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Last updated: 08 July 2009
14.1 An Impact Assessment is an analysis of the likely impact of a range of possible options for implementing a policy change. An Impact Assessment must set out the risk or problem to be addressed and the options available – assessed against a ‘do nothing’ option and any non-legislative or non-regulatory options, such as Codes of Practice, industry standards or information campaigns. It must also set out the likely costs and benefits of each option. Its aim is to answer the question ‘Is this the best way of achieving the objective?’ In this way it is not contrained in the way explanatory notes are, by rules about political neutrality (ie rules against "selling" the bill.)
14.2 The Impact Assessment is not just about regulatory burden. It goes much wider than this, and includes specific assessments on: competition, small firms, legal aid, sustainable development, carbon, “other” environment, health, human rights and rural proofing, as well as the Equality Impact Assessment which is required by law. Detailed guidance on how to carry out each of these specific impact assessments, including the Equality Impact Assessment, is provided as part of BRE's Impact Assessment toolkit [External website]. But departments should continue to consider ways to minimise new burdens on business and the third sector, and on local authorities, alongside the wider costs and benefits.
14.3 An Impact Assessment should be proportional to the likely impact of the proposal. If it is likely to affect only a few firms or organisations, or many firms or organisations but only to a very small degree, and/or the costs and benefits are likely to be very small, then the Impact Assessment should be quite short. Where the impact will be substantial, more data and analysis will be required.
When is an Impact Assessment required?
14.4 An Impact Assessment must be produced for any policy proposal with a significant impact on business, the third sector or the environment, or which imposes costs of more than £5m on the public sector. For Bills, this means:
14.5 In the very small number of cases where a full Impact Assessment is not required, departments must first agree this approach with the Better Regulation Executive in BERR.
14.6 An Equality Impact Assessment covering race, gender and disability is a statutory requirement and must be completed for all Bills, even in the rare cases where a full Impact Assessment is not required. The Equality Impact Assessment should be published alongside any white paper or consultation on the proposals in the Bill, then alongside the Bill itself when it is published in draft or introduced to Parliament.
Developing an Impact Assessment
14.7 The development stage Impact Assessment will define the policy problem, set out the evidence and the rationale for Government intervention, and identify policy objectives and options (legislative and non-legislative) for achieving them, with some testing of options through informal or internal consultation.
14.8 As work continues, options will then be refined, including refined estimates of costs, benefits and risks (including for individual sectors), any unintended consequences and indirect costs and how they will be addressed, and any distributional impacts, e.g. transfers of income or redistribution of opportunities. This is the options stage Impact Assessment which should be published as part of a public consultation.
14.9 The final Impact Assessment should reflect the responses from any consultation and include further information and analysis, particularly relating to the costs and benefits of the policy proposal, together with clear recommendations. It should include the full evidence base supporting the chosen policy option and explain why this represents a fair and reasonable view of the expected costs, benefits and impacts, highlighting any assumptions that have been made and any assumptions that have been changed as a result of consultation. It should set out specific impacts of the proposal using the various Specific Impact Tests such as competition, small firms, environment, carbon (see the BRE's Impact Assessment toolkit [External website] for more detail on these). And it should set out when the policy will be reviewed to establish the actual costs and benefits (see also post-legislative scrutiny).
14.10 The final Impact Assessment should be accompanied by a signed declaration by the responsible Minister that it represents a fair and reasonable view of the expected costs, benefits and impacts of the policy, and that on the basis of the available evidence the benefits justify the costs.
14.11 A very brief summary of the Impact Assessment, and in particular the carbon assessment, must be included in the Explanatory Notes to the Bill.
Practicalities on introduction
14.12 A requirement for copies of the Impact Assessment to be placed in the Commons Vote Office (as opposed to simply being deposited in the House of Commons Library) has been specifically endorsed by the House. 80 copies should be sent to the Vote Office, 30 of which marked for the attention of the Public Bill Office (these additional 30 copies are only required for Bills in committee rooms, not for those that have their committee stages on the floor of the House) and 10 copies to the Lords Printed Paper Office on introduction to the Commons.
14.13 Copies will also be required for the (Commons) Public Bill Office to make available in the Public Bill Committee room – or, subject to the agreement of the Chairman, copies may be sent to all members of the relevant Public Bill Committee.
14.14 The Impact Assessment will need to be updated during Parliamentary passage to reflect any amendments made to the Bill, and when a revised version is published on entry to the second House then again 50 copies should be sent to the Vote Office and 10 copies to the Lords Printed Paper Office.
14.15 In preparing an Impact Assessment, officials should remember that within 3-5 years of Royal Assent the Government will be required to submit a Memorandum to the relevant departmental Select Committee with a preliminary assessment of how the Act has worked out in practice, to allow the Committee to decide whether it wishes to conduct further post-legislative scrutiny. The Impact Assessment (along with the Explanatory Notes) must therefore provide sufficient information about the objectives of the Act to allow any post-legislative reviewing body to make an effective assessment as to how an Act is working out in practice.
Small firms
14.16 For all primary legislation from the 2009-10 session (and for all secondary legislation from the 2008-09 Parliamentary session), rather than simply applying new legislation to all businesses unless there is a compelling case otherwise, the Government has committed to looking more actively at ways to offer flexibility for small firms (of 20 employees or less and a turnover below £2.8million).
14.17 Consideration must therefore be given to devising practical exemptions at the policy development stage, e.g. can small firms be exempted from new regulatory requirements or subject to simpler enforcement, such as reduced paperwork or inspection requirements, so as to avoid imposing a disproportionate burden on smaller businesses.
14.18 The details of any targeted approach for small firms (or the reasons why this was not possible) should be included in the Impact Assessment, and summarised in the Explanatory Notes. The Government has also agreed that where a more flexible approach is not possible for legal or policy reasons, it will work with small firms to design specific non-legislative approaches for them, such as simplified guidance and forms.
14.19 The Better Regulation Executive is preparing more detailed guidance on considering possible exemptions/greater flexibility for small firms; advice can be sought on 020 7215 0246.