Consultation on modernising environmental permitting for industry

Effective cost recovery is important in ensuring the EPRs operate on the basis of the polluter pays principle, and that regulators have the resources and skills to efficiently and effectively process permits. While the EA has an established system for regularly updating its fees and charges to deliver cost recovery, the current system for setting local authority (LA) fees and charges is not working effectively. Defra has not updated LA fees and charges since 2017, and they cannot fully recover costs for key activities such as compliance work or agreeing derogations from regulation.  

We are exploring updates to deliver better cost recovery and create a more dynamic and predictable framework moving forwards (with due consideration of the impacts on small and medium-sized enterprises).  

Current cost recovery 

Defra is planning to consult this year on an inflationary uplift to LA fees and charges. However, we have evidence that an inflationary uplift may not be sufficient to deliver cost recovery for LA permitting activity. For instance, the Local Pollution Control Statistical Survey (LPCSS) in 2018, with participation from 245 English LAs (out of 345 LAs at that time), showed that the average and median of annual cost shortfall experienced by LAs was £3,624 and £256, respectively. Additionally, 2014 and 2015 cost accounting data shows that at least 149 LAs have experienced annual deficits, with 9 LAs reported a cost recovery deficit that was greater than £50,000. Anecdotal evidence suggests shortfalls are particularly large for more complex Part A2 installations.    

Issues around the current LAs Fees and Charges Scheme 

Issues with the current risk rating system  

The current fees and charges scheme is underpinned by a risk rating system, which sets the level of fees and charges for activities on the basis of recommended numbers of hours spent annually for regulatory effort. However, the system does not always represent the true amount of effort, since activities that fall under the same risk rating can vary in the amount of effort required. This has been a result of (i) variations in type of facility regulated, (ii) the location and spread of facilities, and (iii) the varying extent of operational performances causing different levels of support and advice from LAs. All these factors have impacted the amount of time and other resources that have been spent.  

Local authorities cannot recover costs for all activities  

The EA can generally use time and materials charges to recover their costs, while LAs cannot because there is no time and materials charges option within the England Local Authority Fees and Charges Schemes (for Part A2 and Schedule 13 SWIPS and for Part B and Schedule 14 SEAs). Examples of this include: 

• pre-application engagement – LAs cannot currently charge for offering pre-application engagement to industry, which limits their ability to carry out this essential service 

• compliance work – while the risk rating system considers the amount of inspection and ongoing monitoring activity that will typically be required for a particular facility type, it does not allow for additional charges in cases where substantial compliance work is required – costs can be recovered by bringing a case for prosecution, however, this is expensive, time consuming and not always the appropriate route 

• derogations – in some cases, LAs need to consider requests for derogations, but this is currently free of charge 

• transfer of regulator – in the event of changing regulators, the cost associated with the process is not covered and there is no mechanism to set new fees and charges after new activities become regulated by LAs – in particular, the higher fees due to previously being regulated by the EA become disproportionately lower once they are regulated by LAs (this is often not appropriate since the activities and the regulatory efforts are the same but the costs to regulate them suddenly become much lower) 

• BAT related works – LAs are involved in the updating of BAT for industrial sectors they regulate, yet the costs are not covered by the Fees and Charges scheme 

• Part B minor variations – currently this is a free service for Part B activities but given that most regulated activities are Part Bs (80% of all LAs regulated activities under the EPRs), the time and costs often exceed than what is required by the risk rating system, adding cost burdens for LAs 

An improved system for setting fees and charges 

We intend to consult on an improved framework for setting LAs permitting fees and charges. We are developing a range of options and would like to test initial thinking through this consultation. The first broad option would be based on the EA’s successful approach to setting fees and charges, and would include: 

• an initial review of the risk rating system that underpins the level of permit application and subsistence fees, to ensure they represent cost recovery for those core activities 

• consideration of a time and materials system to cover costs of regulator activities not covered by permit or subsistence fees, including pre-application engagement, compliance and complaint investigations and derogations 

• consideration of existing ‘reduced-fee’ activities, to assess whether there are additional low-risk activities which could be added to the list or higher-risk activities which should be added 

• introduction of an automatic inflation-based uplift to ensure fees and charges remain up to date  

Alternatively, we could consider more devolved models, where individual LAs have more powers to set their own permitting fees at level that would achieve, but not exceed, cost recovery. Models of this kind were explored in Chapter 11 of the recent consultation by the Ministry of Housing, Communities and Local Government in relation to local authority planning fees. However, in a permitting context these options could involve additional burden on local authorities and could result in variation in fees across England.