Building standards - building warrant fee model: research project

Executive Summary

Introduction and Study Aims

1. Following the fire at Grenfell Tower in 2017 and other high-profile building failures, a Ministerial Working Group (MWG) was established to address issues of compliance and enforcement. This led to two review panels and the establishment of the Futures Board which is leading a programme of work to drive transformation of the building standards system in Scotland. The work of the Futures Board will have implications for the cost of delivering the verification service.

2. The purpose of this study is to develop proposals and a model that can be used to deliver a funding model that is flexible and can be adjusted to allow changes to building warrant fees in Scotland. The model should also allow for various building warrant fee components identified in the Part 1 Fees research: “Review of Building Standards Income and Level of Re-Investment in Service Delivery”.

3. The research should also identify the impact of the introduction of a devolved fees system for building standards in Scotland.

Methodology

4. There were three main components to the research:

• Analysis of published data and data held by BSD.
• Stakeholder engagement.
• Model development.

Current Building Warrant Fees Model

5. The current building warrant fee rates were introduced in 2017 and are based on the value of work with a minimum fee (before certification discounts) of £150 for works up to a value of £5,000. Fees increase in incremental steps above the minimum fee. There are also discounts for providing a certificate of design and/or construction and fixed fees for specific warrant applications e.g. for demolition.

6. As fees are based on the value of work, there is an element of ‘inflation proofing’ within the system with the value of work, and therefore fees, increasing annually with increases in building construction costs. However, there are a number of limitations associated with the current fee rate model.

7. The model does not allow for inflation increases for the fixed fee elements and there was no allowance for inflation in the £1.5 million provided in the model for BSD. As a result, these components have lost value in real terms. For example, the fixed fee of £100 for an extension to warrant would be £123 in 2022, had it increased in line with inflation^[1]. The £1.5 million for BSD in 2017 would be £1.69 million in 2022, allowing for inflation.

8. The work of the Futures Board has led to several proposed changes to the verification process which are expected to have implications for the costs of delivering the verification process. The existing model however, does not readily allow for additional costs associated with delivering and strengthening the building standards service.

New Building Warrant Fee Model

9. Building warrant fees must cover the future cost of delivering the service. The main costs include:

• Costs incurred by local authorities and BSD in delivering the current service.
• Additional activities which local authorities and BSD will be undertaking including greater procedural compliance.
• Costs associated with the building standards Hub which will deliver specialist services and other Futures Board initiatives.
• Costs incurred by local authorities in delivering the new compliance plan approach to high-risk buildings (HRBs).

10. The total additional funds required to deliver the building standards service in 2024/25 is estimated to be £12 to £12.8 million, depending on the assumptions made regarding the level of overheads. This is expected to rise to between £15.1 and £16.1 million in 2026/27.

11. Analysis of Local Government Financial Returns and BSD data suggests that there is some ‘surplus’ of funds within the building standards system which could be used to reduce the additional funds required to be raised through changes to fees. It is assumed that £1 million of funds are available in each of the forecast years. Hence, the additional amount to be raised through fees is between £11 and £11.8 million in 2024/25, rising to £14.1 to £15.1 million in 2026/27.

Transition from Current Fee Model

12. Delivery of the future verification service will require additional resources and changes to legislation. A phased introduction of some of the additional activities is proposed which reduces the additional funds required in 2024/25 to between £6.2 and £6.7 million.

Model Results

13. The model is based on the number of building warrant applications by value of work band, the fee per warrant and an allowance for discounts for certification. It also provides the user with the ability to change a number of key assumptions e.g. percentage uplift for overheads. It provides separate fee rates for HRB and non-HRB projects and has flexibility to incorporate any other components which require funding through fees e.g. formal enforcement.

14. Tables 1 and 2 set out the new fee rates for Scotland for non-HRB and HRB projects respectively, assuming a 30% overhead uplift.

Note: 2022/23 and 2023/24 have not been modelled as the existing fee rates will apply in these rates.

Inflation increases are built into the modelled fee rates.

Note: 2022/23 and 2023/24 have not been modelled as the existing fee rates will apply in these rates.

Inflation increases are built into the modelled fee rates.

15. The income raised by these fee rates is shown in Table 3 which assumes a phased introduction of the new fee rates for additional activities to be undertaken by local authorities and the additional work associated with HRBs.

16. Sub-national analysis was undertaken for five area types – urban, primarily urban, mixed, primarily rural and very rural/island. Urban and very rural/island areas tend to have rates which are below the national level. This reflects a ‘surplus’ of funds already in the system in urban areas and relatively stable staff numbers in both areas. The highest rates were in primarily rural areas which is a reflection of no system ‘surplus’ and a forecast increase in staff of 17%.

Note: The income raised from inflation drag reduces the amount of additional funds required to be raised from increased fee rates as extra fees will be delivered.

Enforcement

17. The analysis considered the extent to which soft enforcement is undertaken by authorities. There are a number of situations where verifiers undertake enforcement work for which no fee or revenue grant is provided. For example, investigating unauthorised work but no unauthorised work has been undertaken or trying to resolve dangerous building situations before formal notice procedures are required.

18. For work related to deviation or non-compliance with a building warrant application, there is also a lack of clarity around the boundary between soft enforcement and providing a good verification service by keeping the applicant on the correct track.

19. Data from one local authority suggests that approximately 10% of inspections are for non-compliance purposes, but most authorities are unable to provide any evidence of the prevalence of soft enforcement or the time spent on soft enforcement. However, authorities felt that soft enforcement is very resources intensive.

Devolved Fee Setting

20. The research considered options for a fully and partially devolved fee system for building standards. Three options were considered:

• Option 1: Full devolution of fees.
• Option 2: Partial devolution through national guidance.
• Option 3: Partial devolution through deviation from national fee structure.

21. The advantages and disadvantages of these options are:

• Option 2 would be the most complex as there would be a mix of national and local rates. The complexity of establishing the full cost of the verification service should not be underestimated.
• All options where complete local fee structures are introduced would lead to costs for authorities in terms of designing their fee structure and setting fee levels.
• All options would require legislation to be amended and created to enable devolved fees.
• Any system where there are different fees in different local areas has the potential to create complexity for those users who operate across different authorities.
• All options offer, to some extent, the ability to reflect local circumstances. Options 1 and 2 perform better on this measure.

22. There are no specific impediments or factors that would make the introduction of a devolved system inherently difficult. The Scottish Government would have to decide how far it needs to set parameters around the scope for authorities to set fees within an overall cost recovery framework.

23. There would have to be oversight of fee setting by Scottish Government to ensure that the overall level of fees raised were reasonable compared to the cost of providing the service. Guidance and/or legislation would be required.

24. A devolved fee system might make it more complicated to fund central services e.g., the Hub and users operating across several authorities may find different fees to be complicated.