5.67 Where distributional effects (e.g. on income) are relevant, they should be appraised. Assessment of distributional impacts could range from a simple quantitative or descriptive approach where the scale of the effect is relatively low, to an in-depth appraisal and detailed calculation of distributional effects where the scale is relatively high. Depending on the scope and type of intervention distributional analysis may involve considering the impact on businesses of different size, for example focussing on small and micro businesses.
5.68 Where effects are significant for a group concerned, a clearly presented analysis identifying gaining and losing groups and estimating the effects on their welfare should be carried out. Presentation alongside the overall UK effects improves visibility and transparency of distributional impacts, so that the effects of decisions are properly understood and, where necessary, options for mitigation may be considered.
5.69 Distributional weights are factors that increase the monetary value of benefits or costs that accrue to lower income individuals or households. They are based on the principle that the value of an additional pound of income may be higher for a low-income recipient than a high-income recipient.
5.70 Distributional weights can be used as part of the distributional analysis where there is understood to be a social value that differs from simple additionality due to who gains or loses. To account for the uncertainties, sensitivity analysis is recommended and it may be useful to estimate switching values i.e. the distributional weights required to change the preferred option. This provides an estimate of the certainty of the results based on the weights used.
5.71 In practice the use of distributional weighting is challenging. This is due to uncertainty in the assumptions relating to the groups between whom redistribution is measured and uncertainty in estimation of distributional weights.
5.72 Distributional results should be presented transparently. For example, if distributional weightings are used to adjust estimated costs or benefits depending on which groups in society they fall on, the analysis with weightings should be presented alongside the analysis without weightings.
5.73 It may be necessary to undertake additional distributional analysis for interventions with sub-national or regional distributional effects (e.g. those that involve redistribution of welfare to different parts of the UK), those which are targeted at one or more types of geographic area (e.g. rural areas) or those which are targeted at one or more geographic area (e.g. a specific city or town). Results should be shown separately alongside the calculation of UK-wide NPSV, which allows the local effects to be clearly identified. It may also be necessary to assess the differential impact of new interventions in devolved administrations, due to differences in existing policies.
5.74 This type of appraisal must include, as far as possible, the effects on other areas affected by the proposal. It cannot be assumed that resources are diverted from other parts of the UK 'on average'. Interventions will often divert resources from areas that are nearby and/or have very similar characteristics to the areas receiving an intervention. The effects of deadweight, displacement, transfers, substitution and leakage must be estimated based on credible, objective evidence that relates to the areas or issues of concern (See Annex 3 for more detail).
5.75 Distributional issues should also be considered when conducting research to calculate generic reference values for appraisal. For example, the income distribution of a sample population may be taken into account in order to adjust a generic value to represent the total population.