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THE SMOKING, HEALTH AND SOCIAL CARE (SCOTLAND) ACT 2005 (PROHIBITION OF SMOKING IN CERTAIN PREMISES) REGULATIONS 2005: DRAFT

ANNEX C: Draft Regulatory Impact Assessment

1. Title of Proposal

The Smoking, Health and Social Care (Scotland) Act 2005 (Prohibition of Smoking in Certain Premises) Regulations 2005

2. Purpose and intended effect of measure

Objective

To protect public health by introducing comprehensive legislation on smoking in certain enclosed places to which the public or a section of the public has access. These measures lie at the heart of the Scottish Executive’s wider drive for health improvement set out in Improving Health in Scotland: The Challenge^[i], which is aimed at bringing about a more rapid rate of health improvement in Scotland and narrowing the gap between Scotland’s poorer and better off communities.

Background

Smoking has long been recognised as the most important preventable cause of ill-health and premature death in Scotland. It is estimated to be associated with 13,000 deaths and 33,500 hospital admissions each year in Scotland. In January 2004 the Scottish Executive published the first ever action plan designed specifically for Scotland: A Breath of Fresh Air for Scotland^[ii] with the stated goal of reducing this unacceptable toll on Scotland’s health. The Plan offers a comprehensive programme of action to tackle smoking. This includes a clear commitment to take firm action to extend smoke-free provision within all enclosed public places in order to protect non-smokers from the health risks posed by exposure to second-hand smoke.

The scientific evidence of the health risks associated with second-hand smoke is clear and irrefutable. The Report of the UK Scientific Committee on Tobacco and Health (SCOTH)^[iii], published in 1998, highlighted the risks. The report concludes that exposure to second-hand smoke: is a cause of lung cancer and, in those with long-term exposure, the increased risk is 20-30%; is a cause of heart disease and represents a substantial public health hazard; can cause asthma in children and may increase the severity of the condition in children already affected.

SCOTH recently reviewed the evidence of the health risks of exposure to second-hand smoke to emerge since 1998 and this report^[iv], published on 16 November 2004, reinforces the earlier findings. Research commissioned by the Scottish Executive and NHS Health Scotland in 2004 suggests second-hand smoke is associated with some 865 deaths per year among life-long non smokers in Scotland. Taking ex-smokers into account it is estimated that some 1500 to 2000 deaths per year in Scotland are associated with environmental tobacco smoke exposure^[v]. Further modelling by Aberdeen University^[vi] suggests that of the smaller number, i.e. 865 deaths of never smokers, at least 120 are attributable to non-domestic exposure.

Given the unacceptable health impact of second-hand smoke and the need to accelerate progress, specifically in the leisure and hospitality sector where progress in smoke-free provision through voluntary action has been less pronounced (7 out of 10 pubs still allow smoking throughout). It is clear to the Executive that statutory action is now required to increase smoke-free places in order to protect public health. Having weighed up all the evidence, including the fact that there is no defined safe level of exposure to second-hand smoke, the Executive decided that only the pursuit of smoke free legislation in all enclosed public places would provide comprehensive protection to public health. The Smoking, Health and Social Care Bill was introduced to Parliament on 16 December 2004.

More detailed information on the Bill is set out in Appendix 1. The introduction of a smoke free policy is one of three options considered below. Continuation of the current voluntary approach and legislation with dispensation for the hospitality sector (i.e. partial restrictions) are the other 2 options.

Risk Assessment

Tobacco is a uniquely dangerous product and, as indicated above, smoking is one of the most damaging factors in Scotland’s poor health record. Measures to protect individuals and society from the impact of tobacco, through legislative and other forms of regulation and control are a vital component to any tobacco control strategy. There is no safe level of exposure to second-hand smoke and, while much progress has been made in smoke-free environments in public places through voluntary action, the evidence clearly indicates that progress has been much slower in the hospitality sector, particularly in the pubs sector. It is clear that legislation is the only way to make significant progress to protect public health.

The policy takes account of the fact that the majority of Scots (70%) do not smoke and that survey results suggest that the majority of smokers wish to give up. It also takes into account that there is no safe level of exposure to second-hand smoke and that restrictions encourage existing smokers to give up or to reduce their consumption and encourage children and young people not to start in the first place.

A large number of studies have been undertaken on the specific risks associated with Environmental Tobacco Smoke (ETS) and the results of these studies are considered in more depth under the potential costs and benefits of the various options. Risks associated with the successful implementation of the policy itself fall into the two main areas of compliance/enforcement and the economic impact on businesses, particular in the hospitality sector.

3. Options

A number of options were considered with a view to meeting the objectives of the policy stated above. This consideration included both legislative and non-legislative options.

Option 1 — Voluntary Approach

The Executive would continue to pursue the Tobacco Control Action Plan, which sets out a programme of action to tackle smoking, particularly in deprived communities. More details on the action plan are set out in appendix 2. This is effectively a do-minimum approach, which would pursue policy objectives through non-legislative means, such as The Voluntary Charter on Smoking in Public Places, which has made some progress in developing smoke free areas. Efforts would be made to continue this through promotion of the Scottish Licensed Trade Association’s 5 voluntary targets under which:

• Smoking would be banned at the bar counter in all licensed premises;
• Smoking would not be permitted in any area where and when hot food is being served;
• All licensed premises would be required to allocate a minimum of 30% total floor space as a non-smoking area rising to 40% in year two and 50% in year three. A further review would then take place at the end of this period.
• Every licensed premise would be required to display a smoking policy at the entrance in order that customers can see the facilities available when they enter; and
• Smoking would be prohibited in any area of licensed premises from which the public are excluded.

Option 2 — Smoke Free Legislation

All enclosed public places would be smoke free. Exemptions would be permitted only on humanitarian grounds. This approach would be complemented by a range of other actions to tackle smoking as set out in the Tobacco Control Action Plan.

Option 3 — Legislation but with Exemption for the Hospitality Sector

Smoking would be generally restricted in public places but the licensed hospitality sector would be completely exempt. Consultation responses suggested there was some element of support for exemptions to legislation in this respect. Once again, The Executive would continue to pursue the wider action set out in the Tobacco Control Action Plan.

4. Costs and Benefits of Options

Overview

The following paragraphs set out the expected range of costs and benefits associated with each of the policy options considered. Economic impacts are in many cases based on recent work carried out by the Health Economics Research Unit (HERU). Prior to publication the HERU work was peer reviewed. Full details of this study and its results are set out in appendix 3. Additional work has been carried out to explore other cost and benefit elements relevant to the RIA but not considered in the HERU report, e.g. implementation costs.

• Reduced exposure to ETS in the workplace

Studies of the effect of smoking restrictions on exposure to ETS show a reduction in exposure to ETS from both smoke free policies and partial restrictions, with the greatest reductions in exposure resulting from smoke free policies rather than partial restrictions. More details are provided in appendix 3.

• Reduction in smoking/increase in quit attempts by active smokers

Smoke free policies and partial restrictions are both associated with reductions in smoking and increases in quit attempts by smokers. The evidence below suggests that the impact is stronger with smoke free policies.

• Reduction in number of deaths from major disease types

There is strong evidence that exposure to ETS increases mortality and morbidity from lung cancer and coronary heart disease. There is also weaker evidence of an effect in relation to stroke and respiratory diseases.

Estimates of mortality attributable to past exposure to ETS are derived from a study commissioned by NHS Scotland^[viii]. This gives an estimate of the number of deaths per annum attributable to ETS, based on past information on exposure to ETS 30 years ago. The HERU study took a cautious estimate of the proportion of those deaths that might be averted by smoke free policies. The full effect of reduced exposure to ETS may take up to 30 years to be realised, though some effects will be realised earlier than others. The HERU study took a conservative estimate that a smoke free approach would result in 219 deaths being averted each year after 20 years. The study ignored benefits to those who continue to be exposed at home and only included deaths averted from lung cancer and CHD as these diseases have the greatest amount of supporting evidence. The HERU study assumed that benefits will accumulate in a straight line over an average 20 year period (that is, benefits in year 1 are 1/20^th of the full benefit).

Estimates of mortality attributable to active smoking are based on a 2% fall in smoking prevalence associated with smoke free policies. Deaths caused by smoking in Scotland are approximately 13,000 per year. On this basis, it has been assumed that complete smoking restrictions would result in 260 deaths per year being averted. As with passive smoking health benefits, it has been assumed that benefits will accumulate in a straight line over an average 20 year period.

More details on the calculation of these effects are provided in appendix 3.

• Never starters

This analysis focuses on the impact of the various options on both active and passive smoking. However we have been unable to cost the differential impact of the options on starting rates. Intuitively it seems likely that a comprehensive option which "denormalises" smoking will have a markedly greater impact on the start smoking rates than an option which partially restricts smoking.

• Reduced costs of treating smoking related diseases

In 1999 it was estimated that Scotland spent up to £140m every year on treating 35,000 people for smoking-related disease^[vii]. Inflation in the costs of treatment will have increased this figure since 1999 — using an index of health cost inflation since 1999 would suggest this figure is now around £200m. However, this will be counter-balanced by a fall in smoking prevalence since 1999. Therefore, it may be prudent to assume that current spend on smoking-related disease is at least £140m per annum.

• Resource Savings

The voluntary introduction of smoking restrictions in some public places would yield benefits from: productivity gains as a result of reduced smoking breaks; cost savings from reduced fire hazards and; reduced cleaning and decorating costs.

Productivity gains resulting from reduced smoking breaks are derived from a survey of existing smoking policies in workplaces in Scotland. Research based on this survey suggests that a complete restriction on smoking in workplaces would, on average, lead to employees taking fewer and shorter smoking breaks, resulting in a gain in productive time of £73m per annum. This estimate is net of any additional breaks that would take place in workplaces where there are presently no restrictions. The discounted value of productivity gains is very large. However, we have included the same value for productivity gains in both options 2 and 3 below and this factor does not affect the choice between these options.

Benefits would also arise from reduced sickness absence levels in the workplace associated with restrictions on smoking.

• Economic impacts on the hospitality sector

It has been argued that smoke free policies may have a disproportionately large impact on the hospitality sector compared to other sectors of the economy. A smoke free policy may act as a deterrent to smokers who see such restriction as an additional cost to visiting a pub or restaurant. Non-smokers may be attracted to pubs or restaurants by the absence of smoke as the amenity of these services will be increased by the removal of ETS. Given these opposing effects, it is not possible to state definitively whether the impact on the hospitality sector will be positive or negative without empirical evidence. Therefore, the extent, quality and results of empirical evidence are considered below.

• Costs to the Scottish Administration

The introduction of smoke free legislation or partial restrictions in smoking in public places will impose certain implementation and enforcement costs on the Scottish Administration. As with any major policy development, certain monitoring and evaluation costs will also be incurred to establish the impact of the policy

In order to inform the public and businesses of the forthcoming legislation and the steps that should be taken, Scottish Ministers will establish a communications programme in advance of the regulations coming into force.

Enforcement costs of any legislation will depend on the design of the legislation and the approach chosen for enforcement of the provisions at the implementation stage. Enforcement costs will also depend on acceptance and compliance levels by the public and Scottish businesses.

International experience has shown that introduction of either smoke free policies or partial restrictions leads to significant numbers of smokers quitting with consequential increasing demand for smoking cessation services.

• Costs to Local Authorities

In evidence prepared for submission to the Scottish Parliament Finance Committee, COSLA set out financial estimates for the cost of implementing complete restrictions on smoking^[viii]. Implementation costs will be highest in the first 2 years following legislation, but will not be limited to these 2 years. However, enforcement costs will be expected to diminish over time. These costs have not yet been finalised and will be subject to further discussion between the Department and COSLA.

Income generated from fines has been assumed to be minimal due to expected high compliance rates based on experience in other areas where similar legislation has been introduced and has not been included in any option either as a benefit or as an offset against implementation/enforcement costs.

• Costs to the UK Exchequer

Based on an estimated 2% reduction in smoking prevalence due to a smoke free policy, the latest taxation data suggests that duty levels on tobacco in Scotland would fall by £15m-£30m. However, in line with government guidance "Green Book: Appraisal and Evaluation in Central Government", we have assumed that a reduction in consumer expenditure on tobacco would be offset by an increase in expenditure elsewhere in the economy with broadly equivalent macroeconomic effects. There may be a distributional effect in that losses to the exchequer are offset by gains elsewhere in the economy.

• Costs to Other Bodies, Individuals and Business

Limited information is available at this stage on signage costs and other costs of implementation to businesses. Costs of signage will vary significantly between type and size of workplace. For the purposes of this RIA, signage costs have only been included where they will apply to the hospitality sector.

The impact of the proposed legislation on individuals is not limited to the impact on individuals’ health. For smokers, there may be a reduction in utility¹ from smoking restrictions as a result of being prevented from smoking in public places, though some smokers may actually prefer a smoke-free environment. For non-smokers there will be increased utility from being able to enter public places without being exposed to ETS. These changes in utility will be reflected in changes in patronage of hospitality venues. No work has been done to establish the extent and value of these non-marketed costs/benefits.

5. Detail

Option 1 Voluntary Approach

Health Benefits

In the absence of legislation, it is expected that reductions in both active and passive smoking levels would be minimal. The trend reduction in smoking prevalence between 1995 and 2004 is around 0.45%, though in recent years there does seem to be a flattening of this trend. As the voluntary code has been in place since 2000 we have assumed the impact of the code is reflected in this trend. Based on existing trends, we might expect active smoking levels to fall marginally and as such, any economic benefits in terms of the value of lives saved or savings in morbidity costs will be only a fraction of those achieved through legislation.

Active smoking

In order to produce a rigorous comparative analysis of the options, no additional fall in smoking prevalence has been assumed under option 1. This is not to say that there would not be any further fall in smoking prevalence under a continued voluntary approach. The Tobacco Control Action Plan may lead to some further fall in smoking prevalence with attendant health benefits and resource savings. However, the Tobacco Control Action Plan will be pursued in every option and such benefits may for the most part be common to all options. Furthermore, in considering the legislative options we have taken a prudent interpretation of the available research when estimating benefits from reduced smoking prevalence.

Passive Smoking

Benefits from reduced exposure to ETS would be marginal. A continuation of the voluntary code would lead to some public places that presently allow smoking to become smoke free. On this basis it has been assumed that option 1 will produce only a marginal economic benefit from reduced mortality and morbidity associated with ETS, on the basis that 22 deaths would be averted each year from a continuation of the voluntary code.

Resource Savings

Reduced NHS treatment costs would arise as a result of reduced levels of ETS. On the basis that this option only averts 10% of deaths averted under a smoke free policy, we have assumed resource savings are 10% of those achieved under a smoke free policy.

The voluntary introduction of smoking restrictions in some public places would yield benefits from: productivity gains as a result of reduced smoking breaks; cost savings from reduced fire hazards; and reduced cleaning and decorating costs. Such savings would be small compared to the other options. There is no clear evidence, but we have assumed that benefits under this option would be 10% of those estimated for a smoke free policy.

Benefits from reduced sickness absence levels in the workplace have been assumed to amount to 10% of the benefits associated with complete restrictions.

Hospitality Sector Impacts

A continuation of the existing non-legislative option would be expected to have a minimal impact on the hospitality sector. Restrictions on smoking in pubs, restaurants and other locations would be left to local discretion.

Costs to the Scottish Administration, Local Authorities and Other Bodies, Individuals and Business

For the purposes of comparing the three options, only costs additional to those associated with the do-minimum, non-legislative option have been included in the assessment of the relative impact of the three options. Therefore, a zero cost has been included for option 1 for these potential cost elements.

Option 2 A Smoke Free Policy

Active Smoking

One of the key benefits of a smoke free policy is that such a step would help to "de-normalise" smoking within society and create a culture under which smoking is no longer the social norm. Making public places smoke free is likely to result in a significant reduction in active smoking levels.

The HERU study reviewed evidence from a number of studies on the impact of restrictions on cigarette consumption and smoking prevalence. The report concluded that a 2% fall in smoking prevalence would be a conservative estimate of the impact on smoking prevalence of complete restrictions on smoking.

This would lead to up to 260 deaths per year from active smoking being averted. A value has been attached to the deaths averted using DOT estimates of the value of life, see appendix 3. Using a value of life allows us to make comparisons of the economic costs and benefits of each option. The value of life we have used is a conservative estimate based on an average labour value per year of life lost due to car accidents. The average age of deaths by car accident is well below that of deaths caused by smoking and we have adjusted the estimates to take account of this factor. More details are included in appendix 3.

Passive smoking

The HERU report suggests complete restrictions on smoking in public places would produce significant health benefits from reduced exposure to ETS. The HERU study estimated that up to 219 deaths a year would be averted by comprehensive legislation on smoking in Scotland. Again, this figure has been converted into an economic value using a value of life.

Resource Savings

Reductions in mortality and morbidity associated with comprehensive legislation to restrict smoking would produce savings in NHS Treatment Costs. The value of benefits from reduced sickness absence levels has also been included.

The literature considered by the HERU study suggested that overall there would be productivity gains from reduced smoking breaks though whether any individual business gained or lost from the introduction of complete restrictions on smoking would depend on the extant smoking policy for those premises. The study also derived estimated cost savings from reduced absenteeism due to reduced passive smoking, reduced fire hazards associated with complete restrictions on smoking and reduced cleaning and decorating costs.

Hospitality Sector Impacts

The HERU study estimated the impact of smoking restrictions on the hospitality sector with reference to research studies carried out on the restaurant, bars and hotels/tourism sectors. Evidence from these studies was not as robust as the evidence available on health effects. In particular, only one study of the effects of legislative restrictions on bars was found. This study had looked at the effects of restrictions on bars in California, which suggested that the sector would gain from a complete prohibition on smoking through increased levels of patronage.

Given that the estimated economic impact on bars was based on a single study and this study was not located in a directly comparable location, for the purposes of this RIA, a more prudent view of the likely economic impact on bars has been adopted than that taken in the HERU report. A zero figure has been included under the central estimate for bars, rather than the positive impact on bars of £104m per annum estimated by HERU. Turnover in the hotels sector is forecast to fall by £10m, whilst turnover in the restaurants sector is forecast to increase by £4m. The overall impact on the hospitality sector is estimated to be a fall in turnover of £6m per annum.

This projected £6m decrease in turnover is equivalent to 0.1% of total turnover in the hospitality sector, based on the IDBR data for 2003. The Scottish Input-Output Model for 2001^[ix] has been used to estimate the knock-on effects (suppliers, linkage chain etc.) of the potential changes in consumption as a result of smoking legislation in public places for each scenario. The £6m decrease in turnover under the central estimate is equivalent to a loss of 176 direct jobs. After including knock-on effects in key suppliers and business services, output lost would be expected to be £7.3m with a total loss of 190 jobs across the economy.

This assumes that expenditure reductions in the hospitality sector by consumer switching their behaviour are not spent elsewhere in the economy. Standard economic theory suggests that consumers are likely to switch consumption to other consumer goods in the economy. To account for this, we maintain the aggregate level of household consumption in the economy, but adjust the distribution of expenditure to reflect a switch away from the hospitality sector to other consumption goods. In such a scenario, changes in terms of output and employment within the economy will be determined by the degree of linkage of suppliers and the labour intensity of different sectors of the economy.

After accounting for switching in expenditure, the net effect of a smoke free policy on the economy is a loss of £1.4m per annum. A fall in employment of around 100 across Scotland would be expected, given this loss in expenditure.

Given the less robust nature of the evidence on the impact on the hospitality sector, the low and high estimates of the potential impact are particularly relevant here. Calculations suggest that the net effect on the economy could be a fall of as much as £24.2m per annum (with a net loss of 1,500 jobs) under the low estimate and a benefit of £31.9m per annum (net increase of 2,000 jobs) under the most optimistic scenario.

These figures have been assumed to apply over a 30-year period and have been adjusted and discounted to give net present values in 2005 prices.

Costs to the Scottish Administration

Costs associated with a communications programme are anticipated to be in the region of £2 million in 2006 leading up to the regulations coming into force with a further £1 million per year and for the next 3 years 2007-09 following introduction of smoke-free public places.

It is anticipated that a compliance phone-line would be established to assist with enforcement of the legislation, which may be particularly important in the hospitality sector. Based on experience in Ireland, a broad estimate would suggest a cost of £50,000 to £100,000 to establish a Scottish compliance line. For prudence, a cost of £100,000 has been included in 2006 and 2007.

A reduction in smoking prevalence of 2% might be expected to result in additional costs of £13.5m in 2006 and £6.7m in 2007. This is based on an assumption that expenditure in 2006 will be treble existing expenditure on NRT and that expenditure in 2007 will be double existing expenditure on NRT.

Monitoring and evaluation of the policy will also have a cost attached to it. This cost may be up to £500k in total. The costs of monitoring and evaluation for option 1 have been assumed to be zero, although some of this cost may be incurred even in the absence of legislation. The full £500k cost has been included in 2007 for options 2 and 3.

Costs to Local Authorities

Based on detailed data provided by COSLA in support of the £6m estimate, a cost of £1m in 2006 and £5m in 2007 has been included². COSLA noted that this figure must be regarded as approximate as, in the absence of detailed Regulations, they were not able to provide a more precise figure. It has been assumed that this cost will fall to £2.5m in 2008 and £1m thereafter for the rest of the 30 year period.

Costs to Other Bodies, Individuals and Business

Signage costs will apply to the hospitality sector. There are 13,000 enterprises in the hospitality sector in Scotland. Assuming a cost per enterprise of £50 for signage, this would amount to about £750k. This cost has been included in 2006 for option 2. No costs for signage have been included for businesses outside of the hospitality sector.

Option 3 Legislation but with Dispensation for the Hospitality Sector

Health Benefits

This option provides for a restriction on smoking in public places but with complete exemption for the hospitality sector.

Active Smoking

Research on smoking restrictions introduced elsewhere^[x] has identified a differential impact on active smoking between clean air laws and workplace restrictions. The research suggests that clean air laws deliver a 20% fall in cigarette consumption levels, compared to a 4-8% reduction associated with lesser, workplace-based restrictions. Neither of these scenarios is exactly equivalent to the legislative options considered here and these studies measure falls in cigarette consumption rather than smoking prevalence. Nevertheless, a prudent interpretation of these results would suggest that the reduction in smoking prevalence associated with partial restrictions might be about half that of a smoke free policy i.e. a reduction in deaths due to active smoking of around 130 by 2024. This is consistent with the expectation that smoking legislation which continues to allow smoking in the hospitality sector, would have a much weaker impact on smoking rates.

Passive Smoking

Partial restrictions would undoubtedly deliver a proportionately higher increase in smoke-free places in comparison with option 1. However, bars and clubs are places where there is particularly heavy exposure to ETS³. These locations would be exempt under this option.

The Scottish Health Survey 1998 shows the proportion of adults reporting exposure to ETS by location. The survey shows that 64% of individuals reported that they were exposed to ETS (the remaining 36% reported that they were not exposed to ETS at any location). Of all individuals surveyed, 4% reported exposure to ETS only in the workplace and 10% reported exposure to ETS only in pubs. A further 3% reported exposure to ETS in both pubs and the workplace. This suggests that a restriction on smoking at work but with exemption for pubs would increase the proportion of individuals not exposed to ETS at any location by 4%. A restriction on smoking in both workplaces and pubs would increase the proportion of individuals not exposed to ETS at any location by 17%. There will also be some additional benefit to other individuals from a reduced level of exposure to ETS⁴. However, as noted above, the dose-response to levels of ETS for CHD is low, suggesting that benefits from reduced levels of exposure to ETS are low. Therefore, we have assumed that 55 deaths from ETS are averted by this option, equivalent to one-quarter of the number of deaths averted from a smoke free policy.

Resource Savings

The reduction in NHS treatment costs has been assumed to reflect the deaths averted due to reduced active and passive smoking. On the basis that the active smoking deaths averted are 50% of the smoke free option we have assumed the resource savings will be 50% of the smoke free option. Similarly, with passive smoking the deaths averted are 25% of the smoke free option and we have assumed resource savings will be 25% of resource savings in that option. There is no evidence to differentiate the impact of smoking breaks on productivity in this option or option 2 and we have assumed the impact to be the same in each case.

Cost savings from reduced fire hazards and reduced cleaning and decorating costs would accrue under partial restrictions. Whilst the hospitality industry may account for a disproportionate share of these costs, restrictions on the non-hospitality sector will produce most of the benefits likely to be realised under option 2. As such, we have assumed these to be the same as for option 2 though in reality they are likely to be slightly less.

Hospitality Sector Impacts

Legislation on smoking but with the licensed hospitality sector exempt would see smoking policy in this sector largely left to local discretion. Where a decision to restrict smoking continues to be left to local discretion, there may be some shift in revenue between bars, restaurants and hotels, but the overall impact on the sector might be expected to be zero. As such, this option might be expected to have a minimal impact on the hospitality sector.

Costs to the Scottish Administration

Costs associated with a communications programme are anticipated to be in the region of £1 million in 2006 leading up to Regulations coming into force with a further £500k per year for the next 3 years 2007 - 2009 following introduction of smoke-free public places.

International experience has shown that the introduction of smoking restrictions leads to significant numbers of smokers quitting with consequential increasing demand for smoking cessation services. A reduction in smoking prevalence of 1% might be expected to result in double existing expenditure on NRT in 2006 and one-and-a-half times existing expenditure on NRT in 2007. This is equivalent to additional costs of £6.4m in 2006 and £3.2m in 2007.

Monitoring and evaluation of the policy will also have a cost attached to it. This cost may be up to £500k in total and this figure has been included in 2007.

Costs to Local Authorities

Based on detailed data provided by COSLA in support of the £6m estimate, a cost of £1m in 2006 and £5m in 2007 has been included⁵. COSLA noted that this figure must be regarded as approximate as, in the absence of detailed Regulations, they were not able to provide a more precise figure. It has been assumed that this cost will fall to £1.5m in 2008 and £0.5m in 2009 and for the rest of the 30 year period.

Costs to Other Bodies, Individuals and Business

No costs have been assumed for signage costs for option 3 as the hospitality sector will be exempt.

Costs and Benefits of Options - Results

Net present value is considered to be the best method of expressing the benefits associated with each option. This approach is also consistent with IRIS guidance^[xi] (part 2, section 2). It is the Department’s view that the assumptions made in the HERU report in support of the central estimate represent a prudent forecast of the expected outcome from pursuing comprehensive legislation on smoking, excepting the adjustments made to the hospitality sector impact as set out above and additional work done to calculate costs not considered as part of the HERU study.

The following table shows the relative scale of costs and benefits for each of the three options. Each of the NPV figures has been calculated from forecasting the economic impact of each option over a 30 year period:

Social Benefits

Improving Health in Scotland: the Challenge makes it clear that efforts to improve health are

inextricably linked to the pursuit of social justice. Furthermore, some of the highest rates of smoking are to be found amongst the most disadvantaged communities in Scotland.

In Scotland, in 2003, the smoking rate of adults (aged 16-64) in the most deprived areas was 42.1%, compared to 19.7% in the most affluent areas^[xii]. This means adults in the most deprived areas are more than twice as likely to smoke than those in the most affluent areas. The inequality in rates of women smoking during pregnancy is even greater, with 35.8% in most deprived areas compared to 13.6% in most affluent areas, which is more than two and a half times more likely. The benefits in reduced smoking prevalence brought about by smoke free policies will therefore accrue to the most deprived areas.

The table below shows the average number of adult smokers between 2001-2003 by deprivation quintiles. The quintiles are used to rank the smoking population using the Carstairs Deprivation index with the 5^th quintile being the most deprived 20% of the population and the 1^st being the least deprived 20% of the population.

Table 2: Smoking and Deprivation

A number of conclusions can be drawn from this data:

• Prevalence of smoking varies widely across quintiles;
• The most deprived 20% of the population (DQ5) has an adult smoking rate (41.9%) of more than double the least deprived 20% (DQ1) of the population (19.2%);

Distributional Effects

Tobacco Industry Impacts

As there are no tobacco manufacturing or production activities based in Scotland, any reduction in smoking prevalence will have no associated impact on turnover or employment in Scotland.

Retail Sector Impacts

Based on an estimated 2% reduction in smoking prevalence due to smoke free legislation, there is likely to be some impact on the retail sector in Scotland. However, as retail mark-up accounts for around only 2.5% of tobacco sales, the impact is estimated to be in the range of -£4m and -£6m, with a central estimate of -£5m. In a sector with annual turnover in excess of £20bn, impacts of this scale are extremely small. In addition, we would assume that any reduction in consumer expenditure on tobacco would be substituted for spending elsewhere in the economy, some of which may be on other consumer goods from the retail sector. The proposed legislation may however impact disproportionately on certain businesses such as specialist suppliers.

Small and rural businesses

The impact on small and rural businesses has also been considered. It is possible that small and/or rural businesses in the hospitality sector might be disproportionately affected by the legislation and any subsequent reduction in revenue.

6. Equity and Fairness

As the figures shown above demonstrate, smoking more than any other identifiable factor contributes to the gap in healthy life expectancy between those most in need and those most advantaged. The highest rates of smoking are found amongst our most disadvantaged communities with people living within the most deprived areas being more than twice as likely to smoke as those living in the least deprived (i.e. 41% and 18% respectively). The constituency profiles which have been published by NHS Health Scotland underline the links between high smoking rates and lower life expectancy. It is perhaps not surprising; therefore, that surveys would suggest that 98% of bars in areas of deprivation have no smoking policies at all.

In addition, businesses involving blue collar working are less likely to have robust workplace smoking policies. The legislative controls will therefore create a level playing field for all businesses and ensure that those living and working in poorer areas have the same access to smoke-free facilities than everywhere else.

7. Small and Micro Business Test

The legislation will impact on the vast majority of businesses in Scotland, including small and micro firms — ie those with less than 5 employees. The impact on small and micro firms including those in the hospitality sector could be significant. We will further develop our consideration of the likely impact of the legislation on small and micro businesses during the consultation.

8. Competition Assessment

No significant competition issues outside of the hospitality sector have been identified with any of the options. The two legislative options apply equally to all workplaces outside the hospitality sector and therefore are unlikely to have any significant competition implications. Similarly, both option 2 and option 3 will provide a level playing field across all businesses within the hospitality sector, as under option 2 the smoke free legislation will be universal, and under option 3 the hospitality sector will be exempt.

9. Enforcement and Sanctions

Will the legislation impose criminal sanctions for non-compliance?

The Bill (see summary in Appendix 1) creates offences, sets out the penalties to be imposed, defines the kind of premises which are capable of being prescribed as no-smoking premises under the regulations, and gives local government officers powers of entry in order to enforce the prohibition. It will be an offence to smoke in no-smoking premises and it be an offence for a person who, having management or control of no-smoking premises, knowingly allows someone to smoke or fails to display the required notice. It is also an offence to fail to give your details to an enforcement officer. These offences attract penalties of up to level 4 on the standard scale. The Bill also provides for a regime of fixed penalty notices as prescribed in the regulations.

How will the proposal be enforced?

Approaches to enforcement will depend to a large extent on the general acceptance and compliance levels by the Scottish public and businesses. Steps will be taken to build compliance in the run in to the measures coming into force but it is envisaged that to a large extent the restrictions will be self policing with venue operators or other members of the public drawing a smoker’s attention to the restrictions in place. There will also be a provision made for a Smoke-Free Areas Compliance Helpline to allow the public to phone and report breaches of the legislation to enforcement authorities. (see below)

Who will enforce this legislation?

It is intended that authorised officers of the Council will have principal enforcement responsibility. In practice, this is likely to fall to Environmental Health Officers and we will be discussing with COSLA the implications of this, including the need for training

10. Monitoring and Review

A detailed evaluation plan will be drawn up. The proposed programme will ensure that the mechanisms are in place to monitor and evaluate the health, economic and behavioural/cultural impact of the legislation.

11. Consultation

(i) Within government

Apart from Health Ministers a number of other Scottish Executive Ministers have a portfolio interest in the proposed smoking restrictions and were involved in the decision making process. All the evidence gathered to inform the policy through commissioned research and the public consultation process was presented by the Health Minister to the Scottish Cabinet on 10 November 2004. Having weighed up all the evidence, the Scottish Cabinet decided that comprehensive legislative action was required to protect public health.

(ii) Public Consultation

A written public consultation^[xiii] received 52,441 personal responses to the consultation and 1,033 responses from groups, organisations and businesses. Analysis of these responses indicated that 82% of all respondents thought that further action was needed to reduce people’s exposure to second-hand smoke, 80% of all respondents would support legislation to make enclosed public spaces smoke-free, and 56% of all respondents did not think that there should be any exemptions if such legislation was introduced, although 35% indicated that there should be. Only 24% of those who indicated that they would support a law were in favour of exemptions. Whilst the general public and hospitality sector tended to focus on pubs, clubs and restaurants in terms of exemptions, organisations also referred to long-stay care facilities, prisons and workplaces that are also homes of looked after individuals.

A total of 15 public seminars were held throughout Scotland in order to listen directly to the views of people in their own communities.  The events stimulated a broad range of views and the majority of participants supported the need to increase smoke-free provisions, although there were differing opinions about how that might be achieved.  Licensed trade representatives were totally opposed to the proposed legislation at this time, mostly on economic grounds, although some were relaxed about such restrictions in restaurants. There was strong support amongst trade representatives for better ventilation and a staged approach to greater restrictions. Health professionals in particular spoke in favour of the proposed legislation on the basis of the health evidence, personal experiences of treating smoking-related conditions and the perceived need to de-normalise smoking within society.

An opinion poll conducted for the Executive by MRUK in September 2004, consisting of a total of 1026 in-home interviews, suggested that just over half of respondents would support a law to ban smoking in public places, with around a third opposing such a measure. Overall, two thirds of those that would support a law thought that exemptions should be considered, with 57% citing pubs and 21% citing restaurants as places where such exemptions should apply.

Additional elements of the consultation included a national conference with international speakers, a youth consultation run by Young Scot, and focus group work.  There was a general consensus that the time had come for increased smoke-free provision in public places.

12. Summary and Recommendation

Results

Option 1 makes minimal progress towards objectives. Experience to date suggests that without statutory backing, a significant further decrease in exposure to ETS in the workplace is unlikely, with exposure levels in the hospitality sector being particularly resistant to further reduction.

Option 2 involves comprehensive restrictions on smoking in public places and is expected to lead to a sharp fall in exposure to ETS and a significant reduction in active smoking. Benefits from the restrictions will be concentrated on the hospitality sector where presently there are likely to be high rates of exposure to second hand smoke compared with other public places. Additionally, such an approach has the advantage of being easier to implement.

Option 3 would be likely to result in a reduction in both active and passive smoking. However, such reductions would be expected to be smaller than for comprehensive legislation and the benefits of the policy would be concentrated outside of the hospitality sector. Given the clear advantages of reducing ETS in the hospitality sector, this would fall short of achieving the policy objectives. From a public health perspective, therefore, this option is weaker than option 2.

Table 1 shows the economic impact of the various options to restrict smoking, based on the assumptions and evidence set out in this paper. Resource savings and health benefits associated with option 1, the voluntary approach, are estimated to have a net present value in 2005 prices of £315m. Option 2, smoke free in public places, is expected to result in significantly higher health benefits and resource savings. Although these are partially offset by implementation and enforcement costs and an assumed negative impact on the hospitality sector, option 2 gives a much higher NPV of around £4,387m. Finally, option 3, which allows for the hospitality sector to be exempt from legislation, would deliver health benefits and resource savings somewhere between options 1 and 2. Although these benefits are partially offset by lower implementation and enforcement costs than under option 2, option 3 gives a much lower NPV of around £2,607m.

In value for money terms, option 2 is the preferred option, with option 3 ranked second and option 1 ranked last.

Sensitivity Tests

Throughout this appraisal, a prudent view has been taken as to the benefits associated with complete restrictions on smoking. Based on this cautious approach, the preferred option in value-for-money terms, option 2, has a significantly higher NPV than the second-ranked option.

The HERU study included extensive testing of the robustness of the results. As part of the study, a range of possible impacts was considered for the health benefits, resource savings and hospitality sector impact associated with complete smoking restrictions. The low end of this range combines all of the worst estimates about the benefits and the highest negative impact on the hospitality sector. Using these ‘low’ estimates rather than the central estimates above and including the worst-case loss to the economy arising from the impact on the hospitality sector, the NPV of option 2 is reduced to £355m. Using the same estimates of the health benefits and resource savings associated with smoking restriction legislation and a zero estimate for the impact on the hospitality sector, the NPV of option 3 is reduced to £311m. On this basis, option 2 remains the preferred option in value-for-money terms.

In order to reverse the ranking of options 2 and 3, we would need to assume not only that the health benefits, resource savings and hospitality sector impact associated with smoking restrictions were at the low end of the range proposed by HERU but also that the health benefits from reduced exposure to ETS as a result of partial restrictions were 35% of those assumed for complete restrictions, rather than the 25% assumed above.

Given the conservative assumptions used in estimating the impact of comprehensive legislation restricting smoking and the assumptions required to reverse the ordering of the options in value-for-money terms, the conclusion that option 2 is the best value for money option can be considered to be robust.

13. Declaration

I have read the regulatory impact assessment and I am satisfied that the benefits justify the costs.

Signed

Date 3 March 2005
Andy Kerr, Minister for Health and Community Care

Sources:

[i] "Improving Health in Scotland: the Challenge"

Scottish Executive: 2003

[ii] A Breath of Fresh Air for Scotland; Improving Scotland’s health: The Challenge Tobacco Control Action Plan http://www.scotland.gov.uk/library5/health/abfa-00.asp

Scottish Executive (2004)

[iiii] Report of the Scientific Committee on Tobacco and Health (1998)

Department of Health

[iv] Second-hand Smoke: Review of Evidence Since 1998.

Department of Health, Scientific Committee on Tobacco and Health (SCOTH)

[v] Passive smoking and associated causes of deaths in adults in Scotland (2004)

David Hole, Professor of Epidemiology and Biostatistics, University of Glasgow

[vi] Health Economics Research Unit (HERU) Study: "International Review of the Health and Economic Impact of the Regulation of Smoking in Public Places"

Health Economics Research Unit (HERU) 2004, Anne Ludbrook, Sheona Bird, Edwin van Teijlingen

[vii] Smoking Kills: A White Paper on Tobacco (1998)

CM 4171 http://www.archive.official-documents.co.uk/document/cm41/4177/4177.htm

[viii] COSLA http://www.cosla.gov.uk

[ix] Input-Output Tables and Multipliers for Scotland 2001

http://www.scotland.gov.uk/about/FCSD/OCEA/00014713/index.aspx

Scottish Executive (2004)

[x] "Clean Indoor Air Laws and the Demand for Cigarettes",

Chaloupka, F.J., Saffer, H. 1992, Contemporary Policy Issues, vol. 10, no. 2, pp. 72-83.

[xi] Good Policy Making: A Guide to Regulatory Impact Assessment

The Scottish Executive Improving Regulation in Scotland Unit

[xii] Scottish Health Survey 1998

Scottish Executive (2001)

[xiii] Smoking in Public Places: A Consultation on Reducing Exposure to Second-hand Smoke Scottish Executive (2004)

Appendix 1 The Smoking, Health and Social Care Bill

The Bill makes provisions for a ban on smoking in enclosed premises which are prescribed in regulations as "no-smoking premises" by:

• creating an offence of permitting others to smoke in no-smoking premises;
• creating an offence of smoking in no-smoking premises;
• creating an offence of failing to display warning notices in no-smoking premises;
• setting out the powers of enforcement officers to enter no-smoking premises and for the regime of fixed penalty notices; and
• creating an offence of failing to give their name and address on request by an enforcement officer.

The Bill also lists the kind of premises which are capable of being prescribed as "no-smoking" under the regulations. These are premises which are wholly enclosed and

• to which the public or a section of the public has access;
• which are being used wholly or mainly as a place of work by persons who are employees;
• which are being used by and for the purposes of a club or other unincorporated association; or
• which are being used wholly or mainly for the provision of education, health or care services.

This approach provides for clear action on public health and for a comprehensive ban, whilst providing Scottish Ministers with the power, by regulations, to add or remove a kind of premises from the above list.

The Smoking, Health and Social Care (Scotland) Act 2005 (Prohibition of Smoking in Certain Premises) Regulations 2005

Sections 3(3), 4(2), 4(7) of, and paragraphs 2, 5(1) , 6(2), 13 and 14 of Schedule 1 to the Bill confer powers on Scottish Ministers to provide for:-

• the types of warning notices to be conspicuously displayed inside and outside no-smoking premises;
• definition of "no-smoking" premises under the Act, including any exemptions which may be prescribed; and
• details of how the fixed penalty system, introduced by section 5 of the Bill, will work.

The scope of the smoke free legislation is intended to be comprehensive. The premises or classes of premises prescribed as being "no-smoking premises" are specified in part 1 schedule 1 to the draft Regulations. Those excluded from the definition are specified in part 2 of the schedule. Exclusions are confined to Registered Care Homes and Psychiatric Hospitals facilities. However, while the legislative controls will not have effect in these areas at this stage, all such facilities will be expected, of course, to have robust smoking policies in place to ensure that non-smokers —staff and patients- are protected from the health impact of second-hand smoke. Guidance will be issued to assist those responsible for running these facilities to develop and implement tobacco policies, including offering targeted cessation advice and support to those who wish to give up smoking.

While prisons fall outwith the scope of the Bill, it also the Executive’s intention for restrictions to extend to them. The policy is to carry out these restrictions through altering prisons rules, which are governed by statutory instrument. It is intended that prison rules will be amended contemporaneously with the introduction of the smoking provisions of the Bill.

The regulations also prescribe the manner display, form and content of no-smoking signs which are required under the Bill to be conspicuously displayed inside and outside the no-smoking premises. These provisions are intended to ensure that it is clear to all concerned that smoking is prohibited on the premises.

In addition to setting the level of fixed penalty for offences under the Act, the regulations prescribe the methods of payment, and the account keeping arrangements required by Councils.

Appendix 2 Tobacco Control Action Plan

The Tobacco Control Action Plan was launched on the 13 January 2004. Key features of the plan are:

• development of a coherent, integrated long-term communications strategy to guide future prevention activity at national and local levels.
• additional funding to smoking cessation services of £1 million in 2003/04, £1 million in 2004/05 and £5 million in 2005/06, £7 million in 2006-07 and £9 million in 2007-08 bringing total investment to £11m per annum.
• a national advertising and communications campaign about the dangers of second-hand smoke.
• work closely with the UK Government to promote tobacco control policies at UK and international level.
• a target to reduce smoking rates amongst adults (aged 16-64) from 35% in 1995 to 29% by 2010; targets for reducing smoking among young people from 14% in 1995 to 11% in 2010 and to reduce the proportion of women smoking during pregnancy from 29% in 1995 to 20% by 2010.
• Sponsorship of major public debate on smoking in public places to test public support for options including legislation or strengthened extension of current voluntary approach.

Appendix 3 Health Economics Research Unit (HERU) Study: "International Review of the Health and Economic Impact of the Regulation of Smoking in Public Places" ^[6]

This Scottish Executive funded study was commissioned by NHS Health Scotland to provide a review of the latest evidence as to the impacts of smoke free legislation and restrictions. This study is the most up to date and comprehensive analysis of the likely impact of smoking legislation in Scotland and as such forms the basis of much of the cost-benefit analysis in this paper.

The results of the HERU study focus on the impact of a comprehensive ban on smoking in public places as initial study work found that there was little evidence base available that would allow a full estimate of the health and economic impact of lesser restrictions. However, given that option 3 as set out above is somewhere between a do-nothing option and smoke free legislation, for the purposes of this RIA an estimate of the costs and benefits of the ‘intermediate’ options has been calculated with reference to the available statistical evidence and the results for smoke free legislation.

The study combined a literature review with a modelling exercise to determine the likely impacts of restrictions on smoking in public places in a Scottish context. As the study was not intended to be a full cost-benefit analysis it did not look at implementation costs, compliance costs or the costs of any legislative process and these costs are considered in more detail elsewhere in this paper.

Based on the available literature, the study considered a range of impacts from restrictions on smoking:

• Reduced exposure to ETS in the workplace;
• Reduction in smoking/increase in quit attempts by active smokers;
• Reduction in number of deaths from major disease types;
• Reduced costs of treating smoking related diseases;
• Economic impacts on the hospitality sector.

The HERU study found strong evidence that exposure to ETS increases mortality and morbidity from lung cancer and coronary heart disease. There is also weaker evidence of an effect in relation to stroke and respiratory diseases. These results were found to hold true even after taking account of possible confounding factors and other potential sources of bias.

The HERU study reported on a US review that identified 17 studies of the effect of smoking restrictions/bans on exposure to ETS. These studies showed a reduction in exposure to ETS from both restrictions and bans, but an important distinction could be made, namely that the greatest reductions in exposure resulted from complete bans rather than partial restrictions. Though the studies covered a narrow range of workplaces, this was not expected to bias the results.

The study reviewed a large number of studies on the impact of smoking restrictions on cigarette consumption and smoking prevalence. Studies of the impact on smoking prevalence provided a wide range of estimates. This range may in part be due to the fact that smoking restrictions studied were in many cases accompanied by other smoking cessation interventions. The HERU study used a conservative central estimate (2% reduction) of the impact on smoking prevalence of smoke free policies.

As with reduction in exposure, the HERU study found that while bans and restrictions were associated with reductions in smoking and increases in quit attempts by smokers, greater reductions in active smoking were associated with smoke free policies than with partial restrictions. The study concluded that health gains in Scotland from reductions in active smoking may be at least as great as those from reduced passive smoking.

On the basis of available estimates, the HERU study forecast that a complete ban in Scotland would result in 219 deaths per year being averted from reduced incidence of lung cancer and CHD associated with exposure to ETS. Based on 13,000 deaths from smoking related diseases in Scotland per annum, reductions in active smoking were estimated to lead to a further 260 deaths per year being averted due to reduced incidence of lung cancer and CHD. These figures represent the best central estimate of lives saved after 20 years, with lives saved increasing in a straight line from zero to 219/260 over this period. Over the 30 year forecast period chosen by HERU, 4,490 lives would be saved from reduced exposure to ETS and 5,330 lives would be saved through reductions in active smoking. Furthermore, these figures represent a conservative estimate as only reduced deaths from lung cancer and CHD were included and not reduced deaths from a variety of other disease types.

The HERU study converted lives saved into an economic impact based on studies of the value of life produced by the Department of Transport. The latest estimate provided by the Department of Transport for the value of a life is £1,249,150 (2002 prices). HERU adjusted this figure to account for the fact that deaths from smoking-related illnesses typically occur at a later age than road traffic accident fatalities. This gave a value per life saved of between £300k and £500k depending on disease type.

The economic impacts of restrictions on smoking in public places were considered. The literature considered by the HERU study suggested that overall there would be productivity gains from reduced smoking breaks though whether any individual business gained or lost from the introduction of a complete ban would depend on the extant smoking policy for those premises. The study also derived estimated cost savings from reduced absenteeism due to reduced passive and active smoking, reduced fire hazards associated with a ban on smoking and reduced cleaning and decorating costs.

The HERU study gave separate consideration to the effect of smoking restrictions on the hospitality sector. Hospitality sector impacts were considered in terms of the impact on trade and split into impacts on restaurants, bars and hotels/tourism. Evidence from studies on the impact on hospitality sector was not as robust as the evidence available on health effects. In general it was found that studies had failed to find any statistically significant results. However, where evidence was available the results of the studies were reasonably consistent. The impact on the hospitality sector was calculated with reference to these studies and this figure was adjusted to account for expected offsetting expenditure elsewhere in the economy. This gave a net annual impact on the hospitality sector which was used in estimating the overall economic impact of a smoking ban.

As part of the HERU study a model of the overall economic impact of a smoking ban in Scotland was constructed. The model was based on the evidence obtained on the various types of impact resulting from the smoking ban, as set out above. For each type of impact for which a monetary value could be established the study projected the future value of costs and benefits in each year over a 30 year appraisal period. Future values of costs or benefits were then discounted to give net present values (NPVs).

An economic value was placed on the following impacts of the smoking bill (NPV (£m) of central estimate in brackets):

(I) Health Benefits

• The Economic Value of Lives Saved: a) as a result of reduced exposure to ETS (1024) and; b) as a result of reduced levels of active smoking (1216)
• Savings in the human cost of ill health (morbidity savings) as a result of reduced exposure to ETS (144). (Savings in the human cost of ill health, aka morbidity savings, as a result of reduced levels of active smoking were not valued)

(II) Resource Savings

• Reduced NHS Treatment Costs: a) as a result of reduced exposure to ETS (60) and; b) as a result of reduced levels of active smoking (31)
• Reduced Sickness Absence Savings: a) as a result of reduced exposure to ETS (46) and; b) as a result of reduced levels of active smoking (9)
• Productivity gains as a result of reduced smoking breaks (1403)
• cost savings from reduced fire hazards (94)
• reduced cleaning and decorating costs (222)

(III) Hospitality Sector Impacts

• Impact on the hospitality sector (369)

The robustness of the study results was extensively tested by HERU. In addition to the central estimate, ‘low’ and ‘high’ scenarios were tested based on much less, and much more, advantageous outcomes of a smoking ban.

The total NPV for the central estimate is +£4,620m. This suggests that the introduction of the smoking ban might be expected to have a significant positive impact in Scotland over a 30 year period. The total NPV for the low’ and ‘high’ scenarios were +£55m and +£7,395m.

The HERU report concluded that a negative NPV would only be found "under an unlikely combination of circumstances" and that "under reasonable assumptions the NPV will be positive."

Appendix 4: Impact on the Hospitality Sector and Knock-on Effects on the Economy

The HERU study estimated the impact of a complete ban on the hospitality sector with reference to research studies carried out on the restaurant, bars and hotels/tourism sectors. Evidence from these studies was not as robust as the evidence available on health effects. In particular, only one study of the effects of legislative restrictions on bars was found. This study had looked at the effects of restrictions on bars in California, which suggested that the sector would gain from a complete smoking ban through increased levels of patronage.

Given that the estimated economic impact on bars was based on a single study and this study was not located in Scotland, for the purposes of this RIA, a more prudent view of the likely economic impact on bars has been adopted than that taken in the HERU report. A zero figure has been included under the central estimate for bars rather than the estimated positive impact on the bars sector of £104m per annum.

The following table shows the estimated impact on each of the restaurant, bars (adjusted as described above) and hotels/tourism sectors and on the hospitality sector as a whole.

Potential impact on hospitality sector turnover (2003 prices)

Sources: Scottish Executive, ONS (IDBR)

The aggregate consumption effects of -£104m, -£6m and £137m for the low, central and high scenarios are equivalent to percentage decrease in turnover -2.0%, -0.1% and 2.7% based on the IDBR data for 2003.

The Scottish Input-Output Model for 2001 has been used to estimate the knock-on effects (suppliers, linkage chain etc.) of the potential changes in consumption as a result of the smoking ban in public places for each scenario. The figures reported in the table below were subsequently uplifted to 2003 prices to provide proportionate estimates of the likely impacts. The simulation for the low scenario is equivalent to a reduction in consumption in the hospitality sector of £72 million with a loss of around 3,100 direct jobs. After including knock-on effects in key suppliers and business services, output lost would be expected to be £88m with a total loss of 3,300 jobs across the economy.

The above analysis assumes that expenditure reductions in the hospitality sector by consumer switching their behaviour are not spent elsewhere in the economy. Standard economic theory suggests that consumers are likely to switch consumption to other consumer goods in the economy. In the table below, we maintain the aggregate level of household consumption in the economy but adjust the distribution of expenditure to reflect a switch away from the hospitality sector to other consumption goods. In such a scenario, changes in terms of output and employment within the economy will be determined by the degree of linkage of suppliers and the labour intensity of different sectors of the economy.

Balanced Consumption Impact

Note that even with balanced consumption we get a reduction in output as a result of the switch away from the hospitality sector in the low and central case results. This is simply because the hospitality sector has stronger local linkages within the economy and is relatively labour intensive relative to other sectors which supply household consumption such as wholesale/retail sectors.

In the high scenario, where consumption in the hospitality sector increases as a result of the ban in smoking, we adjust consumer expenditure elsewhere in the economy to adjust for this increase. Note that this leads to a positive increase in consumption and employment again simply because of the characteristics of the hospitality sector.

Footnotes

1 An economic measure of satisfaction / happiness

2 The £1m represents the initial costs associated with training and recruitment before the introduction of legislation.

3 Six out of ten workplaces in the leisure and hospitality sector require employees to work in areas where smoking is permitted and seven out of ten public houses allow smoking throughout.

4 A further 28% of individuals are exposed to ETS elsewhere (e.g. in other peoples’ homes) as well as at work, in pubs or both at work and in pubs. These individuals will not benefit from a complete removal of exposure to ETS.

5 The £1m represents the initial costs associated with training and recruitment before the introduction of legislation.

6 Relates to period 2001-2003

7 Life expectancy figures relate to period 2000-2002

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