The Scottish Government

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1 Executive Summary

Aims and context for this Study

1.1 This study is concerned with the standard fees paid by applicants for planning permission which are designed to offset or cover the costs incurred by local authorities in processing these applications through the process known as development management. The study investigates the accuracy of existing data used to set these fees and considers alternative data collection approaches.

1.2 The specific aims of this study are to:

• Review and recommend on the basis for setting planning application fees;
• Resolve the differences between the costs of the fee paying development management service suggested by financial returns to the Scottish Government (known as LFR7s) and other estimates; and
• Assess the additional costs of recent reforms to the planning system and recommend on how these costs could be recovered.

1.3 The Scottish Government's evidence base for application processing costs and setting fees was at the time of the study based on financial returns from local authorities which include estimates of relevant costs as part of a wider local finance return to the Scottish Government. These are known as Local Finance Return 7 ( LFR7).

1.4 The setting of fee levels by the Scottish Government has aimed for high or total levels of cost recovery through fees but in practice local authorities have suggested that this has only rarely been achieved and some past evidence has supported this view ¹. Authorities suggest that this is partly because of accuracy of the specific data on cost recovery provided on LFR7 returns and also because fee increases have lagged the available cost information. The issue of accuracy arises because the challenges of providing cost information that can accurately reflect the complex and multi-department full costs incurred by authorities in processing applications. Authority accounting practices are not presently designed to allow these costs to be identified.

1.5 The issue of fee levels is particularly pertinent given the importance of providing sufficient resources to enable authorities to meet expectations of increased speed, quality and delivery of planning decisions and development. However, fee paying development management is one part of the local authority planning services, alongside development planning and other significant activities such as heritage and conservation work which is not covered by fees. It is very unlikely that fee increases alone can deliver additional resources to planning services as a whole.

Resolving differences between costs and existing returns

1.6 Variations in context and accounting practice mean that LFR7 returns are not completed on consistent basis by planning authorities. This is reflected in a wide variation in recorded costs. Even if LFR7 returns were completed on a consistent basis, the design of the form does not allow recording of costs that are incurred outsider the planning department, e.g. in legal or highways, which could be offset legitimately against fees.

1.7 The case studies and the existence of additional costs helped to resolve any differences between LFR7 data and the higher costs found in the earlier Arup 2005 study ².

1.8 The findings also suggest that the search for a perfect standardised system of measuring costs is elusive in the context of 32 authorities that had different accounting systems; different organisational structures, different levels of resources and different planning contexts. In particular:

• The only means by which accurate costs could be obtained is probably through the treatment of planning applications as a separate trading activity with self contained and ring fenced resources - similar to the system of building control. However there is no appetite for such a system.
• Inevitably as applications and planning contexts are unique there will be case where authorities make a surplus on costs and other cases where cost recovery is not achieved. The important issue is that authorities are making quality and timely decisions on planning applications.
• The role of LFR7 returns in providing a basis for fees is not understood by local authority finance officers.
• A bottom up approach similar to the case study approach adopted in this study provides a means of identifying additional costs incurred beyond the planning department. However, some additional effort is required to collect this information.
• Despite the lack of time recording systems, authorities can reasonably accurately estimate the proportion of development management costs associated with processing fee-paying applications and across other development management functions.
• Levels of resources, and thus costs do vary between authorities, but it is difficult to distinguish resource levels from differences in accounting practice. There may be justification for different levels of resources according to the local context, although most authority planning departments feel under-resourced.
• There is scope to increase fees based on existing LFR7 returns which suggests that across the system as a whole fees cover about 83% of recorded costs. The Scottish Government can feel confident that such increases are justified, given that further increases may also be justified on the basis of bottom up costs similar to the case studies, if these are assessed across a larger sample of authorities.
• Overheads in excess of 100% on salary costs can be justified across all authorities on the basis of existing LFR7 returns. Up to 200% could probably be justified if a full assessment is made of bottom up costs.

1.9 The overall challenge for returns is as follows. First, development management involves staff undertaking both fee and non fee paying activity without any formal recording of the split of these activities. Second, development management involves multi departmental inputs which are also not recorded. Third there is no appetite among authorities to change these arrangements and no compulsion to do so. The implication is that whatever the information sought, those completing the returns will have to rely on judgements and estimates in a context where these judgements and estimates are likely to vary by authority.

The basis for setting application fees

1.10 In the judgement of the Consultant team there is a good case for retaining existing LFR7 returns because it is the means of completion not the return that is the challenge. However, a decision needs to made either to keep the return as it is - confined to costs incurred within planning departments - or to seek to improve coverage of costs through improvements to guidance. A number of points are relevant here.

• The current role of LFR7 returns in setting fees is not understood by authorities, although some authorities noted that it was not clear that LFR7 returns had been used for this purpose as fee levels did not match recorded costs.
• The onus should be on authorities to provide accurate and fully costed returns to support fee increases, if authorities themselves wish fees to be increased.
• LFR7 returns are part of a family of local authority finance returns and account must therefore be taken of the relationship with these wider returns.
• LFR7 returns are considered to be accurate measures of current planning department costs within a context in which accounting practices and resource levels vary.
• Additional guidance, e.g. on the relationship of LFR7 returns to fee levels, is required to define the role and purpose of LFR7 returns. With this additional guidance and possibly training or dissemination seminars, it is possible to improve incentives to authorities to improve the accuracy of LFR7 returns.
• As an alternative a wider bottom up approach similar to our case study approach could be used to estimate wider costs in the authority for which fees might also be levied, although we judge on the basis of our own experience that this might face the same problems as current LFR7.

1.11 Our overall recommendation is that guidance or a protocol is issued to local authorities setting out the relationship between LFR7 returns and fee levels, thus providing an incentive to improved returns.

1.12LFR7 returns do provide a case for raising current fee levels by about 20% based on an average 83% cost recovery. Further increases may also be justified if a wider bottom up assessment similar to our case study approach is undertaken across all authorities.

• There are not particularly significant differences between the overall aggregated results from LFR7 returns and the findings of the Arup 2005 study, if account is also taken of recent fee increases and the general results of the case studies which suggest that there are additional fee-related costs that could legitimately be taken into account in the wider authority.
• The level of overheads on salary costs is legitimately at least 100% within planning departments when account is taken of costs, accommodation, consumables, administration and support staff. Initial estimates from 7 case studies suggest that if account is taken of other authority costs including costs incurred in other parts of authorities, overheads could rise, potentially by 50% or more, although a fuller investigation is needed across all authorities before this can be determined robustly.

1.13 If account is taken of the Arup 2005 study then there is a good case for focusing part of any fee increase by raising the maximum fee level. This is because cost recovery is considerably lower on larger applications.

1.14 Higher fees provide an option for increasing the potential level of resources devoted to development management services. To ensure that these additional resources reach the frontline of development management services there is a case for fee increases to be matched by a strong performance framework.

• Many planning officers feel that the planning service is under-resourced and that additional resources are needed to support a quality service
• Scottish Ministers are already signalling the need for improved performance on planning decisions.

Cost implications of planning reforms

1.15 In relation to planning reforms, exact estimates of actual costs are difficult to determine in advance. However, the following is assumed based on specified evidence.

• Changes in neighbour notification will cost £50 - £100,000 to set up and add about 5% to the costs of application handling. This is lower than is estimated by some authorities in Scotland, but reflects the specific proposals made by the Scottish Government in 2008 and English experience. These additional handling costs could be recovered through fees.
• There may be additional costs in setting up processing agreements, but some of these costs could be offset by the efficiency of the handling process that results. Thus additional costs are difficult to anticipate. We suggest that these costs could be best recovered by raising the fee cap to improve cost recovery on major applications.
• Applications for screening for pre-application consultation could require a few hours of officer time, which could be recovered through an additional fee of £75 - £100. However, it is judged that there will only be a small number of these applications, provided thresholds are clear.

1.16 All other reforms are judged to be cumulatively significant in requiring additional resources as part of the objective of improving the quality, speed and transparency of the development management system in Scotland and it is difficult to be specific about the costs of any additional items in advance. Increasing fees to allow higher levels of cost recovery would provide a means of providing more resources to the authority. A stronger performance framework could also provide a means of ensuring that these resources would be devoted to planning.

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