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3 Review of Existing Data on Cost Recovery

Overview

3.1 This study came about partly because of the discrepancy between the costs suggested by LFR7 returns and the findings of the 2005 Arup study in Scotland. There is also some evidence of a growing divergence in fee levels and costs between Scotland and England and Wales, partly because of the additional resources that have been put into planning particularly in England which have had the effect of raising the observed costs. Accordingly this section reviews the existing information and records the reactions of seminar attendees to these findings.

Existing Results from Scottish LFR7 returns

3.2 Existing costs from LRF7 data made available to the study from Scottish Government statisticians are summarised in the graph (Figure 2.1) below. The graph shows fee income as a percentage of total costs (y-axis) and indirect (overhead) costs as a percentage of total costs by authority (x-axis). Averaged across all authorities the data suggests that cost recovery is currently around 83% of service costs and this average is shown by a horizontal line labelled Scotland average. This level of cost recovery would justify an increase in fee charges of around 20% to cover costs. However, the data is very variable in terms of cost recovery. In particular the costs covered by fee income varied from 45.8% to 180.6%. Although not shown on the graph, overhead costs also varied by similar proportions.

Figure 2.1: Development Management Cost Recovery through Application Fees 2005/6 by Authority

3.3 In general the conclusions drawn from the data on costs recovery by authority were either that there are significant variations in the costs of development management or that there are differences in accounting practice. While some variations in costs may reflect local service priorities and contexts, the spread of costs recovery combined with the range of values suggests that accounting practices were likely to be an issue.

3.4 These data were presented to local authority planners and finance officers as part of the seminars - with a view to gaining insights as to whether the results were judged to be an accurate reflection. Additionally, we also wished understand whether the process that went into preparing such returns was considered sufficiently robust as a basis for setting fees.

Reactions to existing LRF7 results by Scottish Planners

3.5 Existing LFR7 results were discussed at the first seminar. Many of the planners were actually not familiar with the detail of the LFR7 return, as this was completed by finance colleagues, often with limited liaison with the planning service. Indeed, overall, it was acknowledged that the planners currently had limited interest or involvement in the returns as these were considered a "finance matter".

3.6 Planning officers felt that the considerable variance in the LFR7 returns in terms of cost recovery and overheads reflected both accounting and local service variations. They suggested that the existence of accounting variations meant that the returns were not a true reflection of current costs. In reality they suspected that much depended on the way the planning service was set up and budgeted for. Overall it was not that the finance staff were putting in deliberately inaccurate returns, but that the finance staff needed an established "source" of the data and this was likely to be based on how budgets and financial outturns were measured and that these had not been designed with the returns in mind.

3.7 It was suggested that there were variations based on the geographic nature of the authorities. In particular there was significant variation between authorities covering large rural areas where there was a need to have decentralised offices which in some cases received few applications and urban authorities, where there was scope to achieve economies of scale. It was judged important that the study took account of both types of authority.

3.8 Few present had explicitly appreciated that the LFR7 returns were meant to inform the setting of planning fees. Overall there were also concerns that measured costs may not reflect realistic costs as in many cases the service was under resourced.

3.9 Given that fee income was often independent of planning service budgets and there is no requirement for hypothecation, planners were also not fully aware of the cost recovery. More often than not planning budgets were set independently of fee income and increases in fees were not necessarily matched by increases in budgets and actual expenditure..

3.10 Given the lack of a direct relationship between fees and budgets, there were more general concerns about the role of fees. The concern was that fee increases alone could raise expectations of applicants because applicants might naturally expect a higher standard of service if charges were increased. The extent to which any increases in fees reach frontline services depends upon budget decisions which are influenced by authorities own priorities in terms of performance and service delivery, which were generally seen as independent of fee income. Development management is only one part of the planning service and the perception and expectations of the service by applicants relates to offering a coherent forward plan, quality pre-application advice and adequate monitoring.

Reactions to existing LFR7 results by local authority finance officers

3.11 Some of the finance officers present at both seminars had directly prepared LFR7 returns, and others oversaw/signed off returns. Neither appeared aware of any 'problems' in the data, but there was also variation in experience in terms of time in post and number of LRF7 returns prepared.

3.12 It was noted that the extent to which LFR 7 reflected the accurate relationship between 'fee-related' and 'non fee-related' costs was unclear. The general perception from finance officers was that the return was 'merely' one of a series of returns which forms part of the end-of-year accounting process.

3.13 Finance officers indicated that the returns were not priorities or given a great deal of care and attention. They suggested that in chief, this was due to the lack of awareness of any use made of the data. Attendees were surprised by their use in calculating planning application fees. It was suggested that better awareness of the use of the data might help prioritise them.

3.14 Attendees suggested and generally agreed with the hypothesis that they did not 'go looking' for costs to include in the return. Seeing the LFR returns in their totality it was pointed out that since the 'total cost' was a given and was known - that anything that went into the LFR7 must in turn be subtracted from somewhere else.

3.15 Some authority services (such as highway engineers or environmental health in some authorities) do have simple timesheets to enable recharges to planning or other individual services but this still left gaps, and there was significant variation in the uptake of such methods.

3.16 However, overall there was a desire to try and use the LFR framework and 'make it work' rather than create an additional return.

3.17 Within the LFR 7 return apportionment of monies for fee paying planning applications was largely a desk-based exercise. Apportionment tended to be based on either a 'percentage' of total cost figure provided by the head of planning, or some other metric such as accommodation space. Finance officers from several authorities quoted '70% of direct costs, with 60% of indirect costs' as their global rule for making returns.

3.18 No authorities present had time-recording set up for recording fee related costs. Those authorities that did have time recording for other purposes felt like it was ill-conceived, incorrectly used, and that the authority was moving away from it. Experience indicated that where time recording, e.g. through timesheets, had been used, it had been abused, needed policing and was an overhead in itself.

3.19 There was consensus that the current approach was 'broad brush', and that there was likely to be wide variation and inconsistency between authorities.

3.20 It was judged that a possible compromise moving forward might be to allow authorities to 'annotate' the LFR7 with 'additional info' which would not affect the top part of the form, but which could inform the interpretation of data in relation to the costs of processing planning applications. But this would need to be done consistently and with detailed guidance over what should be included and how much of it should be included.

Arup 2005 Findings in Scotland

3.21 In their earlier work in Scotland ¹¹ Arup estimated that cost recovery stood at around 74% on the then costs of the service. This figure relates to the 2004/5 financial year.

3.22 In reality the Arup estimate does not look particularly out of line with LFR7 returns if account is taken of fee rises in the recent past and cost inflation. In particular fees increased by 10% in April 2006 and April 2007 and the current LFR 7 return suggests that a further increase of up to 20% could be supported by average cost information, albeit there is considerable variation in submitted returns in relation to cost recovery.

3.23 While some studies into resources and the cost of local government functions have focused on the construction and implementation of Common Accounting Framework ( CAF) for the Planning Service, the approach adopted for this study was to work within the actual Local Authority accounting structures that were being used at the time of survey.

3.24 In order to estimate this level of cost recovery, Arup initiated an additional one-off survey of authorities to gather information regarding planning resources and the structure of the Planning Service. This was captured through a postal survey form that was sent to all Scottish Planning Authorities. It sought information on:

• Structure of the functions that comprise the Planning Service - to assess the nature of the accounting unit under examination.
• Staff numbers by salary band.
• Staff numbers by full-time and part-time posts and full-time equivalent jobs.
• Grading level - to assess the relative seniority of staff across the Planning Service.
• Local authority overheads with overheads defined to include all costs other than direct staff costs incurred in the delivery of the planning service.
• Work area resources - to enable assessment and comparison of the deployment of staff within the component work areas.
• Changes in resources - to see the changing nature of overall staffing levels year-on year.

3.25 Survey responses were received from 26 Authorities, a response rate of 76%. A number of cross checks were undertaken to validate the data in the context of other data received. From these responses, data was grossed up to reflect an estimation of the total level and distribution of resources across Scotland.

3.26 This survey identified that in the same way that the Planning Service is structured and organised differently in different authorities, so accounting practices differ between Local Authorities. In some authorities, several cost areas such as accommodation and upkeep are paid for through 'central costs' rather than by the Planning Service cost centre(s).Overall, the extent to which the 'total cost' of providing a Planning Service is contained with the budget allocated to the planning service varies considerably between authorities, as does the absolute level of that 'total cost'.

3.27 In practice in many cases, authorities were not able to provide information across every component cost of the Planning Service. This was typically because the costs were not borne (either in part or in full) by the planning budget. Often where transfer payment arrangements were in place they were long-standing agreements and were not based upon a detailed time recording system.

3.28 One of the more challenging aspects of the exercise was to estimate the spilt between fee and non-fee activities which is clearly important to the estimation of the costs of the fee-related development management activities. This is especially the case because the same staff typically work on both fee and non fee work and no Scottish authorities has any formal system such as timesheets and time recording to enable accurate measurement of this split. Thus we were faced with the choice of relying either on estimates by these staff (the approach adopted for LFR7s) or with the need to undertake a detailed time recording exercise. It was not possible in the time and resources available for the study to undertake a detailed time recording exercise, e.g. using timesheet information relating to a representative period. Instead assumptions on officer time were taken from the results of a sample of timesheets from an exercise we had undertaken in England on behalf of then relevant Government department, the Office of the Deputy Prime Minister, now Communities and Local Government, the results of which are published ¹² and on the Department's website.

3.29 The total cost of the planning service was calculated on the basis of the overhead rates calculated above. Total staff numbers were derived using the structure survey. Assuming on average staff were at the mid-point of each salary band, the respective (gross and net) overhead multipliers were added, enabling an estimation of total cost for all authorities.

3.30 Total cost was then split down on the basis of earlier timesheet surveys in England to allow a calculation of the various work areas within the Planning Service, including fee-related development management. This recorded the proportion of time spent by staff in various activities. Since salary band information was known, it also enables the proportion of cost that each activity accounts for, since some tasks might be more 'expensive' than others in demanding a relatively higher proportion of more senior staff.

Reactions to the previous Arup method

3.31 Reactions to the 2005 Arup results focused on the use of the English timesheet data and the differences in the results suggested by the method in comparison with LFR7. In general there was support from local authorities for the Arup data, but this seems largely to be because it suggested that higher fees levels could be justified. There was however an inconsistency between this support and the fact that local authorities were also providing formal returns through the LFR7 system that suggested lower costs in general. Thus there did not seem to be a robust basis for using the Arup data for setting fees, since it was contradicted by authorities own returns.

3.32 The Arup view was that it was the more accurate estimation of overheads that explained differences with the LFR7 returns. This was because Arup had challenged a large number of authorities initial returns on the basis that values provided were unrealistically low and had subsequently agreed higher figures. The Arup view was also that the use of English timesheet data was less of an issue because at the time of survey, the English and Scottish approach to handling applications and the responsibilities of planning officers were similar, as was the ratio of fee to non fee application workload, the main contentious issue. Nevertheless, it was accepted that there were minor differences notably in neighbour notification which then was the responsibility of authorities in England and applicants in Scotland. However, this latter difference was still discounted because this difference applies to both fee and non fee applications equally and estimating this split was the only way in which English data had been used.

Further evidence of cost recovery and fee levels in England and Wales

Arup 2006 study for Communities and Local Government England ( CLG)¹³

3.33 A further timesheets exercise was also undertaken in England in 2005 to estimate the proportion of time and the associated costs of carrying out the component functions of the planning service, especially non-fee development management and work on local development frameworks in England. The analysis was based on some 2,112 weeks of timesheets.

3.34 The study identified that English local authority gross overheads were on average 145% additional to all labour costs, or 200% additional to all labour costs if a proportionate share of paid staff holidays and staff sick leave were included as overheads. The higher figure was subsequent adopted by CLG.

3.35 Overall evidence suggested that that actual fee income in 2005/6 was £232m per annum, while the costs of fee related development management of between £290m and £365m in the same year. The higher of these figures reflected a situation where overheads such as leave, training, sickness and breaks are attributed to the development management service in proportion to the current workload. This suggests a shortfall of fee income of between £60m and £135million, based on current costs, and would imply fee increases of up to 59% based on the higher overhead assumption.

Comparison of current application fees

3.36 The table below sets out a comparison of selected currently prevailing fee rates across Scotland, England and Wales respectively. As is apparent from the table there were revisions to fees in England in April 2008, but not in Scotland or Wales which accounts for some differences. In practice fees are not revised each year or necessarily at the same time in any particular year in each of the countries.

3.37 The comparison suggests that fees are currently lower in Scotland than elsewhere, although the rate for householder applications is similar to England and both England and Scotland are lower in this category than Wales. The major difference overall is for the largest applications, largely due to differences in the maximum fee cap, currently £14,500 in Scotland, £50,000 in Wales and £250,000 in England. The extent to which this generates significant additional fees is dependent on the profile of applications and in practice there are comparatively small numbers of very large applications.

3.38 Of course, no general conclusions can be drawn from the table regarding the appropriate level of fees based on costs in Scotland as the systems diverge and the contexts differ.

Key Findings

• There are significant variations in fee recovery rates across local authorities in Scotland, ranging from 45.8% to 18.6% (the national average is 83%) which is likely to be caused by differences in local service provision and variations in accounting practices.
• There remains a lack of understanding amongst planners of the LFR 7 system, its relationship to planning fees, the relationship between fee related and non-fee related costs, and the issue of overheads.
• There is a lack of direct relationship between fees and budgets.
• Fees are currently lower in Scotland than in England and Wales. While the rate for householder applications is similar, the major overall difference is for large-scale applications due to differences in the maximum fee cap, which is significantly lower in Scotland than it is in England and Wales.

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