Analysing costs
The separation of policy and administrative costs is important – this can shed light on the extent to which it may be desirable to find alternative policy options or help identify things that might otherwise be missed, particularly at the early stages of the Impact Assessment.
- Policy costs can be viewed as the essential costs of meeting the policy objectives while administrative costs usually arise from the costs associated with familiarisation with the requirements, monitoring and enforcement, proving compliance etc.
- Within the administrative cost assessment, identify the cost of administrative burdens placed on business and the third sector using the standard cost model.
- When policy and administrative costs are compared, this provides some idea about how efficiently the policy can be implemented and therefore how well it is designed.
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. See also the section on Admin Burdens baseline.
- cost of getting licences – these will involve estimating the fees plus administrative costs. Enforcement authorities should be able to help with providing estimates. See also the guidance on enforcement.
- cost of extra legal, accountancy or other consultancy advice – again consultation or colleagues' experience might be informative
- indirect costs – ie 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.
