Building standards - building warrant fee model: research project

5. Model Results

5.1 Introduction

5.1.1 The new fee model buildings on the Phase 1 model and continues to be based on the number of building warrant applications by value of work bands. However, the model has the flexibility to estimate the additional fee required to deliver the new activities shown in Boxes 2 to 4 in Figure 3.2. The model has been developed at the Scotland-wide level but it can be applied at the sub-national level. Some sub-national modelling has been undertaken for five broad categories of authorities – urban, primarily urban, mixed, primarily rural and rural.

5.1.2 The structure of the model is shown in Figure 5.1. The core model estimates fee income from building warrant applications by type and value of work bands. It then makes an allowance for discounts provided for certification to determine total building warrant fee income net of certification discounts.

Figure 5.1: Structure of Building Warrant Fee Model

• No. of Cases by Building Warrant Type
• Fee per Case
• Income by Warrant Type and Total
• Discounts for Certification
• Building Warrant Fee Income Post Certification

5.1.3 The model was developed using data from 2021/22 and tested on historic application data (e.g. number of applications by value of work band) for the five year period 2017/18 to 2021/22. These historic data form the baseline of the model.

5.1.4 The modelling has been undertaken for two scenarios:

• Scenario 1: Overheads in building standards are assumed to be 30% of staff costs which is consistent with KPO5.
• Scenario 2: Overheads in building standards are assumed to be 20% of staff costs.

5.1.5 In the two scenarios, it is assumed that there is £1 million of funds already in the system and the additional funds for the future delivery of the existing building standards service (Box 1 in Figure 3.2) is reduced by this amount. All other additional funds are assumed to be raised through fees and an allowance for inflation. Inflation has been dealt with in the model in two ways:

• For fixed fee rates, an inflationary increase of 22.9%^[12] has been applied to allow for the effects of inflation between 2017 and 2022. Inflation is forecast to be 7% between 2022 and 2023 and 2.5% per annum thereafter^[13].
• Increasing construction costs will, over time, move an application up the value of work scale. To allow for this, we have assumed that the cost of the building warrant increases by 7% between 2022 and 2023 and 2.5% per annum thereafter¹¹.

5.1.6 The additional funds raised through the inflationary effects on non-fixed fee rates have been used to reduce the amount of additional funds required to be raised from increased fee rates as extra fees will be delivered. It is also only the non-fixed fees which contribute to the additional funds required to deliver the future building standards service.

5.2 Scenario 1: 30% Uplift for Overheads

5.2.1 Table 5.1 sets out the fee scales for non-HRB projects under Scenario 1 (30% overhead uplift). Table 5.2 provides the fee rates for HRB projects. It is assumed that most HRB projects are likely to be in the higher value of work bands. However, the compliance plan process will also apply to extensions and alterations of HRBs, therefore there is a HRB fee rate for all value of work bands excluding the lowest (£0 to £10,000) value of work band. Total HRB fee rates include both the non-HRB fee plus the HRB uplift. The results are shown for each of the three forecast years with the percentage increase between current and 2026/27 fees also shown.

5.2.2 The Tables shows:

• The largest percentage increases for non-HRB buildings are in the fixed fee category which reflects the effects of inflation from 2017 to each of the forecast years.
• The phased approach to HRBs results in more modest increases in fees in the first two years. The increase in 2026/27 in the lower value of work categories (£10,001 to £50,000 and £50,001 to £250,000) is high relative to the current rate. This is primarily driven by the fixed cost assumed for pre-application discussions at either £900 for values of work over £250,000 or £450 for lower values of work. The pre-application discussion cost dominates the extra HRB cost at value of work bands up to £1 million.

Note: 2022/23 and 2023/24 have not been modelled as the existing fee rates will apply in these rates.

Inflation increases are built into the modelled fee rates.

Note: 2022/23 and 2023/24 have not been modelled as the existing fee rates will apply in these rates.

Inflation increases are built into the modelled fee rates.

5.2.3 Table 5.3 sets out the fee income raised from the various fee activities for Scenario 1 using the fee rates in Tables 5.1 and 5.2. The total income raised (net of certification discounts^[14] is estimated to be £36.8 million in 2024/25, rising to £43.3 in 2026/27.

Note: The income raised from inflation drag reduces the amount of additional funds required to be raised from increased fee rates as extra fees will be delivered.

5.3 Scenario 2: 20% Overhead Uplift

5.3.1 Table 4.5 sets out the additional funds required to deliver the future building standards service using the box numbers in Figure 3.2 when a 20% overhead uplift is adopted and the phasing of activities set out in para 4.3.2. The building standards service is forecast to require an additional £6.2 million in 2024/25, rising to £14.1 million in 2026/27. The largest individual component is the additional funds required to deliver the existing service. The increase in the cost of delivering the existing service is reflected in the additional staff numbers forecast and the effect of inflation.

5.3.2 Table 5.4 sets out the fee scales for non-HRB projects under Scenario 2 (20% overhead uplift). As fixed fees are only changing as a result of inflation, the fixed fees in Scenario 2 are the same as those in Scenario 1.

5.3.3 Table 5.5 provides the fee rates for HRB projects. It is assumed that there would not be any HRB projects in the £0 to £10,000 value of work band. The point made under Scenario 1 (paragraph 5.2.2) regarding the effect of the fixed cost for pre-application discussions in the lower value of work bands also applies in this Scenario. Total HRB fee rates include both the non-HRB fee plus the HRB uplift. The results are shown for each of the three forecast years with the percentage increase between current and 2026/27 fees also shown.

5.3.4 Comparison of the fee rates in the two scenarios shows that the 30% uplift for overheads (Scenario 1) adds approximately 2% to fees compared to the 20% overhead uplift.

Note: 2022/23 and 2023/24 have not been modelled as the existing fee rates will apply in these rates.

Inflation increases are built into the modelled fee rates.

Note: 2022/23 and 2023/24 have not been modelled as the existing fee rates will apply in these rates.

Inflation increases are built into the modelled fee rates.

5.3.5 Table 5.6 sets out the fee income raised from the various fee activities for Scenario 2 using the fee rates in Tables 5.4 and 5.5. The total income raised (net of certification discounts^[15] is estimated to be £36.3 million in 2024/25, rising to £42.3 in 2026/27.

Note: The income raised from inflation drag reduces the amount of additional funds required to be raised from increased fee rates as extra fees will be delivered.

5.4 Sub-National Analysis

5.4.1 Fee rates have been estimated at the sub-national level for five areas:

• Urban: Aberdeen, Dundee, Edinburgh, Glasgow.
• Primarily Urban: East Dunbartonshire, East Renfrewshire, Falkirk, Inverclyde, North Lanarkshire, Renfrewshire, West Dunbartonshire, West Lothian.
• Mixed: Clackmannanshire, East Lothian, Fife, Midlothian, North Ayrshire, South Lanarkshire.
• Primarily Rural: Aberdeenshire, Angus, Dumfries & Galloway, East Ayrshire, Moray, Perth & Kinross, Scottish Borders, South Ayrshire, Stirling.
• Very Rural/Island: Argyll & Bute, Highland, Na h-Eileanan Siar, Orkney, Shetland.

5.4.2 For each of these area models the structure of the model is the same as the Scotland model. The distribution of applications by value of work band varies by area type, except in the over £1 million band where the distribution is the same across all areas. This is due to limitations which may have a slight bearing on the results.

5.4.3 The following parameters have been changed in each area model:

• Number of building warrant applications, amendments and late completion certificate applications.
• Distribution of applications by value of work band.
• Number of certificates of design and construction by scheme.
• Verification and total staff costs.
• The areas share of total (Scotland) applications to calculate the share of BSD and hub costs to be covered by the area.
• Workforce demand.
• Share of surplus funds in each area. Only the urban and mixed areas returned a surplus of building warrant fee income over total costs in 2021/22. These two areas share the £1m surplus in the system which effectively reduces the additional funds required to be raised in each of these areas. The other areas received no share of the surplus.

5.4.4 As the fixed fee rates are being increased by inflation only, these rates remain the same at the Scotland and sub-national levels.

5.4.5 Table 5.7 sets out the non-fixed fee rates for 2026/27 for each of the five areas for non-HRB projects and Scotland (from Tables 5.1 and 5.2) with a 30% overhead uplift. The results are shown for 2026/27 as this is the year when all proposed changes to the building standards service will be fully implemented.

5.4.6 Table 5.8 sets out the same results for HRB projects. As for the Scotland model, it is assumed there will be no HRB projects in the £0 to £10,000 fee band.

5.4.7 The Tables show that urban and very rural/island areas have rates below the Scotland level. Primarily urban and mixed areas have rates which are broadly similar to the Scotland rates and primarily rural areas have relatively high rates.

5.4.8 The following points can be made in relation to each area:

• Urban: the urban area receives the majority of the system surplus which reduces the additional funds to be raised through fees. Forecast staff numbers are a key driver of future costs and these are relatively stable in urban areas.
• Primarily Urban: these areas have not returned a surplus of building warrant fee income over costs. Hence, all additional funds required have to be raised through higher fees.
• Mixed: the area returned a surplus of building warrant fee income over costs and receives a share of the £1 million system surplus. This reduces the amount to be raised through fees. However, this area is forecast to increase staff numbers by approximately 12% which is a key component of future costs.
• Primarily Rural: this area type has relatively high fees reflecting no system surplus and an increase in staff of 17%.
• Very Rural/Island: this area type has relatively low fees, despite there being no system surplus. Staff numbers however are forecast to reduced slightly which is a key determinant of future costs.