Review of Alcohol Licensing Fees

5 Current Alcohol Licensing Fee Structure

5.1 This section sets out the key findings in relation to Stakeholder and Licensing Board staff views on the current alcohol licensing fee structure.

Important Elements of Any Licensing Fee Structure

5.2 In an open question survey respondents were asked what they considered the five most important elements of any Licensing Fee Structure. The most common response was 'Cost Recovery', with 20 of 26 respondents citing this element. The other most commonly mentioned elements for any Licensing Fee Structure were:

• Fairness (14);
• Easy to understand (8);
• Proportionate to the work required (7);
• Transparency (6);
• Affordability (4).

Current Fee Structure

5.3 Survey respondents were asked to indicate their level of agreement with a number of statements. Answers were: Strongly agree; Agree; Neither agree nor disagree; Disagree; or Strongly disagree. Responses are shown in Graph 5.1.

Graph 5.1

Source: Survey Question 24

5.4 30% of respondents agreed or strongly agreed with the statement 'the current alcohol licensing fee structure is fair', while 50% neither agreed nor disagreed and 20% disagreed or strongly disagreed.

5.5 When asked to state their level of agreement with the statement 'the current alcohol licensing fee structure is proportionate across all parts of the sector', 20% of survey respondents agreed or strongly agreed, 43% neither agreed nor disagreed and 37% disagreed or strongly disagreed.

5.6 Just over a quarter (27%) agreed or strongly agreed with the statement 'The current alcohol licensing fee structure is the most appropriate structure', 50% neither agreed nor disagreed and 7% disagreed.

5.7 When asked to indicate their level of agreement with the statement 'The alcohol licensing fee structure should be changed, one third (33%) agreed or strongly agreed, while 50% neither agreed nor disagreed and 17% either disagreed or strongly disagreed.

5.8 A number of stakeholder interviewees favoured the current system while acknowledging it is open to some improvements. The principle of cost neutrality was supported. It was felt that there is a need to tighten up on financial reporting so that cost and income of Licensing Boards can be subject to proper scrutiny. Stakeholders also thought that there is inconsistency of reporting of income and costs between Licensing Boards.

5.9 Stakeholders thought that multi-locational businesses encountered wide variations in fees and that the administrative burden and level of engagement with the LSO depended on where they sought a licence.

5.10 One stakeholder believed there to be a perception that 'larger retailers can afford it' when fees are increased - indicating that such attitudes do not take account of the difference between turnover and profit, tight margins and fiercely competitive operating environments.

Current Fee Levels

5.11 Responses to whether fees were felt to be too low or too high are shown in Graph 5.2. The vast majority (97%) of Licensing Boards who responded thought that the Occasional Licence fee was too low considering the amount of work carried out by local authorities, 90% thought the Extended Hours Licence fee was too low, 77% thought the Minor Variation fee was too low, and 57% thought the Major Variation fee is too low. The other licence categories were, in the main thought to be 'about right' in terms of fee levels by the majority of Licensing Board respondents. Only one respondent thought one category fee level was too high - this was the Category 2 fee level.

Graph 5.2

Source: Survey Question 28

5.12 Stakeholders who were interviewed believed that local authorities charged the maximum fee permitted. Others stated that there was no consistency and no definition of what should be classed as each type of licence. This was particularly thought to be the case in relation to Major Variations with very different charges being applied.

5.13 In the main, stakeholders accepted that as traders they must pay for administration of the system. Some did not feel, however, that they get an appropriate level of service for this fee. Some licence holders stated that they never saw an LSO, but would expect a courtesy call, or some level of relationship with the LSO. There was an assumption amongst licence holders that LSOs were out talking to licence holders all the time, but there was a lack of knowledge about what they actually do.

5.14 Where LSOs were visible, they were said to work well, offering advice and operating in a conciliatory, non-authoritative manner.

5.15 It was highlighted that fee levels were set six years ago and have not been subject to any increase since then. A number of fees were also thought to have been set too low at the outset. In particular, fees for Occasional Licences and for extended hours were said not to cover costs.

5.16 The fee for a provisional licence was thought to need clarification - if there is a new build then no Rateable Value will be allocated to the premises and the argument has been made that because there is no Rateable Value, there is no further fee due - which is perhaps not what was intended by the Act.

5.17 Dissatisfaction with the current system was expressed due to its perceived disproportionality. It was highlighted that the average convenience store would fall into Band 3 and pay a fee of £1,100 while the largest supermarket would pay less than double, £2,000. It was suggested that additional bands may be an improvement to the current system in relation to disproportionate banding.

Case Study of Small Pubs and a Pub/Restaurant in a Small Town in a Rural Area

Hours are Sunday 1230 - 0030; Mon - Thurs 1100 - 0030; Fri & Sat 1100 - 0130 with extensions for holidays, e.g. Christmas and New Year period. The pub is a bar in a terrace block run by one staff member except on Friday and Saturday nights. Turnover has been pretty steady for a number of years. The pub lounge is a venue for the older patron and has steady business throughout the day. Turnover has been pretty steady for a number of years. Beer sales in both outlets have been steady from last year to this year and turnover has stayed about level but profits are down since costs are up.

The bar/restaurant was refurbished in 2007. Initially turnover rose but was then hit by the 2008 crash and dropped, and is now fairly steady. The bar is for a younger clientele and is quiet during the day, getting busy only later at night. Business is tight. In the restaurant, input costs of food are increasing, some quite dramatically, staffing costs are also high but prices charged have to be kept low to get business.

The owner believed that £220 for the annual fee is excessive. Under the old system a three-year licence cost £94.

The owner did not see a square footage based system being workable and would prefer a turnover based system. It was recognised that there would be issues with fluctuations in turnover from year to year but for most premises fluctuations would likely be minor, and that taking an average of three years turnover could overcome any such issue.

Cost Recovery

5.18 The vast majority of stakeholders made reference to the European Services Directive and the principle of cost recovery in the administration of Alcohol Licensing. The 2005 Act was also mentioned in this context. Stakeholders indicated that they supported the principle of cost recovery but only where reporting was transparent and accountable. Survey respondents and stakeholders interviewed were in favour of licence holders paying for administration costs.

5.19 It was suggested by some survey respondents and stakeholders that fees should be ring-fenced and surpluses used to drive down fees overall. Within this, stakeholders discussed whether it cost more to administer a licence to a large retailer than it did a small retailer and if this was the case then the fee should reflect this.

5.20 A common theme among stakeholders was the belief that Licensing Boards were profiting from the administration of alcohol licensing fees. However, the data showed that this was not the case.

5.21 The view was expressed that it is difficult to cost the administration of licensing fees as many staff and costs provided by the Council would have to be apportioned to the licensing fee. It was also highlighted that licensing processing is only one element of the work of licensing staff - other tasks include: guidance to applicants, enforcement activity, and reviewing the alcohol licensing policy. Accurate time recording would be required to quantify the processing element.

5.22 Some stakeholders also thought that, if fees were based on administration costs, there should be a national standard to avoid local variations in fee levels. Additionally, it was suggested that centralised control was required with streamlined administration and a national IT system.

5.23 In terms of cost neutrality it was explained that different applications take different lengths of time and resource input to process, therefore it is impossible for a standard fees based system to achieve cost neutrality at the level of an individual application. It was thus considered that cost neutrality can only be achieved approximately for all licences in any given year.

5.24 It was stated that any change to the current fee structure would have the effect of temporarily increasing the workload on existing staff during the transition process and this would have to be taken into account in determining any new fee structure.

5.25 One survey respondent raised the issue of licence administration in rural areas, stating that Licensing cannot be self-funding in remote and rural areas when the numbers of licensees would be low, unless fees were set at an unacceptably high level.

5.26 One survey respondent stated that there should be no dispensations in fees for Members' Clubs or tourist attractions because it cost the same to process those licences as it did others.

Inconsistencies within the Current System

5.27 Inconsistencies within the current system were highlighted by stakeholders interviewed. Some local policies were felt to have introduced unnecessary requirements such as a filling station requiring a separate counter for alcohol sales, layout plans only admissible if prepared by an architect, and some introducing colour-coding of layout plans.

5.28 On this issue it was also highlighted that major variations may involve similar resources as a new application, and that fees may not cover the amount of work required. It was noted that licence holders may include a number of issues in one variation application (so that only one fee is applicable). Such an application may require dealing with objections, administering neighbour notifications, liaison with other departments within the Local Authority to obtain for example noise orders, traffic orders or food certificates.

Case Study of Small Urban Pub

The case study pub was a family run, community, tenanted lounge bar. The pub is approximately 8m by 10m (80 sq m) and has a capacity of around 100. There is a garden with six tables and a small function room of approximately 15 sq m with a capacity of around 20. Licensed hours are 1200 - 0000 except Friday to 0100 and Sunday from 1230. The Licensing Board operates a "festive policy‟ of blanket extensions to 0100 for December and holiday weekends.

As designated Premises Manager, the tenant pays £50 per month (£600 per year) to the landlord, a pub chain, which deals with all licensing administration. The Licensing Board has set the annual fee at the maximum of £280, which will be the amount paid out by the landlord. The tenant has been informed by the landlord that the excess goes into a "contingency fund‟.

The tenant stated that no major variation has ever been applied for in respect of the premises because of the high fee set by the Licensing Board. There is a widely held view in the trade locally that some licensees are not keeping their operating plans up to date because of this cost. It is believed also to represent a restrictive practice in that many people having a new idea to develop their business perceive the cost to change the operating plan to be prohibitive.

The tenant pointed out that rateable values for pubs are based on turnover, with the rateable value of a pub being set on the basis of hypothetical achievable turnover. This differs from the basis of setting rateable values for shops and supermarkets which is based on annual rental values. The tenant stated that this means that there is a lack of comparability between the different types of premises within alcohol licence fee categories and that there should be differential banding for the on and off trades with more, higher bands at the top of the range.

5.29 Issues were thought to arise under the current system where there are new premises where a rateable value has yet to be put in place. One Licensing Board stated, "Premises with no allocated Rateable Value can get a commercial licence without paying a reasonable rate - Rateable Value assessed once premises are fit for occupation does not allow the Board to go back for the appropriate fee."

5.30 Category 1 were described as "off the hook" with one stakeholder believing they were effectively subsidised by everyone else. Attention was drawn to Members' Clubs in particular - while their social value was recognised, it was thought that some now operated on an increasingly commercial basis.

5.31 One stakeholder described the current system as "a shambles" with a lack of knowledge of costs and income, Licensing Boards are perceived to "do what they want" and to be "inefficient and over resourced."

Amendments to the Current System

5.32 An option to 'amend the current fee structure to include more bands for premises licences/ annual fees' was met with agreement or strong agreement from 37% (11 respondents) of Licensing Board survey respondents, while 43% (13 respondents) neither agreed nor disagreed, and 20% (6 respondents) disagreed or strongly disagreed. When asked if the current alcohol licensing fee structure should be amended by altering existing bands for premises licences/ annual fees, 23% agreed. Also, 20% agreed that the current alcohol licensing fee structure should be amended to introduce additional discounts for some licensees such as small businesses/ tourist attractions.

5.33 In relation to current bands stakeholders thought that these should reflect costs incurred. In cases where insufficient income was raised, bands could be drawn out. If banding were to be reviewed, however, the view was expressed that it would be most appropriate to do so in 2017 when business rates are to be reviewed. Stakeholders thought that if there were more bands there could be more work involved in order to determine which band to put a business in.

5.34 97% of survey respondents thought Occasional Licence fees were too low given the amount of work that they require. Fees from occasional licences account for just 2% of the fee income reported. However within the main survey, the activity most frequently cited as the most resource intensive was Applications for Occasional Licences. Percentages ranged from 5% of total activity being spent on occasional licences, to 50%. A calculation, which assumes that the percentage of activity equates to the same percentage of costs being spent on that activity, demonstrates that processing an application for an occasional licence cost an average of £90 across the 11 Boards for which there was sufficient data to make the calculation. If the fee were set at £90 rather than £10, the amount of fee income raised by the 18 Boards that returned income spreadsheets would increase by 17.2% and the proportion raised from occasional licences would increase from 2% of the total to 16.5%.

5.35 However, an £80 increase in the Occasional Licence fee would likely receive a negative reaction from those who use them. It may also impact on voluntary groups and/or charitable organisations seeking to hold infrequent fundraising functions. A lesser increase may therefore be thought to be more appropriate.

Case Study of Convenience Store Operator with Outlets across Scotland

The operator has over 100 convenience stores in almost all of the 32 local authority areas. The size of store ranges from 400ft² to 7,000ft² and stores are urban and rural. All stores have an Off Sales Licence - the majority of these have held licences for some time. On occasion there may be a new build store which requires a new licence. The retailer undertakes a rolling programme of refurbishment - this may mean relocation of the check-out, or moving the shelf space around. When this is done, layout plans may need changed and a major variation sought. The cost of a Major Variation can be similar to a new licence, while a minor variation costs £31. Each store also has three Personal Licence Holders who are authorised to sell alcohol. This requires a constant stream of training as staff members leave and join the business.

Concerns were raised that local authorities may be making a profit from the administration of licence fees; and it was believed that there were some inefficient local authorities charging as much as they could.

It was thought that with 32 local authorities carrying out the same activities, a centralised Licensing system would be preferred. At present there are different approaches throughout Scotland; for example, one local authority will allow beer stacks while another will not - there are different interpretations of the law by each authority. Overall, it was thought that a system that had less local variation and a central point of administration was needed.

No advantages were identified within the current system. It was felt that the differential between bands was unfair to smaller stores when compared to what the large supermarkets pay. The average convenience store will have weekly alcohol sales that may equate to the hourly sales in a large supermarket, meaning that those with the highest volume of sales are paying less relatively. There was thought to be scope to add bands within the current system to remedy this inconsistency.

5.36 It is clear that conflicting opinions about the advantages and disadvantages of the current system reflect conflicting views about its objectives. Stakeholders giving prominence to the fairness objective argued that fees for smaller businesses should be lower and those for larger businesses higher. However, stakeholders giving prominence to cost recovery argued that the size of the business was not relevant to the cost of processing its application.