Criterion 3.3 of the Code of Practice states that estimates of the costs and benefits of the policy options under consideration should normally form an integral part of consultation exercises, setting out the Government’s current understanding of the costs and benefits. This should normally be done through a “consultation-stage Impact Assessment” attached to the consultation document.
A “consultation-stage Impact Assessment” should contain the evidence as currently available to Government and should be used to illicit further evidence from consultees on the potential costs and benefits of policy options.
Comprehensive guidance and information, including a template, on Impact Assessment can be found at Scrutinising New Regulations. All central Government’s Impact Assessments get published on the IA Library.
A brief summary of central Government policy and practice on Impact Assessment is set out below.
What is Impact Assessment?
In the eyes of central Government, Impact Assessment is:
- a continuous process to help the policy-maker fully think through and understand the consequences of possible and actual Government interventions in the public, private and third sectors; and
- a tool to enable the Government to weigh and present the relevant evidence on the positive and negative effects of such interventions, including by reviewing the impact of policies after they have been implemented.
Impact Assessments are generally applicable to all central Government interventions affecting the private sector, the third sector and public services, regardless of source: domestic or international. Their preparation and publication ensure that those with an interest understand and can challenge:
- why the Government is proposing to intervene;
- how and to what extent new policies may impact on them; and
- the estimated costs and benefits of proposed and actual measures.
They also give affected parties an opportunity to identify potential unintended consequences.
As the Government aims to intervene only when necessary and since most policy objectives can be achieved through a range of options, the Government’s aim is to identify proposals that best achieve its objectives while minimising costs and burdens.
What types of intervention require an Impact Assessment?
Central Government policy on this is that any proposal that imposes or reduces costs on businesses or the third sector requires an Impact Assessment. Any proposal similarly affecting costs in the public sector also requires an Impact Assessment, unless the costs fall beneath a pre-agreed threshold (generally £5m). This means an Impact Assessment needs to be completed for all forms of intervention (including primary or secondary legislation as well as codes of practice or guidance) where the Department or regulator considers that the effect will be to increase or decrease costs. This includes proposals which encourage self-regulation or opt-in regulation. More detailed guidance on arrangements for non-Whitehall Departments is given in the Impact Assessment Toolkit.
Central Government policy is also that Impact Assessments are needed for proposals that are not regulatory in source but nevertheless impose costs on public sector or third-sector organisations that deliver public services. For example, changes to reporting requirements, revisions to criteria for releasing funding and the imposition of new targets could all have an impact on costs which should be assessed. However, a proportionate approach should be used. If the cost of the proposal is below £5 million and is not likely to attract high levels of political or media interest, only a developmental/option stage Impact Assessment is necessary. See the Toolkit for more detail.
An Impact Assessment is required when proposals would not yield an overall net change in costs and benefits but some kind of redistribution (such as in cases where there is an exchange or 'transfer' of costs or benefits from one group to another), or when there is a change in administrative costs.
An Impact Assessment should be prepared when a Department is seeking collective agreement within Government on what the UK’s negotiating position should be on an EU proposal, and also when submitting bids for primary legislation to the Legislative Programme Cabinet Committee.
Impact Assessments are not required: where policy changes will not lead to costs or savings for business, the public sector, third sector organisations, regulators or consumers; and for road closure orders. Nor are they required where changes to statutory fees or taxes are covered by a predetermined formula such as the rate of inflation, or in respect of other changes to taxes or tax rates where there are no associated administrative costs or savings.
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