The Scottish Government

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2 Introduction

Aims and context for this Study

2.1 This study is concerned with the fees paid by applicants for planning permission which are designed to offset or cover the costs incurred by local authorities in processing these applications. At the time of this study financial returns from local authorities, as part of a wider local finance return to the Scottish Government, known as LFR7, were used to inform fee levels as the return includes specific provision for submitting costs of the fee paying development management service.

2.2 The system of fees for planning applications was introduced in 1980. Before 1980 no charges were made as the system of applications known as "development control" and more recently "development management" was regarded as a public service where costs were recovered through general taxation. Since their introduction however fees have become an established source of income to offset the cost of the local authority development management service, reflecting a changing approach to the funding of public services since the late 1970s.

2.3 The system of fees is complex because not all applications or consents attract a fee. The most notable exemption is for listed building and conservation area consents. Analysis of parliamentary debates from 1979 - 1980 suggests that this may reflect compensation arrangements for the introduction of the planning system in the 1940s. Whereas development rights for planning applications were nationalised in the 1947 Act and compensation for loss of rights was offered, no such arrangement for the loss of rights was made for listed buildings or conservation areas. The introduction of charges for these types of consent was never compensated.

2.4 Day to day local authority officers typically undertake both fee and non fee related work. Planning is also increasingly a multi-disciplinary activity involving technical inputs from a range of local authority departments including legal, highways and housing, as well as democratic inputs. Both these factors make the estimation of costs associated with fee charged elements more complex than in first apparent. This is because there are usually no formal accounting systems designed to record such costs or recharges. Local authorities have also enjoyed discretion over their expenditure decisions and have resisted attempts to separately account for service areas to the level required for accurate fee setting based on costs. There is inevitably variation in costs between individual authorities so it is also unrealistic to expect a complete matching of costs and fee income at an authority level.

2.5 Application Fees are also set nationally by the Scottish Government, informed by a financial return made by local authorities, known as LFR7 which includes a specific "cell" for associated costs in the return.

2.6 The setting of fee levels by the Scottish Government has aimed for high or total levels of cost recovery. This goes back to their original introduction in 1980, although has not been restated. Based on the legislation, legal opinion is generally that costs offset by fees should relate to the purposes for which the fees are being charged namely the handling of certain planning applications, although this principle has not been legally tested. In practice local authorities have suggested that 100% cost recovery has only rarely been achieved. Past evidence has also supported this view ³.

2.7 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. The issue of delay is inevitable because without sound evidence the Scottish Government has been unable to revise fee levels.

2.8 Our earlier study for the Scottish Government in 2005 ⁴ also noted that the costs on which financial returns are based are depressed as a result of the under resourcing of the planning service. This means that the current approach based mostly on historic costs makes it difficult to break out of the current low resource, low fee cycle. Added to this are changes in costs associated with reforms to the planning system that are not reflected in current practice.

2.9 The issue of fee levels is particularly pertinent given the importance of adequate resources in meeting expectations of increased speed, quality and delivery of planning decisions and ultimately in delivery of development. Fee levels are also important in terms of the potential of a better system of fees to provide some of the additional resources needed. 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 where fees are not charged, it is very unlikely that fee increases alone can deliver additional resources to planning services as a whole.

2.10 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.

Previous Studies

2.11 In the recent past there have been two pieces of previous research, a 1999 study into the costs of the planning service in Scotland ⁵ by Paula Gilder Consulting and a study of resources for planning ⁶ by Arup published in 2005.

2.12 The former investigated the information available to assess the costs of the planning service in selected local authorities, including the extent to which these costs related to the determination of planning applications. It was set clearly in the context of the (then new) best value regime, when the need for more consistent cost recording across local authorities had been recognised but the means to achieve this was not fully developed. One of the objectives of this study was to develop a standard cost accounting framework, based around a common understanding of what the planning system as a whole encompassed and which elements of the system were associated with fee income.

2.13 Among its conclusions were that the collection of robust and comparable costs would require not only a common accounting framework, based on the nature of the activity as opposed to the place in the management structure where that activity took place, but also consistent treatment of overheads and some form of time recording system for staff who engaged in a range of different types of activity. With the publication by the Chartered Institute of Public Finance Accountants ( CIPFA) of the first Best Value Accounting Code of Practice ⁷ ( BVACOP) in 1999/2000, a potential common accounting framework was introduced for all services, including "Planning and Economic Development" and, from 2001-02, this formed the basis of the cost information collected on the Local Financial Returns ( LFRs), including the LFR7 on which planning costs are recorded. However, especially in the early years, it is clear that the framework was not followed in practice as closely as might have been hoped, especially as regards the identification of direct costs which arose in departments other than planning. This was evidenced by the second of the studies referred to above, "Resources for Planning", which also identified that the treatment of overhead costs varied significantly and that recorded costs were therefore not, at that time, robust enough to be used for the other purpose of that study, which was to assess whether the resources devoted to the planning service were adequate. As such, this second study undertook to produce an estimated full service cost whilst working within the existing (and varying) Local Authority accounting frameworks. This tended to suggest that across all authorities costs of fee-related development management were generally higher than previously thought because of the additional costs incurred in departments other than planning and because overheads were being underestimated.

2.14 In contrast to the perceptions of authorities, recent data actually suggests that cost recovery has improved. Specifically, based on data from the returns and supplied to us as part of this study by Scottish Government statisticians, over the 4 years between the introduction of a new LFR format in 2001-02 and the most recent available data (2005-06), the total costs recorded for determining planning applications has increased by 32.6% and recorded fee income has increased by 46.2%, so that now fee income appears to cover 82.3% of costs, compared with 74.6% in 2001-02.

2.15 In 2003, CIPFA published guidance ⁸ about the accounting treatment of overhead costs, which if adopted should have had a positive impact on the consistency of recorded total costs.

2.16 However, there are still reasons to doubt the robustness of the recorded data, which supports the objective of this research to consider whether local authorities should adopt a more consistent approach to accounting practices in assessing the costs of determining planning applications. For example in many cases the development management process starts well in advance of the application submission and monitoring continues well after a decision is issued. Nevertheless, neither of these activities are included in current costs and the provision of these activities is dependent on other resources available for planning.

2006 Planning (Scotland) Act

2.17 The other objectives of the research were related to the programme of reform and modernisation of the planning system, specifically the changes introduced by the Planning etc (Scotland) Act 2006. ⁹

2.18 Part 3 of the Act introduces a range of measures intended to improve the handling of planning applications including:

• a hierarchy of categories of development, removal of minor cases through enhanced permitted development rights for minor development, greater public participation and scrutiny of proposals for all major developments;
• proposals which are significantly contrary to development plans and larger scale bad neighbour developments;
• revised arrangements for neighbour notification, to be carried out by planning authorities;
• provisions for schemes of delegation and for the planning authority to review its own decisions in relation to applications determined under a scheme of delegation;
• more publicly available information on planning cases revised appeal arrangements, specifically reducing the ability of the applicant to introduce new material; and
• new arrangements for planning agreements between developers and local planning authorities to deliver community benefits, now called planning obligations; and the introduction of good neighbour agreements.

2.19 These will alter the range of activities required to determine planning applications, and thus the costs of determination. If the policy intention is to achieve 100% cost recovery of activities associated with determination, there would necessarily be an impact on fee levels.

Research Method

2.20 Upon commissioning, we met with the steering group to agree the proposed methodology. ¹⁰

2.21 A first day-long seminar was held to enable comprehensive identification of qualitative issues relating to the existing fees regime, as these were not fully apparent from existing research. The seminar was also to ensure that the research issues investigated were representative of the development management context in Scotland as a whole. All Local Authorities in Scotland, as well as key policy decision makers were invited to attend the seminar including both development management and finance officers. The seminar also built on our existing understanding of the fee regime and current accounting practices as researchers, with the main aim of debating and achieving consensus across a number of key areas as set out below.

• Current local authority accounting practice, including the extent of adoption of the Best Value Accounting code of practice and current practice in recording costs and dealing with overhead costs.
• Confirmation of the additional development management activities that are not offset by fees, including activities that were being introduced by the 2006 Act.
• Perceptions of the existing fee calculations and fee charges including the extent to which LRF7 returns are representative of costs.
• Assumptions and outputs from the previous research, including perceptions of accuracy.
• Views on alternative methods for calculating costs to give a robust basis for setting fees

2.22 All local authorities in Scotland were invited to the seminar. Attendance was good and included a wide spread of authorities across Scotland, with over 20 planning offices and over 20 finance officers.

2.23 The findings from the opening seminar led us on to further in-depth analysis of the current planning fees regime, through the investigation of in-depth case studies. This was to enable a comprehensive assessment of existing financial information held by planning authorities relating to costs. This assessment was to determine whether the then available cost information was sufficiently accurate and consistent to provide a robust basis for the calculation of increases in planning fees. Based on existing costs and outputs we also estimated the effects of planning reforms arising out of the 2006 Planning Act. We also undertook in-depth full cost estimation at the case study level, including the collection and examination of actual costs. Authorities were selected in order to provide a cross section of Local Authorities in Scotland.

2.24 At the initial October 2007 seminar authorities were invited to volunteer as case study authorities. Following this request a number did volunteer and others were selected in order to achieve a representative coverage in terms of range of costs, size of authority, urban or rural context and geographic coverage. A list of eight was eventually achieved and visits were agreed. However, actual cost data was obtained from seven authorities, even after considerable support was offered to the eighth. This was because authorities were generally not set up to provide the detail sought and the exercise was time and resource consuming. The visits to the authority that could not supply data were considered instructive in terms of being representative of the difficulties faced by some authorities in providing cost data within existing accounting frameworks.

2.25 This was followed by a second seminar which was also well attended, mostly by the same group of planning and finance officers to the first. This second seminar was used to review case study results with a wider group of authorities. The seminar was also used to discuss findings, including the cost implications of planning reforms and the structure of reporting.

2.26 Findings from these research exercises are reported in the remainder of this report.

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