Building standards fee income and re-investment in service delivery: review

7. Options for Raising Fee Income

7.1 Introduction

7.1.1 Section 6 identified that an increase in income from fees of almost £10 million (28%) could be required to deliver the proposed changes to building standards. This section discusses a number of options for raising additional fee income, but before discussing the options, the section begins with the views of authorities on a number of issues related to fees.

7.2 Authority Views on Fees

7.2.1 The online survey sought opinion on whether there should be separate fees for specific services. There was majority support for separate fees for enforcement of dangerous and non-dangerous buildings, monitoring high risk buildings and pre-application discussions. The majority of respondents were not supportive of separate fees for inspections/reasonable inquiry and plan checking. Details are provided in Table 7.1.

Table 7.1: Whether there should be Separate Fees for Specific Services, No. Respondents

	Yes	No
Enforcement – Dangerous Buildings	12	4
Enforcement (excluding Dangerous Buildings)	11	5
Monitoring HRBs	12	4
Pre-Application Discussions	12	4
Inspection/Reasonable Inquiry	4	12
Plan Checking	4	12

7.2.2 Further comments relating to the issue of separate fees for specific services included:

• Several respondents felt that the system should be kept as simple as possible and that there should be a single fee to cover plan checking and inspection.
• There is some support for introducing a fee for pre-application discussions as per the planning model in recognition that not all applications will proceed to the warrant stage. Three authorities suggested that any fee could be discounted from the warrant fee at the application stage. However, two authorities felt that a fee would act as a disincentive to using the service.
• As enforcement is seen as a service to the community, it should be funded via GAE.

7.2.3 Views were sought on whether local authorities should be able to set their own fees to ensure full cost recovery rather than having to use the fee structure set by the Scottish Government. Respondents were not supportive of this option with the majority (15) believing that local authorities should not have this power. Only one respondent supported this option. Overall, there is strong feeling that local authority fee setting would create regional disparities and inconsistencies for service users. It is felt that it could lead to competition between authorities where fees are lowered with the quality of the service suffering.

7.2.4 In terms of whether the building warrant fee should have a component to cover the statutory local authority functions (e.g. enforcement, maintaining the building standards register), respondents were split on the issue. Nine respondents felt there should not be a component to cover statutory functions while eight felt there should.

7.2.5 Those in favour of a component to cover statutory functions feel that any costs to the authority should be covered in the fees received and feel that there is an over-reliance on the verification fees paying for the statutory side of the building standards service as the GAE is often not filtering through to building standards departments. Those against see the statutory functions as distinct from verification and would like to see them kept apart in terms of funding. It was suggested that it is unfair on those following the correct procedure to have to pay a penalty to subsidise those who are not.

7.2.6 When asked if they would prefer to receive all their building warrant income up-front or in stages, the respondents were mostly in favour of up-front income (12 respondents) with only three respondents preferring staged payments.

7.2.7 Those preferring staged payments argue that it would allow for more efficient financial management where projects run for a prolonged period. The income is allocated in one financial year with activity in the following years effectively being undertaken against no fee on that year. Generally, it was suggested that up-front payments are suitable for the majority of warrant applications, but there could be staged payments for large projects.

7.3 Options for Raising Fee Income

7.3.1 Figure 7.1 provides a summary of the potential options for raising additional income through fees that were identified in this study.

Figure 7.1: Options for Raising Fee Income

• Option 1: Simple
  • Option 1: simple pro-rata increase
  • Option 1a: simple with extended range of charges
  • Option 1b: simple but with greater increase at lower value of work levels
  Option 2: Bespoke

7.4 Option 1: Simple

7.4.1 This option would involve a pro-rata increase in current fee rates for each fee band by a specific percentage. The analysis in paragraph 6.4.1 suggests that an uplift of 28% would be appropriate, but with this option, a range of uplift levels can be easily tested.

7.4.2 The advantages of this option include:

• It is easy to implement.
• It maintains a relatively simple approach to fees. The consultations have highlighted the need to keep any changes to the fee structure as simple as possible.
• Proportionately, all fee bands are treated the same.
• It continues with a system which is understood by customers i.e. based on the value of work.

7.4.3 The disadvantages of this option include:

• There may still be an element of cross-subsidy of low value projects by higher value projects.
• While some of the proposed changes to the delivery of building standards are focused on HRBs (e.g. compliance plan, pre-application discussions), this option would mean that HRB projects with the same value of work as a non-HRBs pay the same fees as non-HRB projects.

7.4.4 Modelling this option is relatively easy.

7.5 Option 1A: Simple Plus Activities

7.5.1 This is a variant of option 1 which retains the pro-rata approach to the fees increase but allows authorities to charge for certain activities e.g. pre-application discussions, cost of checking structural calculations/fire engineering reports, soft enforcement, maintaining the building standards register. Whether to charge for a limited number of additional activities would be the decision of the authority.

7.5.2 The advantages of this option include:

• The opportunity for an authority to charge for specific activities, if they want to.

7.5.3 The disadvantages include:

• The potential for different fees for similar applications in different authorities depending on the decisions of the authorities. However, variation across authorities could be minimised if a standard “national” rate was published for chargeable activities.
• A charge for pre-application discussions may discourage applicants for non-HRB projects from approaching authorities for discussions which could ultimately lead to poorer quality applications and increased workload. HRB projects would have to participate in pre-application discussions.
• A standard charge for structural calculations/fire engineering reports may not cover all costs in some authorities, but it could help to offset the additional costs incurred.
• It would add to the complexity of fees for users.

7.5.4 Modelling this option would require several assumptions:

• For each additional activity, assumptions would be required on the number of applications which would be subject to the charge and fee to be charged. For example:
• Pre-application discussions:
  • 1%^[24] of all applications would request a meeting.
  • Assume a cost of £80^[27] (2 hours @ £40).
• Checking of structural calculations:
  • 20% of applications up to a value of £250,000.
  • Assume cost/contribution to cost of £150^[28].
• Maintain building standards register:
  • Would apply to all applications.
  • Assume a flat rate cost e.g. £25.

7.6 Option 1B: Simple with Focus on Lower Value Work

7.6.1 This option retains the simple percentage uplifts to fees but changes the entry minimum fee and ‘slope’ of fee rates to increase loading on smaller, lower value projects. Fixed fees and fees for low value of work bands would increase by a higher percentage than the high value of work bands.

7.6.2 The advantages of this option include:

• A greater contribution to actual cost recovery. Feedback from authorities suggests that minimum fee and lower value of work projects do not cover their costs. This would contribute to reducing this position.
• This would benefit all authorities as all authorities receive a relatively high proportion of lower value work.

6.4.3 The disadvantages of this option include:

• A move away from current position which acknowledges there is cross subsidy of low value of projects.
• It may discourage applications for building warrants for low value work.

7.6.3 Modelling this option would require assumptions on:

• The additional uplift for all fixed fee rates (a higher percentage than that used in Option 1).
• The different percentage uplifts across the different value of work bands.

7.7 Option 2: Bespoke

7.7.1 This is the introduction of different fee rates for HRBs where compliance plans are required.

7.7.2 The advantages of this option include:

• Tailoring the increase in fees to buildings where the requirements for building standards will be more onerous.
• Allowing authorities to recover some of the additional costs associated with the introduction of the compliance plan e.g. pre-application discussions, greater on-site presence, greater communications with the compliance plan manager.
• The change in fees can be related to the change in workload.
• Allowing authorities to recover the costs of soft enforcement.
• An option could be included to enable authorities to recover the pre-application discussion costs if the project does not proceed. The discussions highlighted that time can be spent on pre-application discussions which never lead to a warrant application.

7.7.3 The disadvantage of this option includes:

• Some HRBs may already pay a relatively high fee.

7.7.4 Modelling this option requires several assumptions including:

• The number of HRBs which is assumed to be 5% of BW applications excluding fixed fee applications.
• How additional work associated with HRBs should be costed:
  • Pre-application discussions: It is assumed that these would be more involved than non-HRB applications in terms of number and length. A cost of £300 is assumed (6 hours at £50 per hour).
  • Additional on-site presence: this will be based on the 30% uplift in workload.
• Assumptions for the uplift for non-HRBs depends on the results of modelling the fee income for HRBs. An uplift of 22.5% has been applied.

7.8 Option 3: Project Types

7.8.1 This option would introduce fees for specific types of work to better reflect delivery cost. This would be similar to the situation in England and Wales where some authorities specify the cost of warrants for different types of work e.g. attic or garage conversions, extensions of different sizes. The charges separate plan checking and inspections and the number of inspections are clearly set out.

7.8.2 The advantages of this option include:

• The potential for fees to better reflect the actual cost of the work.
• It would remove any potential issues over the value of work as project types are defined by type and area, rather than value. Problems over agreeing values of work has been highlighted in discussions by some authorities.

6.6.4 The disadvantages of this option include:

• The project types tend to focus on projects at the lower end of the value of work scale.
• It is not “inflation proofed” which would necessitate regular review and more administrative work.
• A standard template for the level of inspection work by project type would probably be required which may reduce the flexibility of authorities to tailor work to specific project requirements.
• This would be a major change from the existing approach where value of work is the determinant of building warrant fees.

7.8.3 Modelling this option is beyond the scope of this study and would require:

• Agreement on the different project types.
• Assumptions on the proportion of BW applications accounted for by the different project types.
• A template for verification of each project type.

7.9 Option 4: English Model

7.9.1 This option would delegate fee setting to each local authority.

7.9.2 The advantages of this option would include:

• Allowing authorities to set their own fees to cover their costs and reflect local circumstances. General guidance and legislation would be required on matters such as overheads and what can actually be recovered e.g. full cost of verification service only.

7.9.3 The disadvantages of this option include:

• Local authorities could all adopt different approaches to fee setting.
• Determining the actual cost could be complicated. Issues relating to overheads and the number of inspections per project etc would have to be resolved.
• It could lead to varying fees across authorities for similar projects which, in turn, could lead to customer service problems where applicants work across authorities.
• Comparisons are likely to be made across authorities, perhaps drawing wrong/misinterpreted conclusions.
• Oversight (in addition to the current KPOs) would be required to ensure authorities were only achieving full cost recovery and no more. With no competition in the delivery of the service, fees could be seen as a lucrative source of income if there was no oversight/regulation.
• Introduction of a new system would require substantial explanation to users.

7.9.4 Detailed modelling of this option would be difficult, but some basic analysis can be undertaken to determine the average fee for a building warrant in each authority in 2021/22 if the fee had been based on cost recovery. Comparisons can be made to the actual average fee obtained per authority. The analysis can be based on a number of “costs” depending on the assumptions made regarding whether the costs should include non-verification costs and overheads at 30%.