Title: Impact Assessment (IA) Impact Assessment for...

1 URN 10/1268 Ver. 2.0 12/10

Title:

Impact Assessment for the Proposed Replacement of the Health and Safety (Fees) Regulations 2010 Lead department or agency: Health and Safety Executive (HSE) Other departments or agencies:

Impact Assessment (IA) IA No:

Date: 03/06/2011 Stage: Consultation

Source of intervention: Domestic

Type of measure: Secondary legislation

Contact for enquiries: [email protected] [email protected]

Summary: Intervention and Options

What is the problem under consideration? Why is government intervention necessary? Regulatory work relating to workplace health and safety is at present largely funded by the taxpayer via Government, rather than by those who create the need for such work by operating outside the law. Government intervention is necessary to rectify this. The proposal is to implement the policy announced on 21 March 2011 in "Good Health and Safety - Good for Everyone", to enable regulators to extend cost recovery to businesses found in material breach of the law (and to the assessment and inspection of onshore boreholes). The proposal requires replacement of the Health and Safety (Fees) Regulations 2010 but does not introduce any new health and safety requirements.

What are the policy objectives and the intended effects? - to continue to provide protection for workers and society from the effects of work activities, while shifting some of the cost burden from the taxpayer to those businesses that are found to be in material breach of the law; and those that operate onshore boreholes; - to improve health and safety standards, by increasing the incentive to improve for those who do not comply with health and safety legislation; - to provide a level playing field for dutyholders that comply with the law, making it less likely that they will be undercut by those who lower their costs by not doing so.

What policy options have been considered, including any alternatives to regulation? Please justify preferred option (further details in Evidence Base) 1 – Do nothing. Do not recover any new costs, 2 – Recover the costs of health and safety interventions from businesses that are found to be in material breach of health and safety law for work activities enforced by HSE and Local Authorities, 3 – As option 2, but exempting micro-businesses and new start-ups, 4 – As option 2, but setting up a separate regime for onshore boreholes, while exempting work activities with high hazard biological agents, 5 - As option 4, but exempting micro-businessess and new start-ups, 6 - As option 4 but excluding Local Authority health and safety regulators from recovering their costs, 7 – As option 4 but excluding Local Authority health and safety regulators from recovering their costs and exempting micro-businesses and new start-ups. Option 6 is the preferred option as it best meets the policy objectives and accounts for forthcoming changes in legislation. Will the policy be reviewed? It will be reviewed. If applicable, set review date: 4/2017 What is the basis for this review? PIR. If applicable, set sunset clause date: Month/Year Are there arrangements in place that will allow a systematic collection of monitoring information for future policy review?

Yes

SELECT SIGNATORY Sign-off For consultation stage Impact Assessments:

I have read the Impact Assessment and I am satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impact of the leading options.

Signed by the responsible Chief Executive: Date:

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Summary: Analysis and Evidence Policy Option 1 Description: Do nothing. Do not recover any new costs for work activities enforced by HSE and Local Authorities.

Net Benefit (Present Value (PV)) (£m) Price Base Year 2010

PV Base Year 2012

Time Period Years 10 Low: 0 High: 0 Best Estimate: 0

COSTS (£m) Total Transition

(Constant Price) Years

Average Annual (excl. Transition) (Constant Price)

Total Cost (Present Value)

Low 0 0 0 High 0 0 0 Best Estimate

Description and scale of key monetised costs by ‘main affected groups’ .

Other key non-monetised costs by ‘main affected groups’

BENEFITS (£m) Total Transition (Constant Price) Years


Total Benefit (Present Value)

Low 0 0 0 High 0 0 0 Best Estimate

Description and scale of key monetised benefits by ‘main affected groups’

Other key non-monetised benefits by ‘main affected groups’

Key assumptions/sensitivities/risks Discount rate (%)

Direct impact on business (Equivalent Annual) £m): In scope of OIOO? Measure qualifies as Costs: Benefits: Net: No NA

3

Enforcement, Implementation and Wider Impacts What is the geographic coverage of the policy/option? Great Britain From what date will the policy be implemented? Which organisation(s) will enforce the policy? HSE/Local Authorities

What is the annual change in enforcement cost (£m)? None Does enforcement comply with Hampton principles? Yes Does implementation go beyond minimum EU requirements? N/A What is the CO2 equivalent change in greenhouse gas emissions? (Million tonnes CO2 equivalent)

Traded: N/A

Non-traded: N/A

Does the proposal have an impact on competition? No What proportion (%) of Total PV costs/benefits is directly attributable to primary legislation, if applicable?

Costs: N/A

Benefits: N/A

Distribution of annual cost (%) by organisation size (excl. Transition) (Constant Price)

Micro -

< 20 -

Small -

Medium -

Large -

Are any of these organisations exempt? No No No No No

Specific Impact Tests: Checklist Set out in the table below where information on any SITs undertaken as part of the analysis of the policy options can be found in the evidence base. For guidance on how to complete each test, double-click on the link for the guidance provided by the relevant department.

Please note this checklist is not intended to list each and every statutory consideration that departments should take into account when deciding which policy option to follow. It is the responsibility of departments to make sure that their duties are complied with.

Does your policy option/proposal have an impact on…? Impact Page ref within IA

Statutory equality duties1 Statutory Equality Duties Impact Test guidance

No 40

Economic impacts Competition Competition Assessment Impact Test guidance No 40 Small firms Small Firms Impact Test guidance No 41

Environmental impacts Greenhouse gas assessment Greenhouse Gas Assessment Impact Test guidance No 41 Wider environmental issues Wider Environmental Issues Impact Test guidance No 41

Social impacts Health and well-being Health and Well-being Impact Test guidance No 41 Human rights Human Rights Impact Test guidance No 41 Justice system Justice Impact Test guidance No 41 Rural proofing Rural Proofing Impact Test guidance No 41

Sustainable development Sustainable Development Impact Test guidance

No 41

1 Public bodies including Whitehall departments are required to consider the impact of their policies and measures on race, disability and gender. It is intended to extend this consideration requirement under the Equality Act 2010 to cover age, sexual orientation, religion or belief and gender reassignment from April 2011 (to Great Britain only). The Toolkit provides advice on statutory equality duties for public authorities with a remit in Northern Ireland.

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Summary: Analysis and Evidence Policy Option 2 Description: Recover the costs of health and safety interventions from dutyholders that are found to be in material breach of health and safety law for work activities enforced by HSE and Local Authorities.


PV Base Year 2012

Time Period Years 10 Low: Optional High: Optional Best Estimate:





Low Optional Optional Optional High Optional Optional Optional Best Estimate

-

0 Description and scale of key monetised costs by ‘main affected groups’ The costs to be recovered from non-compliant businesses are estimated at approximately £43.7 million per year for HSE and £15.9 million per year for local authority regulators: a total of around £59.6 million per annum transferred from non-compliant businesses to taxpayer-funded regulators. This estimate is towards the upper end of the range of possibilities: there are a number of uncertainties (see below) which cannot at this stage be quantified but most of which point in a downward direction.

Other key non-monetised costs by ‘main affected groups’ There will be additional costs relating to familiarisation and processing of invoices for businesses found to have a material breach. There will also be set up and maintenance costs for HSE and Local Authorities. It has not yet been possible to monetise these costs.





Description and scale of key monetised benefits by ‘main affected groups’ There will be a benefit to the taxpayer (via HSE and Local Authorities) equal to the sum of the costs recovered from businesses. In option 2 the benefits would be approximately £43.7 million per year for HSE and approximately £15.9 million per year for Local Authority regulators. As indicated under 'costs', these benefits are towards the maximum that are likely to be realised.

Other key non-monetised benefits by ‘main affected groups’ The main non-monetised benefit is the avoidance of the costs of work-related injuries and ill health, due to a decrease in health and safety standards which could otherwise result from the savings which HSE has been asked to make in the 2010 Spending Review. These avoided costs accrue to individuals and their dependents, to businesses and to the government. Because of the complexity of the health and safety system it has not been possible to quantify these effects.


3.5 At this stage in the process (pre-consultation), several uncertainties remain in our estimates. Although it is not currently possible to quantify these uncertainties, they are most likely to have a downward impact on the level of costs recovered. We do not yet know whether Local Authority regulators will seek to have a non-discretionary power to recover costs, and if so how they would do this. There are also uncertainties regarding potential changes to inspector and business behaviour, the level of familiarisation, the extent of challenge to invoices, the level of bad debt, and the speed with which the new systems will bed in. These uncertainties will be addressed through consultation, continued analysis of available information, and a ‘Dry Run’ test of the proposed cost recovery scheme.

Direct impact on business (Equivalent Annual) £m): In scope of OIOO? Measure qualifies as Costs: 59.6 Benefits: Net: -59.6 No NA

5

Enforcement, Implementation and Wider Impacts What is the geographic coverage of the policy/option? Great Britain From what date will the policy be implemented? 01/04/2012 Which organisation(s) will enforce the policy? HSE, Local Authorities

What is the annual change in enforcement cost (£m)? Not yet known Does enforcement comply with Hampton principles? Yes Does implementation go beyond minimum EU requirements? N/A What is the CO2 equivalent change in greenhouse gas emissions? (Million tonnes CO2 equivalent)

Traded: N/A

Non-traded: N/A

Does the proposal have an impact on competition? Yes What proportion (%) of Total PV costs/benefits is directly attributable to primary legislation, if applicable?

Costs:

Benefits:


Micro 58

< 20 -

Small -

Medium -

Large -






No 40

Economic impacts Competition Competition Assessment Impact Test guidance No 40 Small firms Small Firms Impact Test guidance Yes 41




No 41


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Summary: Analysis and Evidence Policy Option 3 Description: As option 2, but exempting microbusinesses (ie those employing fewer than 10 people) and new start-ups.


PV Base Year 2012

Time Period Years 10 Low: Optional High: Optional Best Estimate: 0






0 Description and scale of key monetised costs by ‘main affected groups’ The costs to be recovered from non-compliant businesses are estimated at approximately £19.4 million per year for HSE and £6.4 million per year for Local Authority regulators: a total of around £25.8 million per annum transferred from non-compliant businesses to taxpayer-funded regulators. This estimate is towards the upper end of the range of possibilities: there are a number of uncertainties (see below) which cannot at this stage be quantified but most of which point in a downward direction.

Other key non-monetised costs by ‘main affected groups’ There will be additional costs relating to familiarisation and processing of invoices for businesses found to have a material breach. There will also be set up and maintenance costs for HSE and Local Authorities. It has not yet been possible to monetise these costs..










7



Traded: N/A

Non-traded: N/A


Costs:

Benefits:


Micro 0

< 20 -

Small -

Medium -

Large -

Are any of these organisations exempt? Yes No No No No





No 40





No 41


8

Summary: Analysis and Evidence Policy Option 4 Description: As option 2, but setting up a separate regime for onshore boreholes, while exempting work activities with high hazard biological agents.


PV Base Year 2012







0 Description and scale of key monetised costs by ‘main affected groups’ The costs to be recovered from non-compliant businesses and operators of onshore boreholes are estimated at approximately £43.6 million per year for HSE and £15.9 million per year for Local Authority regulators: a total of around £59.5 million per annum. This estimate is towards the upper end of the range of possibilities: there are a number of uncertainties (see below) which cannot at this stage be quantified but most of which point in a downward direction.

Other key non-monetised costs by ‘main affected groups’ There will be additional costs relating to familiarisation and processing of invoices for businesses found to have a material breach and operators of onshore boreholes. There will also be set up and maintenance costs for HSE and Local Authorities. It has not yet been possible to monetise these costs.










9



Traded: N/A

Non-traded: N/A


Costs:

Benefits:


Micro 58

< 20 -

Small -

Medium -

Large -






No 40





No 41


10

Summary: Analysis and Evidence Policy Option 5 Description: As option 4, but exempting microbusinesses (ie those employing fewer than 10 people) and new start-ups.


PV Base Year 2012







0 Description and scale of key monetised costs by ‘main affected groups’ The costs to be recovered from non-compliant businesses and operators of onshore boreholes are estimated at approximately £19.3 million per year for HSE and £6.4 million per year for Local Authority regulators: a total of around £25.7 million per annum. This estimate is towards the upper end of the range of possibilities: there are a number of uncertainties (see below) which cannot at this stage be quantified but most of which point in a downward direction.

Other key non-monetised costs by ‘main affected groups’ There will be additional costs relating to familiarisation and processing of invoices for businesses found to have a material breach and operators of onshore boreholes. There will also be set up and maintenance costs for HSE and Local Authorities. It has not yet been possible to monetise these costs.










11



Traded: N/A

Non-traded: N/A


Costs:

Benefits:


Micro 0

< 20 -

Small -

Medium -

Large -






No 40





No 41


12

Summary: Analysis and Evidence Policy Option 6 Description: As option 4 but excluding Local Authority regulators. This is the preferrred option.


PV Base Year 2012







0 Description and scale of key monetised costs by ‘main affected groups’ The costs to be recovered from non-compliant businesses and operators of onshore boreholes are estimated at approximately £43.6 million per year for HSE. This estimate is towards the upper end of the range of possibilities: there are a number of uncertainties (see below) which cannot at this stage be quantified but most of which point in a downward direction.

Other key non-monetised costs by ‘main affected groups’ There will be additional costs relating to familiarisation and processing of invoices for businesses found to have a material breach and operators of onshore boreholes. There will also be set up and maintenance costs for HSE. It has not yet been possible to monetise these costs.





Description and scale of key monetised benefits by ‘main affected groups’ There will be a benefit to the taxpayer (via HSE) equal to the sum of the costs recovered from businesses. In option 6 the benefits would be approximately £43.6 million per year. As indicated under 'costs', these benefits are towards the maximum that are likely to be realised.



3.5 At this stage in the process (pre-consultation), several uncertainties remain in our estimates. Although it is not currently possible to quantify these uncertainties, they are most likely to have a downward impact on the level of costs recovered. There are uncertainties regarding potential changes to inspector and business behaviour, the level of familiarisation, the extent of challenge to invoices, the level of bad debt, and the speed with which the new systems will bed in. These uncertainties will be addressed through consultation, continued analysis of available information, and a ‘Dry Run’ test of the proposed cost recovery scheme.


13

Enforcement, Implementation and Wider Impacts What is the geographic coverage of the policy/option? Great Britain From what date will the policy be implemented? 01/04/2012 Which organisation(s) will enforce the policy? HSE


Traded: N/A

Non-traded: N/A


Costs: N/A

Benefits: N/A


Micro 58%

< 20 -

Small -

Medium -

Large -






No 40





No 41


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Summary: Analysis and Evidence Policy Option 7 Description: As option 5 but excluding Local Authority regulators


PV Base Year 2012







0 Description and scale of key monetised costs by ‘main affected groups’ The costs to be recovered from non-compliant businesses and operators of onshore boreholes are estimated at approximately £19.3 million per year for HSE. This estimate is towards the upper end of the range of possibilities: there are a number of uncertainties (see below) which cannot at this stage be quantified but most of which point in a downward direction.

Other key non-monetised costs by ‘main affected groups’ There will be additional costs relating to familiarisation and processing of invoices for businesses found to have a material breach and operators of onshore boreholes. There will also be set up and maintenance costs for HSE. It has not yet been possible to monetise these costs.





Description and scale of key monetised benefits by ‘main affected groups’ There will be a benefit to the taxpayer (via HSE) equal to the sum of the costs recovered from businesses. In option 7 the benefits would be approximately £19.3 million per year. As indicated under 'costs', these benefits are towards the maximum that are likely to be realised.



3.5 At this stage in the process (pre-consultation), several uncertainties remain in our estimates. Although it is not currently possible to quantify these uncertainties, they are most likely to have a downward impact on the level of costs recovered. There are uncertainties regarding potential changes to inspector and business behaviour, the level of familiarisation, the extent of challenge to invoices, the level of bad debt, and the speed with which the new systems will bed in. These uncertainties will be addressed through consultation, continued analysis of available information, and a ‘Dry Run’ test of the proposed cost recovery scheme.


15

Enforcement, Implementation and Wider Impacts What is the geographic coverage of the policy/option? Great Britain From what date will the policy be implemented? 01/04/2012 Which organisation(s) will enforce the policy? HSE

What is the annual change in enforcement cost (£m)? Not yet known Does enforcement comply with Hampton principles? Yes Does implementation go beyond minimum EU requirements? No What is the CO2 equivalent change in greenhouse gas emissions? (Million tonnes CO2 equivalent)

Traded: N/A

Non-traded: N/A


Costs: n/a

Benefits: n/a


Micro 0

< 20 -

Small -

Medium -

Large -






No 40





No 41


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Evidence Base (for summary sheets) – Notes Use this space to set out the relevant references, evidence, analysis and detailed narrative from which you have generated your policy options or proposal. Please fill in References section.

References Include the links to relevant legislation and publications, such as public impact assessments of earlier stages (e.g. Consultation, Final, Enactment) and those of the matching IN or OUTs measures.

No. Legislation or publication Good Health and Safety - Good For Everyone: http://dwp.gov.uk/docs/good-health-and-

safety.pdf Interim update of the “Costs to Britain of Workplace Accidents and Work-Related Ill

Health”: http://www.hse.gov.uk/statistics/pdf/costs.pdf The Enforcement Management Model: http://www.hse.gov.uk/enforce/emm.pdf OC 124/11 Health and Safety (Enforcing Authority) Regulations 1998: A-Z guide to

allocation - http://www.hse.gov.uk/foi/internalops/fod/oc/100-199/124_11.pdf NB These and other references are given as footnotes to the Evidence Base.

Evidence Base Ensure that the information in this section provides clear evidence of the information provided in the summary pages of this form (recommended maximum of 30 pages). Complete the Annual profile of monetised costs and benefits (transition and recurring) below over the life of the preferred policy (use the spreadsheet attached if the period is longer than 10 years).

The spreadsheet also contains an emission changes table that you will need to fill in if your measure has an impact on greenhouse gas emissions.

Annual profile of monetised costs and benefits* - (£m) constant prices

Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9

Transition costs £0m £0m £0m £0m £0m £0m £0m £0m £0m £0m Annual recurring cost £0m £0m £0m £0m £0m £0m £0m £0m £0m £0m

Total annual costs £0m £0m £0m £0m £0m £0m £0m £0m £0m £0m

Transition benefits £0m £0m £0m £0m £0m £0m £0m £0m £0m £0m Annual recurring benefits £0m £0m £0m £0m £0m £0m £0m £0m £0m £0m

Total annual benefits £0m £0m £0m £0m £0m £0m £0m £0m £0m £0m

* For non-monetised benefits please see summary pages and main evidence base section

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Evidence Base (for summary sheets) Contents Page 1 Problem under consideration and rationale for intervention 17 2 Policy objectives and intended effects 19 3 Alternatives to regulation 19 4 Options considered 21 5 Costs and benefits 22 Option 1 22 Option 2 23 Option 3 29 Option 4 31 Option 5 32 Option 6 33 Option 7 33 Summary tables 35 6 Risks and uncertainties in our costings 37 7 Benefits 39 8 Specific impact tests 40 Annexes Annex 1 – Post-implementation review (PIR) plan 42 Annex 2 – Current situation 44 Annex 3 – HSE rate-setting model 45 Annex 4 – Cost recovery in FOD sectors 46 Annex 5 – Cost recovery in HID sectors 48 Annex 6 – Cost recovery by CSEAD inspectors 53 Annex 7 – Cost recovery by Local Authority regulators 56 1. Problem under consideration and rationale for intervention

1.1. HSE and Local Authorities are the regulators for health and safety law in Great Britain. ‘Health and safety law’ means the Health and Safety at Work etc Act 1974 (HSWA) and relevant statutory provisions made under the Act. It excludes health and safety law enforced by other regulators in areas such as food safety, aviation, maritime and medical safety.

1.2. HSE and Local Authorities are each responsible for health and safety regulation in

different types of premises as defined in the Health and Safety (Enforcing Authority) Regulations 1998. Further guidance on the allocation of responsibilities is provided in HSE guidance1. In the remainder of this Impact Assessment, the term ‘dutyholders’ is used to refer to employers and self-employed people who have duties under HSWA and the relevant statutory provisions.

1 See: OC 124/11 Health and Safety (Enforcing Authority) Regulations 1998: A-Z guide to allocation - http://www.hse.gov.uk/foi/internalops/fod/oc/100-199/124_11.pdf

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1.3. HSE currently recovers its costs from duty holders in several high-hazard areas, but not for regulation in general. Local Authorities do not currently recover the costs of health and safety regulation. The current situation is described in more detail in Annex 2. Health and safety regulation is currently funded by the general taxpayer. The Government believes that it is reasonable that businesses that are found to be in material breach of health and safety law – rather than the taxpayer – should bear the related costs incurred by the regulator in helping them put things right.2 This was announced on 21 March 2011 by the Minister for Employment in the DWP Report ‘Good health and safety, Good for everyone’2. HSE therefore intends to implement this.

1.4. Cost recovery for health and safety regulation is in line with HM Treasury guidelines

on Managing Public Money3, and the 'polluter pays' principle4 used in environmental legislation, allowing higher hazard operations to take place while ensuring the beneficiary 'risk creators' are liable for attendant regulatory costs. Health and safety regulators will not make a profit, but would recover their costs in carrying out their functions in relation to non-compliant duty holders, and in relation to operators of onshore boreholes which present a major hazard risk and are subject to additional regulatory controls.

1.5. HSE would need to replace the Health and Safety (Fees) Regulations 2010 to enable

the extension of cost recovery, but this proposal does not introduce any new health and safety requirements for duty holders.

1.6. Providing the duty under these Regulations to recover the costs of health and safety

regulation would mean that those regulators given the duty to recover costs would be required to recover the costs. The changes proposed here would not allow discretion to not recover costs. Therefore the consultation process will be used to gather the views of Local Authority health and safety regulators as to whether the duty should be provided for all Local Authorities, who would then be required to recover the costs of regulating the duty holders they have enforcement responsibility for. For this reason, options 1 - 5 in this impact assessment include Local Authority regulators, and options 6 and 7 exclude Local Authority regulators from cost recovery.

1.7. The 2011 Budget introduced a moratorium exempting micro-businesses and new

start-ups from new domestic regulation for three years from 1 April 2011. A decision will be made by the Government in due course on whether an exemption for micro-businesses and new start-ups is appropriate in this case, and therefore this impact assessment has considered options both with and without an exemption, and provided costings for all of them.

1.8. The preferred option is option 6 which does not exempt micro-businesses and new

start-ups from cost recovery and excludes Local Authority regulators from having the duty to recover costs from their duty holders. The latter is based on informal soundings of Local Authority representatives in England, Scotland and Wales in which doubts have been expressed about implementing cost recovery and the effect of it on their broader responsibilities.

1.9. The costs recovered in this policy and considered in this impact assessment are out of

scope for One In One Out (OIOO). The OIOO methodology states that fees and charges are out of scope, except where they result from an expansion or reduction in

2 Good Health and Safety, Good For Everyone. http://dwp.gov.uk/docs/good-health-and-safety.pdf 3 http://www.hm-treasury.gov.uk/psr_managingpublicmoney_publication.htm 4 See principle 16 of the Rio Declaration on Environment and Development: http://www.un.org/documents/ga/conf151/aconf15126-1annex1.htm

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the level of regulatory activity. None of the options presented here change the level of regulatory activity.

2. Policy objectives and intended effects

2.1. This proposal is part of a package of Government driven deregulatory measures to change the culture of health and safety in Britain. This includes concentrating regulatory efforts on higher risk industries, and on tackling material breaches, while leaving those dutyholders which pose a lesser risk and which comply with the law, free from unwarranted scrutiny, thus lifting some of the regulatory burden on them. This will mean a substantial reduction in the number of proactive health and safety inspections (by one third), whereby lower risk dutyholders would not receive a health and safety inspection unless triggered for example, by the reporting of an incident or complaint. More detail on the measures in the package which are not considered in this impact assessment can be found in ‘Good health and safety, Good for everyone’2

2.2. The proposals analysed here seeks the amendment of existing secondary legislation

to enable the Regulators to recover their costs from dutyholders where a material breach has been diagnosed, and where a requirement to rectify that breach is formally made, together with the cost of any follow up work. Compliant dutyholders will pay nothing, nor will those who are in technical breach of the law. The exception is onshore boreholes, which have similarities to some HSE regulated high hazard sectors where cost recovery already takes place and where we propose to recover the costs of assessment and inspection of notifications.

2.3. The objectives of this proposal are:

• to continue to provide protection for workers and society as a whole, while shifting

some of the cost burden from the taxpayer to those dutyholders that are found to be in material breach of the law, and those that operate onshore boreholes.

• to improve health and safety standards, by increasing the incentive to improve to

those who do not comply with health and safety legislation;

• to provide a level playing field for duty holders which comply with the law, making it less likely that they will be undercut by those who lower their costs by not doing so.

3. Alternatives to regulation

3.1. As already stated, this proposal is not itself regulatory, in that it would not introduce any new health and safety duties for duty holders (although it does require regulation to be put in place as HSE currently does not have the vires to recover its costs from duty holders in the way proposed). This is in line with Government guidance on alternatives to regulation5 which notes that “no new intervention” is always an alternative.

3.2. This proposal also takes into account insights from behavioural theory which tells us

that people are "influenced by the way choices are presented to them; care more about losses than gains; and care about fairness and reciprocity".6 Loss aversion

5 See: http://www.bis.gov.uk/policies/better-regulation/better-regulation-executive/reducing-regulation-made-simple/alternatives-to-regulation/choose-the-alternative 6 See: http://www.bis.gov.uk/policies/better-regulation/better-regulation-executive/reducing-regulation-made-simple/alternatives-to-regulation/behavioural-economics-why-should-policy-makers-be-interested

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would make cost recovery a particularly powerful incentive to improve, as even if the expected value of what would be recovered from any individual dutyholder is low (considering the low chance for a particular dutyholder of receiving an inspection), the aversion to suffering the immediate losses resulting from the intervention finding a material breach would provide a strong incentive to comply with the law. This proposal would also satisfy individuals’ preference for situations that are fair. Those that comply would not be affected by this proposal, other than by seeing that competitors, who are gaining competitive advantage, are paying the costs of their regulation. The proposal can therefore be seen to meet ‘equity’ goals.

3.3. The main justification for imposing health and safety requirements on businesses is

the existence of “externalities”. The costs of a health and safety failure (such as a workplace accident, or the development of a work-related illness) do not only fall on the employer. There are also significant costs on the employee (notably the pain, grief and suffering caused by the accident or illness) and costs on the rest of society (including costs to the NHS for treating the individual and to government departments for processing benefits). In fact, HSE’s research has shown that the costs to employers are only a small proportion of the costs to society as a whole (see Table 1). A pure cost-benefit calculation on the part of the employer would, in many cases, lead to health and safety management choices that would not be optimally ‘efficient’ for society as a whole.

Table 1 The burden from Health and Safety failure7

Health and safety failings £bn (2001/2002 prices) Costs to employers 3.9 – 7.8 Costs to individuals 10.1 – 14.7 Total costs to society 20.0 – 31.8

3.4. In recent years, HSE has been exploring potential non-regulatory ways of

encouraging compliance with health and safety requirements. One of the areas we have looked into in detail is the use of economic instruments and incentives. Research was commissioned into the feasibility of applying such instruments in the area of health and safety8, in which options such as linking insurance premiums to health and safety management, subsidies, taxes and even the use of tradeable permits were analysed according to agreed criteria.

3.5. Economic instruments and incentives would seek to internalise some of the existing

externalities, by increasing the costs to employers of breaching their legal obligations. By doing this, the expected cost of breaking the law would increase, providing incentives for better health and safety standards.

3.6. The research found that a key barrier to implementing the economic instruments was

the high cost of obtaining the necessary information, especially in small businesses. Analysis showed that in order to assess whether a business was compliant with health and safety requirements, the obvious method of simply scrutinising their safety record or the claims against them would not be enough: some health and safety breaches do not result in incidents, while on the other hand some incidents are not the result of breaches. There is also an issue with the long latency of some work-related illnesses, which means that they will not appear in a firm’s current records.

7 See report http://www.hse.gov.uk/statistics/pdf/costs.pdf. These estimates are currently being updated.

8 Research report forthcoming: Feasibility of using economic instruments to internalise the costs of health and safety.

21

3.7. The only completely reliable way of assessing whether a business is compliant would be an audit of its health and safety management systems, which would be too expensive to implement for the economic instruments analysed.

3.8. The options analysed in this impact assessment take into account the conclusions of

the research and propose a narrower and more realistic system. Rather than increasing the costs of not complying with health and safety law for all businesses, it seeks to recover the cost of an intervention where the dutyholder is in material breach of the law. The difficulty of judging whether a firm is compliant is not an issue with this option, as that is exactly what an intervention by HSE or Local Authority regulators will conclude, based on long-established decision-making criteria.

4. Options considered

4.1. Ministerial consideration was given to enabling health and safety regulators to recover costs from all dutyholders, whether compliant or not. However, this was rejected on the grounds that it was neither realistic nor fair, as it would have imposed some of the costs of regulatory action on low-risk duty holders who were complying with all material requirements.

4.2. The options considered that are deemed to be viable are set out below. They cover

all work activities for which HSE or Local Authorities are the enforcing authority. The exceptions are those high hazard HSE-enforced activities that are currently covered by regimes whereby a significant part of HSE’s regulatory costs are already recovered (see Annex 2 for more details of these regimes) and premises handling high hazard biological agents (see paragraphs 5.6 and annex 5 for further details).

4.2.1. Option 1 – Do nothing. Do not recover any new costs for work activities

enforced by HSE and Local Authorities. The general taxpayer via Government would continue to pay the costs of health and safety regulators carrying out their functions in a post Spending Review environment.

4.2.2. Option 2 – Recover the costs of health and safety interventions from

dutyholders that are found to be in material breach of health and safety law for work activities enforced by HSE and Local Authorities.


dutyholders that are found to be in material breach of health and safety law for work activities enforced by HSE and Local Authorities, exempting microbusinesses (those employing fewer than 10 full-time equivalent staff) and new start-ups from any new cost recovery.


dutyholders that are found to be in material breach of health and safety law for work activities enforced by HSE and Local Authorities, except for onshore boreholes, where an alternative cost recovery mechanism based on assessment and inspection of notifications is proposed; and exempting work with higher hazard biological agents, pending legislative reform in this area due to be implemented in October 2012.


dutyholders that are found to be in material breach of health and safety law for work activities enforced by HSE and Local Authorities, except for onshore boreholes, where an alternative mechanism based on processing notifications is proposed, and exempting work with higher hazard biological agents, (pending

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legislative reform in this area due to be implemented in October 2012), and exempting microbusinesses and new start-ups from any new cost recovery.

4.2.6. Option 6 - Recover the costs of health and safety interventions from dutyholders

that are found to be in material breach of health and safety law for work activities enforced by HSE (but not those enforced by Local Authorities), except for onshore boreholes, where an alternative cost recovery mechanism based on assessment and inspection of notifications is proposed; and exempting work with higher hazard biological agents, pending legislative reform in this area due to be implemented in October 2012

4.2.7. Option 7 - Recover the costs of health and safety interventions from dutyholders

that are found to be in material breach of health and safety law for work activities enforced by HSE (but not those enforced by Local Authorities), except for onshore boreholes, where an alternative mechanism based on processing notifications is proposed, and exempting work with higher hazard biological agents, (pending legislative reform in this area due to be implemented in October 2012), and exempting microbusinesses from any cost recovery.

4.3. Option 6 is the preferred option.

5. Costs and benefits

5.1. Costs and benefits have been quantified and monetised where possible. There is inherently some level of uncertainty about the future impacts of any policy or system. Therefore it is necessary for a number of assumptions to be made. These are detailed in the sections below and in the annexes. The risks and uncertainties are addressed in section 6, which also sets out plans for improving the estimates of costs and benefits for the final-stage impact assessment.

5.2. General assumptions:

5.2.1. Costs and benefits are assessed over 10 years as there is no reason to depart

from the general advice in the Better Regulation Executive’s Impact Assessment toolkit to use this time frame.

5.2.2. 3.5% is used as the discount rate in line with the HM Treasury Green Book9

guidance.

5.2.3. Salary data and the price base and Present Value year are April 2012 – March 2013, as the numbers for cost recoverable days are estimates of what will happen in the years starting April 2012, and the cost recovery rate is the one that would be used in that period.

5.3. Option 1 – Do nothing

5.3.1. The baseline against which we compare all the other options is not that the

status quo is maintained. In the 2010 Comprehensive Spending Review, HSE was asked to make savings of at least 35% over the four years starting in April 2011. Without any costs being recovered, even if front-line areas are given priority over others, it is very likely that these savings would translate in a lower level of intervention and enforcement, including fewer incidents and complaints being

9 http://www.hm-treasury.gov.uk/data_greenbook_index.htm

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investigated. This would be expected to result in a decrease in health and safety standards throughout Great Britain, with the ensuing costs to society.

5.4. Option 2 – Recover the costs of health and safety interventions from dutyholders that are found to be in material breach of health and safety law for work activities enforced by HSE and Local Authorities

5.4.1. In this option, the proposed introduction of cost recovery for interventions into

the Health and Safety (Fees) Regulations 2010 would place a duty on HSE and Local Authorities to recover their costs from dutyholders where a material breach has been diagnosed, and where a requirement to rectify that breach is formally made, together with the cost of any follow up work. These costs would include those of the inspection or investigation at which the breach was discovered. Also included are any ancillary costs required for a regulatory decision to be reached and communicated up to the point when an Information is laid at Court in England and Wales, or in Scotland where a case is referred to the Procurator Fiscal. Where a prosecution ensues, the costs of the prosecution after the point of laying an Information in England and Wales will be recovered through the Courts as is currently the case. Under Scottish law prosecution costs may not be recovered. This impact assessment therefore excludes the costs of prosecution. Compliant duty holders will pay nothing, nor will those who are in technical breach of the law.

HSE

5.4.2. The proposal is that three of HSE’s operational Directorates will be involved in recovering costs where the above conditions apply. The first and largest is Field Operations Directorate (FOD) which deals, in the main, with general manufacturing, agriculture, construction and services. The second is Hazardous Installations Directorate (HID) which deals with the oil and gas, chemicals, explosives, pipelines, mines and biological agents sectors. The third and smallest is Corporate Science, Engineering and Analysis Division (CSEAD) which provides specialist inspectors dealing with radiation, noise and vibration, occupational hygiene, electrical and process safety, medical and human factors. Inspectors in these Directorates, supported by specialist colleagues in a range of engineering and technical disciplines, make the regulatory decisions that would trigger cost recovery. Specialist advice for the purpose of regulation is also provided by the Health and Safety Laboratory (HSL) which is an agency of HSE.

5.4.3. Inspectors intervene with duty holders for inspection purposes because they are

higher risk or to investigate a reportable incident or complaint, following published criteria (see below).

5.4.4. Inspectors have a range of enforcement options available to them when they

intervene with duty holders. They can take any of the following actions where they come across non-compliance with the law: − verbal advice; − a formal letter requiring remedial action related to non-compliance; − an improvement notice, which is a legal instrument specifying a non compliance

and setting a timescale for putting it right; − a prohibition notice, which is a legal instrument requiring an activity which

presents a serious risk to be stopped; − initiating prosecution in the courts. This is punitive action.

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5.4.5. All but the first and last (from the point of laying the Information at court in England and Wales, or in Scotland referral to the Procurator Fiscal) would trigger the cost recovery analysed in this impact assessment.

5.4.6. In deciding on which course of action is appropriate, Inspectors are guided by

HSE's Enforcement Policy Statement and Enforcement Management Model10. The key feature of these arrangements is to relate the severity of action taken by the Inspector to the gravity of the non compliance in terms of the risk and what the law requires. Furthermore, the arrangements are supported by management oversight to ensure consistency of application.

5.4.7. Costs would be recovered based on the amount of time taken for the

intervention, using an estimated average hourly rate that will be the same across HSE for all staff (including specialists) involved in cost recoverable work. This hourly rate will be calculated using a rate-setting model, the details of which can be found in Annex 3.

5.4.8. The hourly rate will be adjusted year on year, based on actual costs. For this

analysis, we have used a rate based on 2012/13 budget figures. The HSE rate used here is £133 per hour (corresponding to a daily rate of £984, based on 7.4 hours a day).

5.4.9. Where specialist assistance is required for enforcement purposes from the

Health and Safety Laboratory, the actual costs of the services provided will be recovered from the individual duty holder, and this cost has not been included in the hourly cost-recovery rate.

Field Operations Directorate (FOD) enforced sectors

5.4.10. Starting in April 2012, we estimate that there will be approximately 54 thousand frontline days spent per annum on inspection, investigation and enforcement excluding prosecution time. Of these, it is estimated that a material breach where costs would be recovered would be found in approximately 70% of investigation days and 65% of inspection days.

5.4.11. Applying these percentages, and the HSE hourly rate, to detailed estimates of

the number of different types of inspections, investigations and enforcement work results in an estimate of costs of approximately £38.5 million yearly that may be recovered from non-compliant dutyholders. Adding to these the estimated £4.9 million per annum of HSL reactive support provided to FOD, the total costs that may be recovered from non-compliant dutyholders would be £43.4 million (before making any allowance for bad debt).

5.4.12. We have initially estimated a 10% rate of unpaid invoices, after debt collection

effort, which would bring the estimate of costs actually recovered from non-compliant dutyholders to £39.0 million per annum. Over the 10-year appraisal period, the net present value of these costs would be £336 million. This would be a transfer of costs currently borne by HSE, and funded by the taxpayer, to non-compliant duty holders.

10 The Enforcement Management Model (see: http://www.hse.gov.uk/enforce/emm.pdf) is a framework which helps inspectors make enforcement decisions in line with HSE’s Enforcement Policy Statement (EPS). The EPS sets out the principles inspectors should apply when determining what enforcement action to take in response to breaches of health and safety legislation. Fundamental to this is the principle that enforcement action should be proportional to the health and safety risks and the seriousness of the breach.

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5.4.13. A description of the methodology used to calculate the figures and estimates

used in this section can be found in Annex 4. Hazardous Installations Directorate (HID) enforced sectors

5.4.14. The approach followed to estimate what costs would be recovered from HID-enforced sectors is different to that used for FOD because a number of cost recovery regimes already exist in those sectors. For each sector, we analysed the number of days expected to be spent on investigations, inspections and enforcement in the 2011/12 plans, and assumed the picture would be similar in the future since no major changes of approach are planned. We then determined how many of those days were not currently cost recovered under existing permissioning regimes, and how many were related to activities the cost of which would be potentially recoverable.

5.4.15. The profile of each sector in terms of compliance is quite different, so in

discussion with sector experts we obtained estimates for the percentage of days that would find a material breach, based on their knowledge of the sector, including analysis of available data.

5.4.16. In total, we have estimated that starting in April 2012, there would be an

additional 4,760 days not currently subject to cost recovery across HID. Based on the assumptions by each sector, approximately 2,300 of those days would be related to interventions finding a material breach, and for which the costs could be recovered.

5.4.17. Applying the HSE cost recovery rate previously described, the annual costs to

be recovered would be £2.3 million (before making an allowance for bad debt).

5.4.18. The following table presents a summary of the estimates of the costs that would be recovered by each of the HID sectors.

Sector Estimated costs recovered per

year (thousands) (before bad debt) Chemical manufacturing and storage £1,371 Biological Agents £464 Mines £173 Explosives £146 Diving £93 Pipelines £17

5.4.19. More detailed information about the estimates for each of the sectors, as well

as a short description of them, can be found in Annex 5.

5.4.20. Additionally, the cost of HSL reactive support to HID would be an estimated £2 million per year, all of which would be recovered and linked to the particular interventions that gave rise to it.

5.4.21. In total, and applying our 10% bad debt assumption, £3.8 million would be

recovered per year from HID-enforced sectors. The 10-year present value of this would be £33 million. This would all represent a transfer of costs currently borne by HSE, and funded by the taxpayer, to non-compliant dutyholders.

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Corporate Science, Engineering and Analysis Directorate (CSEAD)

5.4.22. CSEAD has a number of centrally brigaded specialist teams dealing with radiation, noise and vibration, occupational hygiene, electrical and process safety, medical and human factors. Some of their time is spent on developing standards and guidance, which is not subject to cost recovery. A proportion of their time is spent with duty holders supporting frontline regulatory teams. This latter activity would be cost recoverable if material breaches were found.

5.4.23. To estimate the costs recoverable from the activities of CSEAD specialist

inspectors, we followed an approach much like the one used for HID, described in the previous section. Those specialist teams doing regulatory work for which costs could be recovered are listed in the table below with estimates of the costs that would be recovered starting from April 2012.

5.4.24. In total, it is estimated that the six teams considered will undertake some

1,240 days per annum related to inspections, investigations and enforcement that could be potentially recovered. Of those, based on the teams’ estimates of where a material breach would be found, the costs of 770 days would be recovered. This would result in the recovery of £762 thousand worth of costs per year (before HSL support and the bad debt assumption).

5.4.25. The following table presents a summary of the estimates of the costs that

would be recovered by each of the CSEAD teams.

Team Estimated costs recovered per year (thousands)(before bad debt)

Human Factors and Ergonomics £344 Noise and Vibration £213 Radiation £69 Electrical and Process Safety £49 Occupational hygienists £34 Corporate Medical Unit £53

5.4.26. More detailed information about each of the sector estimates, as well as a

short description of them, can be found in Annex 6.

5.4.27. Additionally, the cost of HSL reactive support to CSEAD would be an estimated £100 thousand per year, all of which would be recovered and linked to the particular interventions that gave rise to it.

5.4.28. In total, and applying our 10% bad debt assumption, £776 thousand would be

recovered per year from CSEAD activity. The 10-year present value of this is £6.7 million.

5.4.29. This would all represent a transfer of costs currently borne by HSE, and

funded by the taxpayer, to non-compliant duty holders. Local Authority Enforced Sectors

5.4.30. Under Option 2 the proposed introduction of cost recovery for interventions would place a duty on both HSE and Local Authority health and safety regulators to recover their costs from duty holders

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5.4.31. There are approximately 430 Local Authorities in Great Britain. As Local Authorities are autonomous they may choose to adopt a cost recovery scheme which exactly mirrors that being proposed by HSE in the consultation document, or they may develop their own cost recovery scheme with their own charging structure. Consultation work with Local Authority representatives is ongoing to obtain as much of the necessary information as possible in order to be able to provide better estimates of the likely impact on Local Authority regulated sectors. Through the public consultation we will seek further information from Local Authorities on how they would implement a cost recovery scheme. The outcome of this will be provided in the final stage impact assessment.

5.4.32. The cost-recovery hourly rate applied may vary across Local Authorities owing

to local factors, and varying overheads and costs, but we have assumed their costs will be, on average, similar to HSE’s, so we have applied the rate calculated in Annex 3, of £133 an hour.

5.4.33. Based on information provided to HSE by Local Authorities it is estimated that

they will spend 265 thousand days per annum on health and safety regulation which are not currently subject to cost recovery.

5.4.34. To estimate the proportion of those days that will be associated with

interventions that find a material breach, and the costs that would therefore be recovered under fee for intervention, we adjusted the FOD estimates described in Annex 4, based on the comparative number of Prohibition and Improvement Notices issued by Local Authorities and FOD.

5.4.35. More details on the methodology used to arrive at these estimates can be

found in Annex 7.

5.4.36. Additionally, HSL provides reactive support to Local Authority regulators to assist in regulatory work at Local Authority enforced duty holders, worth approximately £500 thousand. This would be recovered from relevant duty holders.

5.4.37. In total, applying our 10% bad debt assumption, £15.9 million would be

recovered per year from Local authority enforced sectors. The 10-year present value of this is £137 million.

5.4.38. This would all represent a transfer of costs from the taxpayer-funded Local

Authorities to non-compliant dutyholders. Additional costs to dutyholders

5.4.39. The previous sections all deal with transfer of the costs for regulation from the regulators to non-compliant duty holders. This section considers potential costs to duty holders in addition to those transfers.

5.4.40. If a material breach is found, the inspector would spend some time explaining

to the dutyholder that the costs of the intervention will be recovered from them. This would not be expected to take long. Additionally, it is to be expected that, because both the inspector and the dutyholder know that any time spent on the intervention will result in its costs being recovered, interventions may, on average, take a shorter time than they take now. We would expect the net effect to be neutral or positive to the individual dutyholder.

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5.4.41. Dutyholders found to be in material breach of health and safety law will receive an invoice for the costs of the intervention. We have considered whether dealing with this invoice would constitute an additional cost to dutyholders. We have assumed that the administrative costs of paying the invoice is likely to constitute an insignificant cost, given that dutyholders will already be paying other invoices from suppliers and one extra invoice per month, for a limited period, would make little difference.

5.4.42. Some dutyholders might choose to challenge the invoice (e.g. on the basis of

whether there was a relevant material breach, or the number of hours the invoice is for). HSE proposes to put in place a mechanism to deal with queries and disputes, and we estimate the process would not require more than 2 hours on the part of any individual dutyholder. Assuming the cost of an hour’s time for a company director is £29.211, this would be approximately £60 per dutyholder. The consultation document proposes recovering the costs of the regulator handling disputes e.g. about the propriety of costs recovered, using the hourly rate of £133 from the rate-setting model (see Annex 3). HSE currently has no estimates for how many dutyholders might challenge the invoice, but a ‘Dry Run’ to test the proposed cost recovery process and systems will take place between October and December 2011, and should provide more information for the final stage impact assessment.

5.4.43. It is possible that there could be a familiarisation cost to dutyholders of finding

out about how these new developments would affect them if they were to be inspected or investigated. HSE is not planning a widespread communications campaign to publicise the changes, because they are only of interest to those who are in material breach and the changes can be brought to their attention at the relevant visit. Therefore the level of interest in the functioning of the cost recovery scheme would largely depend on how much general media coverage there is. We expect we would be able to gauge the level of interest after the consultation document is published.

Costs to HSE and Local Authorities

5.4.44. Implementing the cost recovery system would have a cost to HSE and Local Authorities. Most of these costs would occur in year 0, and will include training of inspectors, internal communication efforts, process and system development and testing, changes in computer systems and setting up a large-scale invoicing system, among others. HSE is currently developing the systems and will be able to provide an estimate of these costs for the final-stage impact assessment.

5.4.45. After implementation, there would also be ongoing costs to HSE and Local

Authorities of running the system. There would be a cost for issuing invoices, estimates for which will be provided for the final stage impact assessment.

5.4.46. There will also be costs to HSE and Local Authorities of setting up and

running a system for dealing with queries and disputes to invoices by dutyholders. The ‘Dry Run’ to test the proposed cost recovery process and system will allow us to make more accurate assumptions about what resources would be required.

5.4.47. We cannot currently estimate what the costs would be for Local Authorities,

and will seek information on this during the public consultation, for inclusion in the

11 Source: Annual Survey of Hours and Earnings 2010 (Office for National Statistics) – salary of code 1, “Managers and senior officials”, uprated by 30% to account for non-wage costs.

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final stage impact assessment, if the consultation indicates that cost recovery should be extended to Local Authorities.

5.4.48. In Option 2, HSE would be expected to recover costs amounting to approximately £43.7 million per year from non-compliant dutyholders. There is much more uncertainty about how much Local Authorities would recover, but we expect they would recover £15.9 million per year. In total, around £59.6 million would be recovered per annum from dutyholders. There would also be small additional costs both to dutyholders, HSE and Local Authorities (we have not been able to quantify the latter costs as yet).

5.5. Option 3 – Recover the costs of health and safety interventions from dutyholders that are found to be in material breach of health and safety law for work activities enforced by HSE and Local Authorities, exempting microbusinesses and new start-ups from any new cost recovery.

5.5.1. Option 3 would be as option 2, but would exempt microbusinesses (defined as

those employing fewer than 10 full-time equivalent staff) and new start-ups from any cost recovery. Microbusinesses would still have to comply with health and safety requirements, and would be subject to the same regulatory activity as previously described, but if a material breach in health and safety law were found the regulators’ costs would not be recovered.

HSE FOD-enforced sectors

5.5.2. Based on analysis of HSE records, we estimate that approximately 60% of the costs estimated in option 2 would be recovered from non-compliant microbusinesses. It is possible that the proportion of unpaid invoices would be different in microbusinesses than in larger businesses, but we have insufficient information available to be able to provide an estimate. We will therefore assume the same level of bad debt and that the costs recovered from non-compliant dutyholders in this option would be 40% of the figure calculated for Option 2, i.e. £15.6 million, with a 10-year present value of £134 million.

HID-enforced sectors

5.5.3. The HID sectors have very different business size profiles, and the proportion of costs that would be recovered from microbusinesses varies between them. We have therefore provided estimates for each, based on sector experts’ knowledge and analysis of available records and information:

Sector % of the costs estimated in Option 2 that would be

recovered from microbusinesses

Estimated costs that would be recovered per

year in Option 3 (thousands)

(before bad debt) Chemical manufacturing and storage

18% £1,123

Biological Agents 5% £441 Mines 20% £139

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Explosives 10% £131 Diving 95% £5 Pipelines 0% £17

5.5.4. For HSL reactive support, we have calculated an average percentage that

would be recovered from microbusinesses across all the sectors and applied it to the total amount. We estimate that £1.6 million per year would be recovered in this option.

5.5.5. In total, we estimate there would be costs of £3.1 million recovered in this option

(this number already takes into account bad debt assumptions). The 10-year present value would be £28 million.

CSEAD inspectors

5.5.6. As in HID sectors, the different teams of CSEAD inspectors deal with a variety of profiles of firms. Assumptions for each of the teams are therefore provided, based on team experts’ knowledge and analysis of available records and information.

Sector

% of the costs estimated in Option 2

that would be recovered from

microbusinesses

Estimated costs that would be recovered in

Option 3 (thousands)

(before bad debt) Human Factors and Ergonomics 25% £258

Noise and Vibration 0% £213 Radiation 10% £62 Electrical and Process Safety 33% £33 Occupational hygienists 20% £27 Corporate Medical Unit 1% £52

5.5.7. For HSL reactive support, we have calculated an average percentage that

would be recovered from microbusinesses across all the teams and applied it to the total amount. We estimate that £85 thousand per year would be recovered in this option.

5.5.8. In total, we estimate there would be costs of £657 thousand recovered in this

option (this number already takes into account bad debt assumptions). The 10-year present value would be approximately £5.7 million.

Local Authority Enforced Sectors

5.5.9. We have analysed the percentages of dutyholders with fewer than 10 employees12 in sectors that are mainly Local Authority enforced and those that are mainly FOD enforced. These percentages were almost identical, approximately 60% for each. We will therefore use the same assumption we used for FOD-enforced sectors, and assume 60% of the income calculated in option 2 would have been recovered from non-compliant micro-businesses.

12 Note that the data used from ONS included a category that was 0-4, rather than 1-4 (there was also a 5-9 category). However, enquiries were made from ONS and while we were not able to separate 0 employees and 1-4 employees in each sector, overall the percentage of companies with 0 employees in the dataset was extremely small: approximately 0.5%. We have therefore discounted them.

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5.5.10. For HSL reactive support, we have used the same 60% estimate for costs recovered from microbusinesses as above. We estimate that £300 thousand per year would be recovered in this option.

5.5.11. In total, the amount of costs recovered by Local Authorities excluding micro-

businesses would be 40% of the figure under Option 2, i.e. £6.4 million, with a 10-year present value of £55 million (including the bad debt assumption).

5.5.12. This would all represent a transfer of costs from the taxpayer-funded

regulators to non-compliant dutyholders.

5.5.13. In Option 3, HSE would be expected to recover costs amounting to approximately £19.4 million per year from non-compliant duty holders. There is much more uncertainty about how much Local Authorities would recover, but we estimate £6.4 million per year. In total, £25.8 million would be recovered yearly from dutyholders. There would also be small additional costs both to dutyholders, HSE and Local Authorities (we have not been able to quantify the latter costs as yet).

5.6. Option 4 Recover the costs of health and safety interventions from dutyholders that are found to be in material breach of health and safety law for work activities enforced by HSE and Local Authorities, except for onshore boreholes, where the costs of assessment and inspection of notifications would be recovered, and exempting work with higher hazard biological agents, pending proposals for legislative reform in these areas to be implemented in October 2012.

5.6.1. This option would be as Option 2, but two of the HID-enforced sectors would be

dealt with differently.

5.6.2. In the biological agents sector, preparatory work is underway for the introduction of a single regulatory framework (SRF) consolidating and streamlining different legislation that currently applies to human and animal pathogens. The purpose of that change in legislation is to reduce the administrative burdens that arise for those working in the sector from complying with three sets of legislation.

5.6.3. Parts of premises involved in work with biological agents are assigned

containment levels (1 – 4); depending on the level of controls in place to minimise or prevent exposure to harmful microorganisms (see description of the sector in Annex 5). The SRF proposal is expected to introduce full cost recovery for those parts of premises involved in work in the two highest containment levels (3 and 4) by October 2012. The SRF, including full cost recovery for containment level 3 and containment level 4 facilities, will be analysed in a separate impact assessment, for which there will be a separate consultation process.

5.6.4. Option 4 proposes that, at this time, cost recovery is not introduced in those

parts of premises designated as containment level 3 or containment level 4. This is to avoid having one new cost recovery regime applying, only for it to be replaced by another in 6 months, which we expect would create some confusion and be burdensome for those dutyholders. This impact assessment therefore considers cost recovery only when a material breach is found at facilities operating at containment level 1 or containment level 2. For these, cost recovery would therefore work as described in Option 2.

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5.6.5. Of the costs that would be recovered as described in Option 2, sector experts

have estimated that the number of days (and hence costs) associated with for containment level 3 and containment level 4 facilities would be 90% of the total for inspection and 80% of the total for investigation and enforcement. In Option 4, therefore, the costs recovered in the Biological Agents sector would be £60 thousand per annum, compared to £418 thousand in Option 2.

5.6.6. Given the potential for major hazard accidents due to gas or oil explosions at

Onshore Boreholes, operators are required to notify HSE prior to drilling. HSE assesses these notifications to ensure adequate design and then verifies that they are operated safely through inspection. This regime is analogous to the permissioning regimes described in Annex 2, therefore Option 4 proposes that HSE recover all its costs for the assessing these notifications and verification inspections, from dutyholders. The costs incurred by HSE in this sector related to these activities are approximately 150 inspector days a year.

5.6.7. The rate to be applied in this area would be different to the one applied

elsewhere in this impact assessment (explained in Annex 3). Instead, we would apply the offshore rate of £256 per hour. This is because the expertise required to do the work resides with specialists with detailed knowledge of the industry based in Offshore Division. This would result in the recovery of £284 thousand yearly (before applying an assumption for bad debt).

5.6.8. In Option 4, HSE would be expected to recover costs amounting to

approximately £43.6 million per year from duty holders. There is much more uncertainty about how much Local Authority health and safety regulators would recover, but we estimate £15.9 million per year, as in Option 2. In total, £59.5 million would be recovered yearly from duty holders. There would also be small additional costs both to dutyholders, HSE and Local Authorities (we have not been able to quantify the latter costs as yet).

5.7. Option 5 – Recover the costs of health and safety interventions from dutyholders that are found to be in material breach of health and safety law for work activities enforced by HSE and Local Authority health and safety regulators, except for onshore boreholes, where the costs of assessment and inspection of notifications would be recovered, and exempting work with higher hazard biological agents, pending proposals for legislative reform in these areas to be implemented in October 2012, and exempting micro businesses and new start-ups from any new cost recovery.

5.7.1. Option 5 would be a combination of Options 3 and 4. It would deal with onshore

boreholes and the biological agents sector, as in option 4, but would exempt microbusinesses (defined as those employing fewer than 10 full-time equivalent staff) and new start-ups from any cost recovery. As indicated in Option 3, microbusinesses would still have to comply with health and safety requirements, and would be subject to the same regulatory activity as they would be in option 2 but if a material breach in health and safety law were found, the regulators’ costs would not be recovered.

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5.7.2. Of the costs that would be recovered in Option 4 for biological agents, sector

experts have estimated that only 5% would be from microbusinesses. In Option 5, therefore, the costs recovered in the biological agents sector would be £58 thousand per annum.

5.7.3. For onshore boreholes, sector experts have indicated that virtually all

notifications come from larger dutyholders. Costs recovered in this area would be as in option 4, £284 thousand yearly (or £256 thousand after applying a 10% assumption for bad debt).


approximately £19.3 million per year from dutyholders. There is much more uncertainty about how much Local Authorities would recover, but we estimate £6.4 million per year, as in Option 3. In total, £25.7 million would be recovered yearly from dutyholders. There would also be small additional costs both to dutyholders, HSE and Local Authorities (we have not been able to quantify the latter costs as yet).

5.8. Option 6 -. Recover the costs of health and safety interventions from dutyholders that are found to be in material breach of health and safety law for work activities enforced by HSE, except for onshore boreholes, where the costs of assessment and inspection of notifications would be recovered; and exempting work with higher-hazard biological agents, pending proposals for legislative reform in these areas to be implemented in October 2012; and excluding Local Authority-enforced dutyholders. This is the preferred option

5.8.1. Option 6 would deal with onshore boreholes and the biological agents sector, as

in option 4, but would exclude cost recovery by Local Authorities from Local Authority enforced duty holders. Duty holders enforced by Local Authorities would still have to comply with health and safety requirements, and would be subject to the same regulatory activity as they would be in option 2 but if a material breach in health and safety law were found, the Regulator’s costs would not be recovered.


approximately £43.6 million per year from dutyholders, as in Option 4. In total, £375 million would be recovered over the 10 year appraisal period. There would also be small additional costs both to dutyholders and HSE (we have not been able to quantify the latter costs as yet).

5.9. Option 7 -. Recover the costs of health and safety interventions from dutyholders that

are found to be in material breach of health and safety law for work activities enforced by HSE, except for onshore boreholes, where the costs of assessment and inspection of notifications would be recovered, and exempting work with higher hazard biological agents, pending proposals for legislative reform in these areas to be implemented in October 2012; excluding Local Authority-enforced dutyholders, and exempting microbusinesses and new start-ups from any cost recovery.

5.9.1. Option 7 would be a combination of Option 6 and a micro-business exemption.

It would deal with onshore boreholes and the biological agents sector, as in option 4 and 6, but would exempt microbusinesses (defined as those employing fewer than 10 full-time equivalent staff) and new start-ups from any cost recovery, and would exclude cost recovery by Local Authorities from Local Authority enforced duty holders. Micro-businesses new start-ups and duty holders enforced by Local

34

Authorities would still have to comply with health and safety requirements, and would be subject to the same regulatory activity as they would be in option 2 but if a material breach in health and safety law were found, the regulator’s costs would not be recovered.


approximately £19.3 million per year from dutyholders, as in Option 5. In total, £166 million would be recovered over the 10 year appraisal period. There would also be small additional costs both to dutyholders and HSE (we have not been able to quantify the latter costs as yet).

5.10. All of the options considered would have differential impacts on businesses of

different types. The effect on different industrial sectors has been considered in the above sections on cost recovery in FOD and HID-enforced sectors and by CSEAD inspectors, and the corresponding annexes (4, 5 and 6); further information will be collected as part of the consultation and will be analysed in the final-stage impact assessment. The impact on businesses of different sizes has been considered in assessing options 3, 5 and 7, which exclude micro-businesses and new start-ups from new cost recovery. For the final-stage impact assessment further work will be done regarding the impact on other size-bands.

5.11. The bulk of the analysis in this impact assessment has focused on the

aggregate effects of the proposed new policy. It is also possible to say something about the likely impact at the level of the individual duty holder. In the case of FOD enforced sectors, we have estimated that a typical intervention for which costs would be recovered might lead to an invoice on average ranging from perhaps £750 for a visit that found a material breach resulting in a letter, to several thousand pounds for an investigation that found a material breach and where verification that it had been remedied was required (Annex 4 gives more details). Material breaches which would trigger cost recovery would only apply to a very small proportion of all businesses in Great Britain. In the final-stage impact assessment we will seek to provide further quantification of this.

5.12. The following tables show the estimates13 for options 2 to 7, for ease of

comparison. Costs transferred from HSE and Local Authorities to duty holders are shown as positive figures on the HSE / LAs column and as negatives on the dutyholders column. Figures in these tables are given to the nearest 1,000; however they should not be considered as accurate to this level.

13 Numbers presented in the main body of the document have been rounded

35

Summary tables of costs and benefits

Option 2 Yearly, in thousands of £ 10 year Present Value, in thousands of £

HSE / LAs Dutyholders HSE / LAs Dutyholders Cost recovery in FOD 39,047 -39,047 336,106 -336,106 Cost recovery in HID 3,838 -3,838 33,033 -33,033 Cost recovery in CSEAD 776 -776 6,680 -6,680 Cost recovery in LAs 15,906 -15,906 136,912 -136,912 Additional costs to HSE / LAs unquantified as

yet unquantified as

yet unquantified as

yet unquantified as

yet Additional costs to dutyholders

unquantified as yet

unquantified as yet

unquantified as yet

unquantified as yet

TOTAL 59,567 -59,567 512,731 -512,731 Option 3 Yearly, in thousands of £ 10 year Present Value, in

thousands of £


yet unquantified as

yet unquantified as

yet unquantified as


unquantified as yet

unquantified as yet

unquantified as yet

unquantified as yet


thousands of £


yet unquantified as

yet unquantified as

yet unquantified as


unquantified as yet

unquantified as yet

unquantified as yet

unquantified as yet

TOTAL 59,465 -59,465 511,858 -511,858

36

Option 5 Yearly, in thousands of £ 10 year Present Value, in

thousands of £


yet unquantified as

yet unquantified as

yet unquantified as


unquantified as yet

unquantified as yet

unquantified as yet

unquantified as yet


thousands of £

HSE / LAs Dutyholders HSE / LAs Dutyholders Cost recovery in FOD 39,047 -39,047 336,106 -336,106 Cost recovery in HID 3,736 -3,736 32,161 -32,161 Cost recovery in CSEAD 776 -776 6,680 -6,680 Cost recovery in LAs 0 0 0 0 Additional costs to HSE / LAs unquantified as

yet unquantified as

yet unquantified as

yet unquantified as


unquantified as yet

unquantified as yet

unquantified as yet

unquantified as yet


thousands of £

HSE / LAs Dutyholders HSE / LAs Dutyholders Cost recovery in FOD 15,619 -15,619 134,442 -134,442 Cost recovery in HID 3,060 -3,060 26,341 -26,341 Cost recovery in CSEAD 657 -657 5,659 -5,659 Cost recovery in LAs 0 0 0 0 Additional costs to HSE / LAs unquantified as

yet unquantified as

yet unquantified as

yet unquantified as


unquantified as yet

unquantified as yet

unquantified as yet

unquantified as yet

TOTAL 19,337 -19,337 166,443 -166,443

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6. Risks and uncertainties in our costings

6.1. At this stage in the process (pre-consultation), several uncertainties remain in our estimates.

6.2. Although it is not currently possible to quantify these uncertainties, it is possible to say

that they are most likely to have a downward impact on the level of costs recovered. Therefore, we would expect the figures presented here to be towards the upper end of the range of possibilities.

6.3. This is related to “optimism bias” as described in the HM Treasury Green Book – the

demonstrated systematic tendency for appraisers to be over-optimistic about key project parameters. This bias can specifically relate to the under delivery of estimated benefits. The Green Book suggests that analysis should be undertaken on potential benefits’ shortfalls and increases in operating costs. The potential shortfalls are discussed in this section.

6.4. For several of them, information from the consultation will allow us to improve our

assumptions. In addition to the formal, open consultation, we will also be undertaking specific consultation work with Local Authorities.

6.5. For internal HSE information, where the consultation itself would not be expected to

provide much information, two main approaches are being taken. Analysis will continue of available records and information, and also, a ‘Dry Run’ test of the proposed cost recovery scheme will take place in HSE between October and December 2011 in two regions of the country. The Dry Run will allow HSE to assess the processes being proposed in the consultation document and allow us to check some of the assumptions made here.

6.6. Where, after consultation, gaps in understanding still remain, sensitivity analysis will

be used in the final stage impact assessment to gauge the weight of these on the level of cost recovery.

6.7. Responses to the consultation process will help shape the final decision on whether

cost recovery should be extended to Local Authority regulators. If cost recovery were to be extended to Local Authority regulators, we do not, as yet, have a good idea of how Local Authorities would implement a cost recovery scheme, and what we assume in this regard will have crucial implications on our estimates of what the total cost recovery would be. We also have limited information about Local Authorities’ internal processes. One of the most significant uncertainties here is what proportion of Local Authority interventions would identify material breaches and as such the proportion of regulatory activity to which these cost recovery proposals would apply. In Options 2-5 we have, provisionally, adjusted the breach rates estimated for FOD interventions based on a comparative analysis of number of improvement and prohibition notices issued by FOD and Local Authorities, but we are not wholly confident in this estimate. We are already working with Local Authorities to obtain feedback on the estimates we have used in this impact assessment, particularly the two issues described above, and will continue to do so throughout the consultation period.

6.8. There is also some uncertainty about the estimates of what percentage of HSE

activity would be associated with material breaches. We are paying particular attention to the estimate of how many proactive inspection days in FOD would be related to material breaches. This is because this estimate has a large effect on the totals (the estimated income from cost recovery from FOD proactive inspections tends to be about a quarter of all HSE income in the different options). It is an estimate that

38

is based on a sampling exercise, drawn from a year where there would have been a different mix of sectors in those proactive inspections than will be in the years starting in April 2012 (as set out in Good Health and Safety, Good for Everyone). Work is underway within HSE to determine whether the new mix of sectors is likely to affect our assumption for breach rates, and if so, to adjust it.

6.9. A further area of uncertainty relates to potential changes in inspector behaviour. The

assumption underlying the current impact assessment is that inspectors will continue to behave as they have in the past, in terms of the enforcement decisions they make faced with a given situation. However, it is possible that the knowledge that costs will now be recovered from dutyholders found to be in material breach may affect the decisions inspectors make. Having noted this potential issue, HSE has included actions in the implementation plan to mitigate against this. Special attention will be paid to performance management and assurance programmes to ensure decision making is in line with the Enforcement Management Model and the principles of the Enforcement Policy Statement. We plan to use the 'Dry run' test to assess the extent and nature of any behavioural change in practice.

6.10. A specific area where the possibility of change in inspector behaviour has been

raised is the length of interventions. Knowing that if a material breach is found the costs of any time spent will be recovered from the duty holder, who is likely to scrutinise the invoice carefully, inspectors might be motivated to identify any breaches quickly and spend less time (than they do currently) advising. Such a change would affect the amount of the average invoice, but we would expect the same overall time to be spent intervening with duty holders (and hence the same overall amount of costs recovered), as the reduction in inspection time would be compensated for by freeing up inspectors to investigate the reportable incidents that are not currently investigated due to resource constraints.

6.11. We expect that dutyholders’ behaviour may also change, as a result of them

being aware of the possibility of having to pay the regulators’ costs if a material breach is found. (The consequent increase in health and safety standards links into the third policy objective, levelling the playing field, making it less likely that non-compliant dutyholders will undercut their competitors). Depending on how effective an incentive to improved compliance cost recovery proves to be, this could affect our estimates of how much would be recovered. The stronger the incentive, the more health and safety standards would improve, but at the same time the fewer material breaches would be found in inspections and investigations, and the fewer costs would be recovered.

6.12. Any cost to business (from either health and safety improvements or cost recovery)

could potentially be passed on to consumers through higher prices, the extent of which would depend on the price elasticity of demand (PED) in each sector. As the PED for industries that are inspected is unknown and likely to vary substantially between sectors, it does not seem proportionate to try and estimate the extent to which costs will be passed on.

6.13. There is also uncertainty surrounding the extent of familiarisation costs. The majority

of familiarisation time would relate to dutyholders found to be in material breach of health and safety law. It would be expected that inspectors, as part of their visit, will explain the process of cost recovery. Initial estimates are that any additional time this would take would be compensated by increased efficiency, because both the inspector and the dutyholder know that any time spent on the intervention will result in its costs being recovered, interventions may, on average, take a shorter time than they take now.

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6.14. Some non-compliant dutyholders might also spend some time familiarising themselves with the new scheme, even if they do not receive an inspection or investigation. They might then potentially take action to become compliant – any measures required to do so will be related to health and safety requirements already in existence, independent of this proposal, and will have costs to the dutyholder, as well as health and safety benefits (which accrue both to the dutyholder and the rest of society).

6.15. In addition to this, however, there is a possibility that some broadly compliant

dutyholders would also feel the need to familiarise themselves with the new cost recovery proposals. While technically there is no need for them to do so, they might be uncertain about whether their own actions are sufficient to characterise them as compliant. This could potentially lead to some of these compliant dutyholders taking unnecessary measures regarding health and safety, just to cover themselves. In order to mitigate effects such as this, HSE has taken steps to provide clarification to dutyholders about the minimum measures they need to make to meet compliance requirements, with the publication of tools such as Health and Safety Made Simple14.

6.16. The extent of these costs and benefits is not yet known and, given that HSE is not

expecting to engage in a wide-ranging campaign communicating the scheme, dutyholder awareness of (and therefore, reaction to) it will largely depend on media coverage of the overall cost recovery process. General interest in the consultation document and impact assessment will allow us to gauge what interest might be in the final scheme, and we will be in a better position to assess this for the final stage impact assessment.

6.17. There is a risk surrounding queries and disputes about invoices issued. HSE will put

in place a system to deal with any queries and disputes, whether relating to the existence of a breach or to the number of hours being recovered. If there are a proportionately higher number of queries or disputes than is currently the case, the resource required to deal with these could be significant. This is being taken into account by the project team when designing the disputes process, and again will be clearer by the time of the final-stage impact assessment.

6.18. Also, for any cost recovery activity, we have initially estimated that unpaid invoices

would amount to about 10%, after debt collection efforts (the costs of which would be netted from what is recovered). HSE has looked at a range of cost recovery schemes across government, and whilst there is no directly comparable scheme, it is felt that 10% is the most appropriate bad debt assumption. Work is underway to refine this estimate with information from HMRC, including obtaining estimates for different sectors.

6.19. Finally, we expect that there may be a bedding in period during which cost recovery

is rolled out; therefore the level of costs recovered could be lower than estimated here, especially in year 1.

7. Benefits

7.1. As explained under Option 1, the 'do nothing' option - against which cost recovery is compared - involves a reduction of 35% in HSE funding over the four years starting in April 2011, which would be expected to result in a lower level of enforcement and a consequent decrease in health and safety standards throughout Great Britain, with ensuing costs to society. These include costs to individuals and their dependents

14 See: http://www.hse.gov.uk/simple-health-safety/

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(notably the pain, grief and suffering from work-related injuries and ill health), to employers (in sick pay etc) and to the government (mainly NHS costs, benefits paid and taxes lost). Therefore the main benefits from cost recovery would be the avoidance of these costs. We would expect this benefit would be highest in options 2, 4 and 6, as the higher amounts being recovered would allow a higher enforcement level.

7.2. Research15 has found that the complexity of the occupational health and safety

system, of which HSE is an important part, means that the system’s behaviour is influenced by many inter-related causes in a highly non-linear way. It is therefore not possible with current data to categorically identify and quantify causal links between the resource devoted to HSE activities and health and safety outcomes. This complexity makes impact evaluation challenging (and resource intensive) even at individual intervention level. However, we know that the British health and safety system performs well compared to the rest of Europe (in terms of fatal and non-fatal injuries and diseases/health conditions), and also that it has made considerable progress over time.

7.3. Another potential benefit would be the average reduction in time spent at each

intervention by HSE and Local Authority regulators. The prospect that costs would be recovered may mean regulators work in a more efficient way, spending only as much time as strictly needed on a particular intervention. This would allow more investigations to be carried out, potentially improving health and safety standards.

7.4. In addition, we expect that cost recovery will act as an incentive to employers to

comply with current health and safety requirements. The possibility of having to pay the costs of an intervention that finds a material breach in their premises would provide an incentive to any dutyholder who might otherwise not comply with the law. This effect would again be highest in options 2, 4 and 6, as microbusinesses form a large proportion of dutyholders and would be excluded from the cost recovery element of an inspection under options 3, 5 and 7, and would thus not be incentivised to comply (these duty holders will still be required to comply with health and safety law).

7.5. These proposals would create a level playing field, addressing the concerns of

adequate performers and compliant businesses that non compliant competitors are obtaining an unfair competitive advantage. This effect would also be higher in options 2, 4 and 6, as those would include all businesses. In fact, options 3, 5 and 7 could potentially create a situation perceived by some dutyholders as being more unfair, as dutyholders with just over 10 employees might see some competitors as gaining an unfair advantage just because they have 1 or 2 fewer employees.

8. Specific impact tests

8.1. Statutory Equality Duties Impact Test There is no evidence that any particular group will be disproportionately adversely affected by this policy change. Full details are provided in the Equality Impact Assessment later in the consultation document.

8.2. Competition Assessment

We do not believe that this proposal will have any impact on competition, as defined by the Office of Fair Trading (OFT) in its guidance.

___________________ 15 Research report forthcoming: “Linking HSE Activities to Health and Safety Outcomes: A Feasibility Study”.

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We have considered the four key questions identified by the OFT in its guidance, namely whether in any affected market the proposals would:

− Directly limit the number or range of suppliers − Indirectly limit the number or range of suppliers − Limit the ability of suppliers to compete − Reduce suppliers' incentives to compete vigorously.

We found that none of these effects would occur as a result of the proposal. However, we would expect the proposals to result in an increase in the competitiveness of compliant business with respect to non-compliant ones.

Duty holders found in material breach and subject to cost recovery that trade internationally my find themselves less competitive on the international market if other countries do not run similar schemes.

8.3. Small Firms Impact Test Cost recovery might affect smaller dutyholders disproportionately. The amount recovered would be related to the amount of time it takes identify the material breach, plus the cost of any enforcement action. This would not be directly proportional to the size and capacity of the duty holder to pay. We would expect interventions in smaller premises to take less time, but the time taken would be related to the complexity of the breach, remedial and enforcement action rather than being exactly proportional to the size of business. It is important to note, however, that the fact that a dutyholder is small does not imply that its activities necessarily pose less risk to its employees or the general public.

8.4. Greenhouse Gas Emissions

There would be no impact on greenhouse gas emissions.

8.5. Wider Environmental Impacts There would be no wider environmental impacts as a result of the policy change.

8.6. Health and Well Being

There may be health and safety benefits of the policy change as described above, but it is not possible to quantify these.

8.7. Sustainable Development Impact Test

There would be no impact on sustainable development resulting from this policy change.

8.8. Human Rights

There would be no impact on human rights as a result of this policy change.

8.9. Justice Impact Test There would be no impact on the justice system as a result of this policy change.

8.10. Rural Proofing

There would be no adverse impact on rural areas as a result of this policy change.

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Annexes Annex 1 should be used to set out the Post Implementation Review Plan as detailed below. Further annexes may be added where the Specific Impact Tests yield information relevant to an overall understanding of policy options.

Annex 1: Post Implementation Review (PIR) Plan A PIR should be undertaken, usually three to five years after implementation of the policy, but exceptionally a longer period may be more appropriate. If the policy is subject to a sunset clause, the review should be carried out sufficiently early that any renewal or amendment to legislation can be enacted before the expiry date. A PIR should examine the extent to which the implemented regulations have achieved their objectives, assess their costs and benefits and identify whether they are having any unintended consequences. Please set out the PIR Plan as detailed below. If there is no plan to do a PIR please provide reasons below.

Basis of the review: [The basis of the review could be statutory (forming part of the legislation), i.e. a sunset clause or a duty to review , or there could be a political commitment to review (PIR)]; This post implementation review plan relates only to HSE as a regulator because the results of the consultation process are required before determining whether the duty should be given to extend cost recovery to Local Authorities. If, as a result of the consultation, Ministers decide there should be such an extension, it is expected that Local Authorities would determine their own post implementation review plans. The working of the policy change will be reviewed on an ongoing basis during the implementation phase and HSE plans to formally review the working of the Regulations and policy change by April 2017. The level of fees will be reviewed annually and any resultant changes will be decided by DWP Ministers. .

Review objective: [Is it intended as a proportionate check that regulation is operating as expected to tackle the problem of concern?; or as a wider exploration of the policy approach taken?; or as a link from policy objective to outcome?] To ensure that the policy objectives are being met and that the cost recovery process is working as expected. .

Review approach and rationale: [e.g. describe here the review approach (in-depth evaluation, scope review of monitoring data, scan of stakeholder views, etc.) and the rationale that made choosing such an approach] The data collected by HSE during the whole of the period of operation prior to the formal review will be used to assess whether the policy objectives are being met, as well as to test the assumptions made in the Impact Assessment (e.g. relating to inspector and dutyholder behaviour, the level of familiarisation, the extent of challenge to invoices and the level of bad debt). More detail on the approach / methodologies to be used in the PIR will be included in the final stage Impact Assessment.

Baseline: [The current (baseline) position against which the change introduced by the legislation can be measured] Through its normal operation HSE will collect data relating to the regulation of duty holders for the 2011/2012 work year period. This is the most appropriate baseline position because it represents the year prior to implementation of this policy, and is the first year in which regulatory activity is in line with the package of deregulatory measures announced by the Government in ‘Good health and safety; good for everyone’.

Success criteria: [Criteria showing achievement of the policy objectives as set out in the final impact assessment; criteria for modifying or replacing the policy if it does not achieve its objectives] That: - the Regulator continues to provide the appropriate level of regulation,driven by its Enforcement Policy Statement and Enforcement Management Model; incentivises compliance and promotes a level playing field.

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- non-compliant duty holders in material breach of the law and operators of onshore boreholes pay the full costs of their regulation as described in this impact assessment, supported by an efficient and consistent cost recovery process. More specific indicators for each of these objectives will be developed.

Monitoring information arrangements: [Provide further details of the planned/existing arrangements in place that will allow a systematic collection systematic collection of monitoring information for future policy review] The PIR will be based on ongoing monitoring of accounting and other economic data, together with analysis of HSE’s Corporate Operational Information System (COIN) and other relevant data sources, and social science research into how the cost recovery processes are implemented in practice, in line with the HM Treasury Magenta Book (http://www.hm-treasury.gov.uk/data_magentabook_index.htm ).

Reasons for not planning a review: [If there is no plan to do a PIR please provide reasons here]

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Annex 2 - Current situation 1. HSE is the national independent regulator for work-related health, safety and welfare in

Great Britain. HSE is responsible for enforcing health and safety legislation, together with Local Authorities. Local Authorities generally enforce in lower risk sectors such as retail, leisure and entertainment and HSE enforce in higher risk sectors.

2. HSE’s remit is broad and covers everything from nuclear, oil and gas, chemicals and

petrochemicals, construction, manufacturing, agriculture and public services. Its three operational directorates are structured around broad business sectors. The Office for Nuclear Regulation (ONR) regulates nuclear installations. The Hazardous Installations Directorate (HID) regulates sectors where there are significant risks to workers and/or the public from large scale explosions, fires or releases of toxic substances. Sectors covered by HID include offshore oil and gas, onshore chemicals and petrochemicals, explosives, pipelines carrying dangerous substances and biological agents. Field Operations Directorate (FOD) regulates primarily the manufacturing, construction, agriculture and public service sectors. FOD’s work is concentrated on what are known as conventional health and safety risks e.g. falls from height, workplace transport, dangerous dust and fumes and machinery. ONR and HID’s work is concentrated on major hazards arising from failure to manage process plant. In addition, there is a Corporate Science Engineering and Analysis Directorate which has within it a team of specialists in disciplines such as radiation, occupational hygiene and noise and vibration who undertake a relatively small number of inspections in support of ONR, HID or FOD.

3. All HSE Directorates use a mixture of intervention techniques to influence standards of

compliance. These include workplace inspections and investigations, working with trade associations and professional bodies, producing guidance, and working with the EU to ensure equipment and substances are supplied in a safe condition and with appropriate information for users.

4. ONR and HID operate specific regulatory regimes whereby businesses have to demonstrate

to HSE that they are effectively managing risks. Often this is done through the submission of safety cases to HSE which set out their hazards, risks, control systems and mitigation methods. HSE assesses these cases and, in some cases, the start up or continued operation of the plant is dependent on this assessment. Consequently, they are sometimes described as permissioning regimes. Because of the high level of risk, the need for public reassurance and the more detailed regulatory requirements, HSE has significant ongoing intervention programmes in these areas.

5. Generally, in these permissioning regimes, the costs of all HSE’s regulatory effort is

recovered irrespective of whether a material breach has been identified. ONR recovers virtually all of its costs from those it licences to operate nuclear installations.

6. However, not all HID’s sites are subject to full blown permissioning regimes and therefore full

cost recovery. HID currently recovers about 60% of its costs. The HID situation, and the application of fee for intervention in the sectors it regulates, are described in more detail in annex 5.

7. Currently, the only cost recovery that takes place in FOD are the costs from prosecutions in

England and Wales, which are awarded at the discretion of the court. This is also the case for Local Authorities.

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Annex 3 – HSE rate-setting model 1. In all the options analysed, costs would be recovered based on the amount of time taken for

the intervention, using an hourly rate that will be the same across HSE for all staff involved in cost recoverable work. HSE has produced a rate setting model which calculates the expected hourly rate based upon current financial and operational activity assumptions for 2012/13. (The rates are different for onshore boreholes). The final stage impact assessment will present any updated figures.

2. The rate setting model for duty holders found to be in breach of health and safety law is

based on an estimation of how many inspection, investigation and enforcement days are spent in contact with dutyholders, including the regulator's office-based work relating directly to the intervention, are expected for 2012/2013 and beyond in areas where cost-recovery is not currently taking place. This takes into account, and adjusts for, the changes in inspection policy set out in “Good Health and Safety, Good for Everyone”, which would see around 11,000 fewer proactive inspections per year than in 2010/11, as well as a shift from proactive inspections to reactive work in response to incidents or complaints.1 The annual number of frontline days, across HSE, potentially recoverable if a material breach were found is expected to be 67,800.

3. The rate setting model includes the costs of inspection, investigation and enforcement time

(to the point of laying an Information in England and Wales, or in Scotland on referral to the Procurator Fiscal, in cases where a prosecution takes place). It also includes the costs of payroll, travel and subsistence, training; and indirect costs such as accommodation, office services, telecoms, corporate services, IT etc. It does not include external research and support, HSL planned research and support, or activities such as stakeholder engagement and provision of advice and education. It also excludes HSL reactive support, which will be charged directly to individual duty holders. Based on this approach yearly potential recoverable costs from April 2012 were estimated to be approximately £66.9m.

4. By dividing the total potential recoverable costs by the expected frontline days, an hourly

rate was calculated. This hourly rate is estimated to be £133 (corresponding to a daily rate of £984, based on a 7.4 hours day).

1 This shift in inspection policy was implemented in April 2011, and so is part of the baseline for all the options that will be analysed.

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Annex 4 – Cost recovery in FOD sectors 1. After adjusting for the changes in inspection strategy outlined in ‘Good Health and Safety,

Good for Everyone’, the estimate is that, starting April 2012, there will be approximately 57,000 frontline days per year.

2. While all activity associated with inspections, investigations and enforcement was used to

calculate the hourly cost-recovery rate, costs occurring after the Information has been laid in England and Wales, or in Scotland on referral to the Procurator Fiscal following a decision to prosecute are excluded from this impact assessment. This is because they are already recovered in England and Wales and cannot under Scottish law be recovered. Expert opinion suggests that 80% of enforcement days would be subject to cost recovery under this system. Out of the 57,000 frontline days estimated above, approximately 3,000 are estimated to be devoted to work related to prosecutions, leaving a remainder of 54,000 frontline days which could be potentially recovered if a significant breach was found.

3. To understand in what proportion of those frontline days a breach would be found, FOD

undertook a sampling exercise in which they examined 600 records and judged whether they would have triggered cost-recovery. This required careful examination of any letters sent to determine whether a significant breach had been found. Those letters not relating to a material breach were excluded. This sampling exercise led to the assumptions used in this impact assessment.

4. For days spent on investigations into incidents or complaints, it was found that of those that

had not led to the issue of a prohibition or improvement notice, 50% were related to an investigation which found a significant breach. If we also include investigations that lead to the issue of a notice, this means that approximately 70% of investigation days would be related to investigations finding significant breaches.

5. Of proactive inspections, it was found that 65% of inspection days would be spent on

inspections that would find a breach (whether these led to improvement or prohibition notices or not). It should be noted that this number is based on a sample taken from a year where there would have been a different mix of sectors in those proactive inspections than will be in the years starting in April 2012 (as set out in Good Health and Safety, Good for Everyone). Work is underway within HSE to determine whether the new mix of sectors is likely to affect our assumption for breach rates, and if so, to adjust it. Initial estimates, however, are that increasing efforts to concentrate our inspections and investigations to the most risky sectors would result in more of them finding material breaches.

6. Applying these rates to detailed estimates on the number of different types of interventions

results in an estimate of costs of approximately £38.5 million to be recovered from dutyholders annually.

7. In all, FOD expect to issue some 2,400 invoices a month. The costs recovered from the

average non-compliant dutyholder will depend on what the intervention involves. Inspections leading to the issue of a prohibition or improvement notice will generate an average of 1.5 days of work, which would result in an average invoice of approximately £1,500. Inspections finding a breach, but not leading to the issue of a prohibition or improvement notice would require an average of 0.75 days of work, resulting in an average invoice of approximately £750. An estimate for the average invoice for an investigation into an incident or complaint that found a breach is 4 days. However, the latter includes only days in contact with the duty holder, not office-based work resulting directly from the investigation. Total time to be recovered would also include relevant office time. In total, an investigation that lasted 4 days would result in an invoice of approximately £4,000.

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8. It should be noted that these estimates are averages and some invoices are likely to be for less, while others are likely to be for substantially more costs than shown here. This is because inspection, investigation and enforcement ranges from the relatively straightforward to extremely complicated, requiring specialist support.

9. The cost of HSL reactive support to FOD is estimated to be approximately £4.9 million per

annum. There is uncertainty about how much of this sum can be directly attributable to interventions and specific dutyholders for the purposes of regulation, and would thus be recoverable. It is possible that this £4.9 million figure is an overestimate, and work is underway to analyse the data available, to understand how much of this would be recoverable, and what a typical invoice to a duty holder for HSL reactive support would look like. This would be recovered directly from duty holders which the interventions are related to. For now, we will be considering the totality of this amount.

10. Including the recovery for the amount of HSL reactive support, the total costs that would be

due to be recovered would be £43.4 million. 11. For any cost recovery activity, we have initially estimated that unpaid invoices would amount

to about 10%, after debt collection efforts (the costs of which would be netted from what is recovered). Work is underway to refine this estimate with information from HMRC, including obtaining estimates for different sectors. The estimate is therefore £39.0 million worth of costs recovered by HSE. Over 10 years, this would result in costs with a Net Present Value of £336 million. This would be a transfer of costs from HSE to non-compliant dutyholders.

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Annex 5 – Cost recovery in HID sectors 1. In order to obtain the following estimates for each HID sector, we analysed the number of

days expected to be spent on investigations, inspections and enforcement in the 2011/12 plans, and assumed the picture would be similar in the future. We then determined how many of those days were not currently cost recovered, and how many were related to activities the cost of which would be potentially recoverable.

2. The profile of each sector in terms of compliance is quite different, so in discussion with HSE

sector experts (all of which had inspection experience in those sectors) we obtained estimates for the percentage of days that would find a significant breach, based on their knowledge of the sector, including analysis of available data..

3. Chemical industries

3.1. HID Chemical Industries Division’s regulatory responsibilities cover a wide spectrum of economic activities, including onshore major hazard chemical manufacture, distribution, and storage and downstream oil refining.

3.2. The regulatory system for the highest hazard sites in this area is based on a European

Directive (‘Seveso Directive’) which takes a proportionate, hazard-based approach through a two-tier system of controls based on the quantity of dangerous substances present. This reflects the premise that generally increased hazards equals increased risk although there are exceptions to this, for example, complex processes using lesser quantities of dangerous substances may present a greater risk than a site storing a single dangerous substance. Seveso is principally implemented in Great Britain through the Control of Major Accident Hazards Regulations 1999 ‘COMAH’. The two tiers of controls are generally referred to as Top-Tier and Lower -Tier COMAH sites. Onshore chemicals sites that do not meet the criteria described in COMAH are referred to in this document as ‘non-COMAH’ sites.

3.3. Currently, HID recovers its costs from COMAH Top Tier (TT) sites for all its intervention

effort. Cost recovery for most COMAH work at Top Tier sites was implemented with Regulations. Cost recovery was extended in 2008 to the generality of non-COMAH health and safety legislation (Relevant Statutory Provisions, or RSPs) on the basis that poor ‘conventional’ health and safety performance at the highest hazard sites was strongly indicative of poor major hazard performance. For example, poor management systems for the control of workplace transport risks might indicate poor management systems for the control of chemical processes.

3.4. At Lower Tier (LT) sites, in line with the policy position taken at the outset of COMAH

implementation, HID recovers its costs only in respect of major hazards (MH) interventions; it does not recover costs for work associated with RSPs. This impact assessment considers the introduction of fee for intervention cost recovery at non-COMAH sites, and to what is not currently recovered for interventions in Lower-Tier COMAH sites. It is important to note that HSE has not historically recorded activity data to the same level of detail as that recorded for COMAH work at LT and non-COMAH sites for RSP work.

3.5. There are approximately 660 sites classified as Lower-Tier COMAH. There are a further

6095 sites in this area that are not subject to COMAH. 3.6. Based on analysis of the available records and on HSE sector specialists’ estimates, in

the CI sector we would expect:

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3.7. Approximately 1400 days per year of inspection, investigation and enforcement in non-COMAH sites. Of these, a high percentage, approximately 85%, would be related to interventions finding a material breach. The costs of some 1250 days would be recovered.

3.8. 200 days per year of inspection, investigation and enforcement in Lower-Tier COMAH sites. All the enforcement and investigation days and 60% of the inspection days would be related to interventions finding material breaches. The costs of 155 inspection days would be recovered.

3.9. In total, therefore, we would expect to recover costs for 1400 days per year in the

chemical industries sector. If we assume, as before, a 10% rate of bad debt, this would correspond to £1.2 million recovered per year.

4. Biological Agents

4.1. HSE regulates contained use work with human pathogens and genetically modified organisms (GMOs). Furthermore, since 2008, HSE undertakes inspection and enforcement of work with specified animal pathogens on behalf of Defra and the Devolved Administrations.

4.2. The biological agents sector is dominated by public funded bodies (e.g. Government

Agency laboratories, NHS trusts, research council funded research institutions), and universities. There is also a significant number of private companies, particularly in the biotechnology sector, but their risk profile is low.

4.3. Work with biological agents is divided into four containment levels:

• Containment Level 1: Laboratories working with organisms, which pose no or negligible

risk to human or animal health (e.g. teaching laboratories). Consequently, there is little proactive engagement from HSE.

• Containment Level 2: Laboratories working with low risk GMOs and human and animal

pathogens (e.g. common cold virus). HSE proactively inspects a sample of these sites as well as investigate mandatory incident reports.

• Containment Level 3: Laboratories working with microorganisms that are the causative

agents of serious diseases but for which there is effective prophylaxis or treatment (e.g. the causative agents of TB, hepatitis, and bluetongue). This represents a large part of the sector, and includes NHS diagnostic laboratories, reference laboratories and university research laboratories. The high hazard profile means that much of HSE’s inspection effort is targeted to this part of the sector. The majority of containment level 3 laboratories are inspected once every 3 – 5 years on the basis of a generic intervention plan.

• Containment Level 4: Laboratories working with microorganisms that pose the greatest

risk to human or animal health and cause diseases for which there is typically no effective prophylaxis or treatment (e.g. the causative agents of Ebola fever and foot-and-mouth disease).

4.4. Based on analysis of available records and on HSE sector specialists’ estimates, in the

biological agents sector we would expect:

- 600 inspection days per annum, approximately 45% of which would be related to inspections finding a breach. We would therefore recover the costs of 260 inspection days.

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- 200 investigation days per annum. A very high proportion of investigations find a breach, so our assumption is that 85% of these costs would be recovered. - Some 40 days per annum of enforcement activity. 100% of these would be recovered.


biological agents sector. If we assume, as before, a 10% rate of bad debt, this would correspond to £418 thousand recovered per year.

5. Mines

5.1. HSE’s Mines Unit regulates underground mines, the mines rescue service and cableways. This includes coal and non-coal mines, tourist mines, and mines used for storage and waste disposal.

5.2. The mining sector in Great Britain currently comprises: 18 working coal mines, 78 non-

coal mines, (including mines producing other minerals, storage and tourist mines) employing some 6000 people. In addition, there are about 50 other premises. The largest coal mine operator is UK Coal, who own and operate the three biggest coal mines.

5.3. The ‘high hazard’ activities in the mines industry are related to: • 10 large mines producing coal and other minerals, all of which have multiple high

hazards • 30 other premises with mass transport systems which have high public hazard potential.

3 of these are tourist mines and the remainder are rail mounted cableways (cliff lifts etc) • Some 30 other producing mines with varying degrees of high hazard, more than half of

which are micro-businesses.

5.4. These high hazard activities represent about 95% of the industry’s employee base and account for some 85% of inspector time on interventions.

5.5. The other activities in the sector, represent more than 50% of the premises but only 5%

of the industry’s employee base and to which 15% of inspector time is devoted/ these premises include tourist mines, mines rescue stations, pumping mines, storage mines, discontinued (mothballed) mines and methane extraction sites.

5.6. Based on HSE sector specialists’ estimates, in the mines sector we would expect:

5.7. 340 inspection days per annum, 20% of which would be related to inspections finding a

breach. We would therefore recover the costs of approximately 68 inspection days.

5.8. 160 investigation days per annum. 60% of these would be related to investigations finding a breach. The costs of approximately 96 inspection days would be recovered.

5.9. Some 12 days per annum of enforcement activity related to notices. All of these would

be recovered.

5.10. In total, therefore, we would expect to recover costs for about 176 days per year in the mines sector. If we assume, as before, a 10% rate of bad debt, this would correspond to £156 thousand recovered per year (after bad debt assumption)

5.11. It should be noted that this is a sector characterised by high degree of concentration,

and we estimate that 80% of HSE costs would be recovered from the top 11 companies in the sector.

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6.1. HSE’s Explosives Unit regulates health and safety in the manufacture, large-scale

storage and transportation of explosives, as well as large-scale ammonium nitrate storage. The common thread is the similarity of the main hazards (fire, explosion and fragment impact) and the control measures and legislation which apply as well as the added – and increasing – element of preventing unauthorised access to explosives whilst avoiding conflict between safety and security.

6.2. The sector comprises a very diverse group of duty-holders who manufacture or store

explosives – from small fireworks companies to multi-site multi-national operators, and includes the MoD. There are some 150 duty-holders operating around 240 HSE licensed sites in the civilian sector, whilst MoD has around 50 licensed sites of significant size. Around 40 of the HSE-licensed sites are subject to COMAH regulations and charges. The sites for which cost recovery is analysed here fall outside the COMAH regime.

6.3. Based on HSE sector specialists’ estimates, in the explosives sector we would expect:

- 200 inspection days per annum, approximately a third of which would be related to

inspections finding a breach. We would therefore recover the costs of some 70 inspection days. - 65 investigation days per annum. About half of those would be related to

investigations finding a breach, allowing the costs of 32 days to be recovered. - Some 50 days per annum of enforcement activity. All of these would be recovered.


explosives sector. If we assume, as before, a 10% rate of bad debt, this would correspond to £131 thousand recovered per year (after bad debt assumption).

7. Diving

7.1. Diving at work covers a wide range of activities from deep saturation diving in support of the offshore oil and gas industry to recreational instruction by an individual professional instructor. The “diving industry” can be considered as a number of sectors where people need to go underwater to work. With the exception of the recreational sector, diving is primarily a method of getting to a work site that is underwater. Most diving at work takes place in the following sectors:

• Offshore (where costs are already recovered by HSE) • Inland/Inshore • Scientific/Archaeological • Media • Recreational • Police • Military

7.2. The total population at risk from diving is estimated at around 55,000. This includes

approximately 7,000 “professional” divers holding current diving medicals, approximately 8,000 members of the armed forces (includes “recreational at work” diving as part of adventurous training) and in excess of 40,000 members of the public receiving some form of paid instruction every year. HSE's database shows a total of around 450 notified diving contractors or which 10 are Offshore companies and remainder predominantly Inland/Inshore.

6. Explosives

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7.3. Based on HSE sector specialists’ estimates, in the diving sector we would expect (excluding off-shore diving) 630 inspection days next year, approximately 15% of which would be related to inspections or investigations finding a breach.


explosives sector. If we assume, as before, a 10% rate of bad debt, this would correspond £84 thousand recovered per year (after bad debt assumption).

8. Pipelines

8.1. Pipelines and pipeline networks, which transport both non-hazardous and hazardous materials, including, gas, are regulated by HSE. The Pipelines Safety Regulations 1996 (PSR) apply to a wide range of these pipelines. However, where defined dangerous fluids are transported (e.g. high pressure natural gas) the pipeline is be defined as a Major Accident Hazard Pipeline (MAHP), and is subject to notification to HSE and additional scrutiny. Furthermore, where a pipeline transports natural gas, they are also covered by the Gas Safety (Management) Regulations 1996 (GSMR).

• The majority of the work in this sector is already cost recovered (see Annex 1 for details).

The only areas not currently subject to cost recovery, and thus analysed in this impact assessment, are:

• Pipelines connecting an offshore installation to an onshore installation, except that the key parts of the pipelines (risers and connectors) are already covered by other cost recovery regimes

• Pipelines carrying ethylene (of which there are approximately 1000 kilometres in GB).

8.2. Most activity in this area is at a pre-build stage and focused on agreeing standards. It would therefore not lead to finding a material breach. Estimates from HSE sector experts indicate that on a typical year, there might be some 50 hours of work on interventions finding a breach related to PSR, and 50 to 100 hours related to conventional health and safety. This would correspond to the costs of approximately 17 days being recovered, which, if we assume, as before, a 10% rate of bad debt, this would result in £15 thousand being recovered per year(after bad debt assumption).

9. Onshore Boreholes

9.1. This area includes work related to the assessment and inspection of notifications of boreholes associated with gas and oil extraction and gas storage onshore. There are about 100 onshore well notifications per year. It is estimated that HSE spends about 150 inspector days per year regulating these onshore notifications and associated work, giving rise to estimated cost recovery of £256 thousand per year as set out under option 4 in the Impact Assessment. These proposals include cost recovery for all of this regulatory work and adjusted for bad debt.

10. Additional to these estimates, the cost of HSL reactive support to HID is estimated to be £1.8 million per year (after bad debt), all of which would be recovered and linked to the particular interventions that gave rise to it. As in FOD, there is uncertainty about how much of this sum can be directly attributable to interventions for the purposes of regulation, and would thus be recoverable. It is possible that this £1.8 million figure is an overestimate, and work is underway to analyse the data available, to understand how much of this would be recoverable, and what a typical invoice to a duty holder for HSL reactive support would look like. For now, we will be considering the totality of this amount.

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Annex 6 – Cost recovery by CSEAD Inspectors 11. The CSEAD teams that would get involved in activities the cost of which could potentially be

recovered are the Radiation; Noise and Vibration; Electrical and Process Safety; Human Factors and Ergonomics; and Medical Inspection teams as well as the Occupational Hygienists.

12. To obtain estimates for each CSEAD team, we analysed the number of days expected to be

spent on investigations, inspections and enforcement in the past and assumed the picture would be similar in the future. We then determined how many were related to activities the cost of which would be potentially recoverable.

13. The profile of each team and their activities are different, so in discussion with management

and individuals with experience on the field, we obtained estimates for the percentage of days that would find a material breach, based on their knowledge of the sector, including analysis of available data.

14. Human factors and ergonomics team

14.1. Human Factors, Ergonomics and Work Psychology concerns the interactions between individuals, the jobs they do, the organisations they work for and the environment in which they work.

14.2. Human Factors, Ergonomics and Psychology (HFE) professionals include both

Specialist Inspectors and Scientists. They provide advice and expertise for investigations and enforcement, by assessing safety reports and cases, acting as expert witnesses, working with stakeholders and partners, producing guidance and other supporting material, and developing and trial assessment tools.

14.3. Based on HSE specialist’s estimates, we would expect that the HFE team would

engage in approximately 450 days per annum of work directly related to inspections, investigations and enforcement. A high percentage of these are in the construction sector. Of those 450 days, approximately 350 would be related to an intervention in which a material breach is found, and would therefore be recoverable. This would result in £310 thousand being recovered annually (after making an assumption of 10% for bad debt).

15. Radiation team

15.1. HSE’s Radiation team is a national team made up of radiation specialist inspectors and their support staff. They carry out inspections, investigations and, where necessary, enforcement in all workplaces except those licensed under the Nuclear Installations Act. They also provide specialist advice to other HSE inspectors, duty holders and the public on technical and regulatory matters concerning both ionising and non-ionising radiation.

15.2. Based on HSE specialists’ estimates, the Radiation team would expect to engage in

approximately 300 inspection and investigation days per annum, 20 of which would be related to prosecutions, and are therefore not considered here. Of the remaining 280 days, 25% would be related to inspections or investigations where a material breach is found, and would therefore be recovered.

15.3. In total, we would expect to recover costs for 70 days per year for the Radiation team.

This would result in a yearly cost recovery of £62 thousand (after making an assumption of 10% for bad debt).

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16. Occupational hygiene team

16.1. Occupational Hygienists deal with chemical, physical and biological risks that may affect the health of workers. Most of the work they do is intelligence-gathering and provision of advice. They include warranted inspectors, who engage in inspection, investigation and enforcement that would be cost recoverable..

16.2. Based on specialists’ estimates, approximately 55 days per year are spent on

investigation, inspection and enforcement. 65% of those days would be related to interventions finding a material breach, and would therefore be recovered.

16.3. In total, we would expect to recover costs for 35 days per year for the Occupational

Hygienist teams. This would result in a yearly cost recovery of £31 thousand (after making an assumption of 10% for bad debt).

17. Noise and vibration team

17.1. The Noise and Vibration team provides specialist support to other parts of HSE, including FOD and HID, in controlling risks from noise, hand-arm vibration and whole-body vibration at work.

17.2. Based on specialists’ estimates, the Noise and Vibration team would be expected to

undertake:

- 135 inspection days a year, 75% of which would be related to inspections finding a material breach, and the costs of which would be recovered. - 75 investigation days, 75% of which would be related to investigations finding a material breach, and the costs of which would be recovered. - 65 investigation days, 90% of which would be related to material breaches, and the costs of which would be recovered.

17.3. In total, we would expect to recover costs for 215 days per year for the Noise and

Vibration team. This would result in a yearly cost recovery of £192 thousand (after making an assumption of 10% for bad debt).

18. Electrical and process safety team

18.1. Specialist Electrical inspectors and Process Safety specialists provide specialist support to other parts of HSE regarding the application of electrical equipment over a wide range of industrial environments and the protection of individuals from fires, explosions and accidental chemical releases arising from the handling of hazardous materials and dangerous substances in the workplace or from a work activity.

18.2. It is estimated that in the future, including the period from April 2012, they will

undertake approximately 100 days a year of such work. Specialists’ estimates are that about 50% of those days would be related to interventions finding a breach.

18.3. In total, we would expect to recover costs for 50 days per year for the Electrical and

Process Safety teams. This would result in a yearly cost recovery of £44 thousand. 19. Corporate Medical Unit (CMU)

19.1. HSE’s corporate medical resource is made up of physicians, biomedical scientists and medical inspectors. Medical Inspectors provide specialist support to other parts of HSE on all aspects of occupational health.

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19.2. Based on specialists’ estimates, medical inspectors would expect to spend approximately 95 days a year on investigation, inspection and enforcement, 60% of which would be related to interventions finding a material breach and the costs of which would be recovered.

19.3. In total we would expect to recover costs for approximately 50 days per year for CMU inspections. This would result in a yearly cost recovery of £47 thousand (after making an assumption of 10% for bad debt).

19.4. Medical Inspectors would also expect to spend approximately 10 days a year on reactive investigation, inspection and enforcement for pesticides. It is unlikely that these will lead to a material breach and therefore these would not result in any cost recovery.

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Annex 7 – Cost recovery by Local Authorities Local Authority Enforced Sectors 1. Under options 2 to 5 the proposed introduction of cost recovery would place a duty on HSE

and Local Authorities to recover the costs of regulatory intervention from duty holders. 2. There are approximately 430 Local Authorities in Great Britain and there is considerable

diversity among them, from London Boroughs to suburban Local Authorities, to Urban/Industrial and rural Local Authorities. There is uncertainty about the exact form any Local Authority cost recovery would take, including whether the system they would choose to implement would be exactly like HSE’s fee for intervention.

3. This impact assessment provides options which include and exclude Local Authority health

and safety regulators. They assume that Local Authorities choose to mimic the HSE cost recovery model and use HSE’s hourly rate. Some elements of the costings are based on information Local Authorities provide to HSE periodically, but for other elements we have had to make assumptions, often based on internal HSE activities and costs. We have used only FOD activities and numbers to extend assumptions to Local Authorities, as we consider this is more appropriate than to use numbers that include HID and CSEAD, based on the similarities of the profiles of the dutyholders inspected. Where possible and based on experience, we have provided information on how Local Authorities might differ from HSE.

4. Consultation work with Local Authority representatives is underway to obtain as much of the

necessary information as possible in order to be able to provide better estimates of the likely impact on Local Authority regulated duty holders. This will continue throughout the formal consultation period.

5. Annually, Local Authorities provide HSE with information about their health and safety

activities. The latest information available is for 2009/10. In the past years, over 90% of Local Authorities have provided responses. Unless specifically indicated, all the data presented below are estimates for 100% of Local Authorities, based on those for which we have received returns and adjusting according to type of Local Authority.

6. According to the information provided to HSE, Local Authorities made 196 thousand

enforcement visits in 2009/10. This was an 11% decrease from the 2004/05 – 2008/09 average. However, for these calculations, we will use the 2009/10 numbers, as we expect they would be more representative of the current situation, in which Local Authorities would have had significant reductions to their budgets and are expected to reduce proactive inspections of low-risk businesses in line with Government policy. This estimate will be reassessed for the final stage impact assessment, both with any available 2010/11 information and with feedback obtained from Local Authorities public consultation.

7. HSE also receives information on the total amount of time spent on health and safety

activities, in terms of numbers of full-time equivalent LA regulatory staff, which was 1,050 in 2009/10. Assuming 260 working days per year, this would correspond to 273 thousand days.

8. Like HSE, Local Authorities already seek to recover through the courts some of the costs

relating to prosecutions, except in Scotland. These are therefore not considered in this impact assessment. The only information we currently have on prosecutions brought by Local Authorities is the number of them, which was 287 in 2009/102. By comparison, there were 512 brought by FOD in the same period, which were associated to approximately 14 thousand frontline days, giving an average number of frontline days per prosecution of 27.

2 This number is the actual number of prosecutions reported to HSE, and has not been adjusted to estimate the number for 100% of LAs.

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Applying this last number to the 287 reported Local Authority prosecutions results in some 7,700 days which should already be subject to cost recovery. This would leave 265 thousand days which are not currently subject to cost recovery.

9. HSE has no information about what Local Authorities’ regulation costs are, and therefore

cannot know what hourly rate would be used by them to recover their costs. As, by definition, any rate would be related to each Local Authority’s costs, and these are likely to differ from one to the other, we would expect each Local Authority to set their own fees. For these calculations, we have used the HSE rate calculated as described in annex 3 of £133 an hour, assuming that on average, Local Authorities’ costs will be broadly similar to HSE’s. Again, this assumption is being checked for validity during public consultation.

10. HSE have no information about what proportion of Local Authority health and safety

interventions might identify a breach, and therefore trigger cost recovery. Local Authorities only provide information to HSE on the number of prohibition and improvement notices issued per year. We considered the possibility of extending the FOD assumptions for breach rates described in the previous section to Local Authority visits, but the profile of the Local Authority enforced sectors is different enough from those that are enforced by FOD that this would not be appropriate, and a lower percentage might better reflect what would happen. An indicator of this is that while FOD issues a number of notices that amounts to 16% of its frontline days, the corresponding percentage for Local Authorities is 2%, according to data provided to HSE. Additionally, advice from HSE staff with experience in working with Local Authorities is that due to their position in local communities, they tend to undertake more visits to raise awareness about and promote health and safety and to advice dutyholders than HSE inspectors do. This would act in a similar direction as the above.

11. Lacking information on which visits are related to enforcement and which are not, we have

adjusted the estimates of how many frontline days would result in a breach by using the notices to frontline days rate presented above and dividing the HSE rates by 8 (i.e. 16% divided by 2%).

12. Based on the assumptions described above, and applying the same 10% rate of unpaid

invoices (after debt collection efforts, and netting the costs of this activity from income), the amount of costs recovered by Local Authorities regulators would be £15.9 million.

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