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Section 18: Fees and Charges

Background

1. In addition to Revenue Support Grant support and income from council tax and non-domestic rates, local authorities receive substantial revenue from fees and charges. This includes payments for nursing and residential homes, school meals, sports facilities, operational policing, parking, trade waste collection and planning and economic development.

2. Councils can only charge for services if they have specific legal authority to do so and the presumption is that charges will be limited normally to full cost recovery. Thus for statutorily set fees (such as planning fees) and other charges that are not statutorily set but which are limited to full cost recovery (including liquor licences) there is at present generally little scope for increases beyond what is required to cover full costs. The ability to charge a market price, including a profit element, is limited to trading services, which might typically include sports centre charges and special uplift fees.

The Role of Fees and Charges

3. In 2004-05, Scottish local authorities generated income from general services totalling £810.7 million from sales, fees and charges. ²⁷⁰ In addition to this, Councils receive rent income from tenants of local authority housing, but we are excluding this from our consideration as the costs and revenues of local authority housing are usually treated as a discrete and ring-fenced entity.

4. This income comes from a wide range of sources. Below is an illustrative list of examples of the types of charge that are levied, taken from responses we received from local authorities to questions we put to them about their charging policy in January 2005: ²⁷¹

5. As Figure 18.1 below shows, income from sales, fees and charges has increased substantially in recent years: 87% between 1996-97 and 2004-05.

Figure 18.1: Local Government Income from Sales, Fees and Charges 1996-97 to 2004-05²⁷²

Changing the Level and Scope of Fees and Charges

6. Around 60% of local government budgets are spent on education and social services. With the exception of some specific services (such as, in certain circumstances, residential care for the elderly and school transport and lunches), it is expected that these services should be free at the point of delivery. Other services, such a police and fire, road maintenance and street lighting, are provided for the benefit of the community as a whole and the extent to which any one resident gains from these services cannot be gauged or costed with any accuracy. This leaves two groups of local government activity: services over which local authorities already have discretion to levy fees, and services that are already subject to fees that are set by statute and which apply across Scotland.

7. The results of the statistical survey undertaken for us by MORI Scotland revealed some support for a closer connection to be made between what people pay for local services and the extent of their use of public services. Of the reasons for dissatisfaction with council tax, the third most frequently cited reason (mentioned by 25% of respondents) was that it bears no relation to the services that people use. ²⁷³ However, we believe that the thrust of this sentiment was that council tax takes inadequate account of the number of people in a household. Against a backdrop where there appears to be strong public concern that local taxes should take account of ability to pay, we have little hard evidence that many members of the public would prefer that people should pay directly for the services they use.

8. This inference is reinforced by the outcome of the qualitative research undertaken by GfKNOP research, which revealed strong public displeasure towards the idea of charging for council services. This was particularly true for services that were seen as "core", such as education, social work, police and fire. However, most participants expressed similar views in connection with services such as libraries and leisure centres. Participants were not satisfied that the extension of charging for services would result in improvements to the quality of services. Indeed, fears were expressed that the quality of council services could fall, especially if levels of funding from other sources declined. Other reasons given for opposing charging were that they would particularly affect the poorest members of society and children and that charges would discourage use of public services (especially of services such as libraries and leisure centres), with potential implications for people's education and health.

9. Likewise, most local authorities that commented on the issue believed there is little scope to increase in any meaningful way the size of the contribution that fees and charges makes towards local government revenue. In keeping with comments from the deliberative focus groups, several councils commented that in setting and revising fees they take great care in balancing the desire for revenue against maintaining demand for these services. In particular, they are concerned about the regressive nature of fees, which could undermine efforts to promote social inclusion and healthy living practices. COSLA noted that a number of services for which charges are presently levied are still subsidised by the local authority, so fees themselves contribute towards the cost of the service but do not fully fund it. For a local authority to charge leisure and recreational services at full cost would lead to significant price increases. The CIPFA in Scotland Directors of Finance Section similarly contended that local authorities have adequate power to charge for a wide range of services, a power recently enhanced by the Power of Well Being introduced by the Local Government in Scotland Act 2003. ²⁷⁴ They too pointed out that a balance had to be struck between raising income through fees and charges and not disadvantaging deprived communities.

10. Turning to those fees, such as planning application and building warrant fees, which are set by statute for which local authorities have no ability to vary the fees, the CIPFA Directors of Finance Section proposed that these statutory controls should be removed, enabling councils to set whichever fee they wish. COSLA agreed that consideration could be given to the deregulation of some fees. However, they noted that such deregulation might result in pressure being put upon councils to reduce rather than increase some fees.

11. On the related question of whether fees and charges could and should be increased in order to allow local taxes to be reduced, feedback from the deliberative focus groups revealed a strong distrust as whether any such change would actually result in reductions in council tax payments. Likewise, several local authorities felt that the contribution that an increase in fees and charges could reasonably make to local government funding would be modest. COSLA argued in their submission that:

"...if additional income can be generated for local authorities due to increases in the level or scope of fees and charges that this should be injected into developing and improving services not as a reason for reducing central grant funding".

Extending the Scope of Fees and Charges

12. There is a separate question about whether we should consider recommendations about the potential benefits of fees and charges that could either fund new activities or promote desirable behaviours.

13. Our remit requires us to consider possible reforms to local government taxation, in the context of a series of criteria. While these criteria are numerous, they all relate either to ensuring that local taxes meet the key needs of taxpayers ( e.g. ability to pay, accountability, dependency on the benefits system), or the key needs of councils ( e.g. cost of collection, stability) or broader fiscal concerns of central government ( e.g. balance of funding, effect on the economy). We have not been asked to consider any broader social, economic or environmental objectives.

14. We take the view that, while such proposals might well deserve further attention, we cannot ourselves give these proposals the necessary consideration within the scope of our remit. Furthermore we could not recommend any of these options purely on the terms of our remit.

15. For instance, we were invited by one MSP to consider a proposal to finance measures to tackle alcohol abuse through the imposition of a levy on the sale of alcohol in licensed premises. Such levies by their very nature do not contribute towards the general costs of local government services - they only finance the additional cost of these specific new measures. So, regardless of the merits of the proposal, we do not believe ourselves to be in a position to give it the necessary consideration.

16. There are taxes and charges that would contribute towards general local government revenues but which are also designed to promote positive behaviours. For instance, the suggestion has been made that householders should be charged according to the amount of refuse they produce, in order to encourage people to reduce household waste and recycle where possible.

17. The nature and size of the tax may be adjusted from time to time, to refine it more closely with emerging policy objectives. The more successful such taxes are at changing behaviour, the less effective they become in terms of raising money. Furthermore, the proceeds of such a tax would be volatile and difficult to predict with any degree of accuracy. The Committee recognise the benefits and attraction of such taxes and it is a matter of regret that they are unlikely to raise sufficient revenue to make a worthwhile contribution to core funding.

Conclusions

18. It is appropriate that some local authority services should be wholly or partially funded through fees and charges. We agree that local authorities should retain the existing discretionary powers they hold to set fees and charges for services in ways that do not undermine broader policy objectives.

19. We agree that a delicate balance has to be struck between, on the one hand, using fees as a source of revenue and, on the other hand, supporting broader policy objectives (such as promoting social inclusion and healthy living in the context of leisure facilities and minimising the inappropriate disposal of waste in the context of fees for environmental services). It is in our view appropriate that local authorities should have discretion over how, if at all, they choose to levy such fees. It is in keeping with that opportunity for discretion that there should be no expectation that local authorities will make a contribution towards their core funding from fees and charges for these services.

20. In relation to those fees which are set by statute and which local authorities have no ability to vary, we recognise the concern that deregulation might result in pressure being put upon councils to reduce rather than increase some fees. We take the view that, while it may be appropriate to conduct a debate as to whether these statutory controls should remain in force, there would be no significant benefit to be gained for the purposes of our review from the deregulation of these fees.

21. Overall, we agree with this broad consensus that fees and charges have a limited contribution to make to local government revenues. This was put eloquently by South Lanarkshire Council who, in their submission, stated:

"… the impact of charging for a wider range of services would have a minimal effect on funds, and is not considered worthy of any in depth review."

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