) to increase competition within the market. A competitive market is one where businesses, large and small, can compete to deliver services and products to consumers. Competitive markets drive innovation, productivity, sustainable economic growth and provide consumers with a choice of goods and services. These costs and opportunities need to be factored into the BRIA.

The overall aim of the competition assessment is to find a policy approach which encourages competition within the market, subject to achieving the wider policy objectives. The main elements of the competition assessment are:

• identifying the relevant markets, products or services which might be affected by a policy
• identifying possible restrictions on competition in these markets resulting from the policy proposals, by answering the following questions:
• o Will the measure directly or indirectly limit the number or range of suppliers?
• o Will the measure limit the ability of suppliers to compete?
• o Will the measure limit suppliers' incentives to compete?
• o Will the measure affect consumers' ability to engage with the market and make choices that align with their preferences?
• o Will the measure affect suppliers' ability and/or incentive to introduce new technologies, products or business models?

A competition concern may be identified if at least one of the above conditions is met. Officials should set out how the policy/ regulation answers each of the considerations above and provide evidence about the nature of potential competition impacts.

If any of these options increase competition, or help create a more level playing field for sectors, then this should be detailed also.

The Competitions and Market Authority (CMA) provides guidance on carrying out competition assessments and can provide informal advice in particularly complex cases. Guidance is available at on the gov.uk website. Economist colleagues can also help in answering whether the proposals are likely to prevent, restrict or distort competition in any of the affected markets.

Consumer Duty

As of April 2024, the consumer assessment section of the BRIA has been replaced by the Consumer Duty. This is a statutory duty introduced by the Consumer Scotland Act 2020 which came into force on 1 April 2024. It places a duty on relevant public authorities in Scotland, including the Scottish Government, to improve the extent to which consumers are considered in strategic decision-making. A key principle of the Duty will be to ensure all public bodies are working towards improving outcomes for consumers as part of their strategic decision making process.

The Consumer Scotland Act 2020 defines a consumer as an individual or small business who buys, uses or receives goods or services in Scotland, or could potentially do so, supplied by a public authority or other public body. This definition should be applied when applying the Duty.

It is recommended that officials familiarise themselves with the Consumer Duty guidance prior to completing this section. Consumer Scotland has responsibility for issuing the guidance. The guidance sets out how to complete an assessment of the Duty. The Consumer Policy team within the Scottish Government has responsibility for answering all other consumer-related queries.

If officials are not required to carry out a BRIA, they should still complete a Consumer Duty template, which can be found on the Consumer Scotland website.

When developing your policy, officials must consider:

• The impact of decisions made on consumers in Scotland.
• The desirability of reducing harm to consumers in Scotland.

Although the Duty applies to all consumers, policy officials are encouraged to consider the impact of strategic decisions on consumers living within vulnerable circumstances, with the intention of avoiding harm being brought to them where appropriate. As set out in the Act, policy officials should:

• Publish information around the steps taken to meet the Duty (i.e. publishing the BRIA or, where a BRIA is not required, publishing the Consumer Duty assessment).
• Have regard to the guidance produced by Consumer Scotland.

Meaning of Consumer as per the Consumer Scotland Act 2020

(1) In this Act, "consumer" means —

(a) an individual —

• (i) who purchases, uses or receives, in Scotland, goods or services which are supplied in the course of a business carried on by the person supplying them, and
• (ii) who is not purchasing, using or receiving the goods or services wholly or mainly in the course of a business carried on by the individual, or

(b) a business (including a business carried on by an individual) —

(i) which is no larger than a small business, and

• (iii) which purchases, uses or receives, in Scotland, goods or services which are supplied in the course of a business carried on by the person supplying them.

(2) For the purposes of subsection (1) —

(a) a consumer includes both an existing consumer and a potential consumer,

(b) a person who uses services includes, in relation to postal services, an addressee.

Ministerial Sign-Off

As part of the Duty, policy officials now require their relevant Cabinet Secretary or Minister to confirm that they are content that officials have considered the impact on consumers as required by the Consumer Scotland Act 2020 in completion of the Consumer Duty section of this BRIA.