2   Undertaking Regulatory Impact Analysis

2.1 The purpose of RIA

The government wants to ensure that proposals involving regulatory options are subject to careful and robust RIA to ensure that the problem cannot be adequately addressed through private or non-regulatory arrangements and that a regulatory solution is required in the public interest.

The government's RIA framework encourages an evidence-based approach to policy development which helps ensure that all practical options for addressing the problem have been considered and the benefits of the preferred option not only exceed the costs but will deliver the highest level of net benefit.

This means providing references and sources for assertions made (such as about the nature of the problem and about the expected viability or effectiveness of policy options), and for all estimates of costs, benefits and risks. Evidence may be quantitative or it may be qualitative; in each case the strengths, biases and limitations of the information sources should be explained. Where there are information gaps, for instance where there are no data available to support the analysis, this should be explicitly stated.

When considering the impacts of the status quo and of the alternative options, it is important to consider these impacts from the perspectives of the various affected parties. Put yourself in the position of the individuals and groups that will be affected, eg, farmers, shoppers, road-users.

2.2 Levels of analysis

Generally speaking, the level of analysis undertaken (detail and depth) should be commensurate with the magnitude of the problem and the size of the potential impacts of the options being considered. There is often judgment required to determine how much analysis is appropriate in particular circumstances and the Regulatory Impact Analysis Team (RIAT) can provide advice on this.

Sometimes it is appropriate to narrow down the initial range of options, and undertake comprehensive analysis on a more limited set of options, as this enables analytical resources to be focused on those options most likely to deliver net benefits[2]. In these circumstances, the objectives against which the full range of options was assessed should be explained, and the way they were applied made explicit (eg, if any objectives were weighted more highly than others). An example of this process is where a multi-criteria analysis[3] is employed to narrow down the set of options subject to full cost benefit analysis. Initial options may also be narrowed down through early consultation processes.

2.3 Describe the status quo

RIA involves assessing one or more policy options against the situation expected to occur in the absence of any further government action or decisions (the status quo). The status quo includes any existing legislation/regulations, or other relevant government interventions or programmes that are in place. Any relevant decisions that have already been taken should also be taken into account, including decisions that have been agreed by Cabinet but for which the legislation has not yet been passed.

The description of the status quo should also include consideration of the relevant prevailing market conditions. This may include expected demand and supply trends, and other features or characteristics of the market such as relevant market participants (eg, identifying who are the producers, suppliers, retailers, consumers, regulators). If there are non-regulatory, self-regulatory, or co-regulatory arrangements in place, these also form part of the status quo.

2.4 Identify the nature and scale of the problem

For the purposes of RIA, a “problem” is when the outcomes expected under the status quo are worse, from society's point of view, than they would be if action were taken to improve matters. It is the difference between how things will be and how we would like them to be.

Having described the status quo, the next task is then to assess the nature and size of the problem associated with the expected outcomes in the absence of any further government action. This involves identifying and quantifying (to the extent possible) the costs and benefits of the current arrangements, including:

• the nature and probability of the adverse outcome/s that will arise in the absence of further government intervention (in addition to the interventions already in place), and
• who is likely to be affected by the adverse outcome, including how widespread it is likely to be (ie, how many individuals, groups, firms etc. are affected), what harm or injury is likely to occur, and the magnitude of these impacts.

This quantification should include aggregate figures (totals) to help put the issue in a wider perspective. The next step is to identify the root cause of the problem (not just the symptoms), for example market failure, regulatory failure, unacceptable hazard or risks, social goals/equity issues. The reason why the problem will not be addressed within existing arrangements or by private arrangements (such as individual contracts, market forces etc.) should be explained. If the problem relates to existing legislation or regulation, it should be made clear whether the problem is in relation to its design (and) or its implementation.

In practice, the status quo and problem may be inter-related and considered or discussed together. However, the key elements of both should be addressed.

2.5 Define the objectives

Describe the objectives, outcomes, goals or targets that are sought in relation to the identified problem. If there is an authoritative or statutory basis for undertaking the analysis eg, legislative requirement to annually review an item of regulation, this should be explained.

The objectives should be clear and should not pre-justify a particular solution. They should be specified broadly enough to allow consideration of all relevant alternative solutions. It may be appropriate to distinguish between primary and subsidiary objectives. The objectives should focus on the desired final outcome rather than the means of achieving it.

If the outcomes are subject to constraints, for example if they must be achieved within a certain time period or budget, then these should be clearly specified in the statement of objectives.

There may be more than one policy objective, and there may be potential for conflict between objectives. If this is the case, it should be clear how trade-offs between competing objectives are going to be made (for example if one objective is weighted more highly than another).