Building standards fee income and re-investment in service delivery: review

5. Building Control in England and Wales

5.1 Introduction

5.1.1 Building control in England operates in a slightly different manner to Scotland with a mix of both public and private sector provision. Public sector provision is also delivered differently in some areas with local authorities working with others to deliver a shared service. In terms of fees, local authorities can set their own fees with the objective that the fees cover as closely as possible the costs incurred in delivering the service.

5.1.2 The fundamental differences in fee setting between Scotland and England and Wales include:

• First, local authority building control departments in England and Wales are subject to strong competition from Approved Inspectors (AIs). These are both national firms and organisations (e.g. NHBC) and local smaller operators (in many cases with staff recruited directly from local authority building control departments). Overall, around 60% of all building regulations work in England and Wales is carried out by local authorities and 40% by the private sector. Customers can choose to use the private sector or public sector but cannot usually choose a different local authority to the one in which the application site is located.
• Second, local authorities are required to set fees within a framework that, essentially, means they should achieve overall cost recovery and that the cost of the fees should in each case, broadly, reflect the cost of delivering the service. However, each local authority can choose exactly how it sets its fees. There is no central direction on fee charges from central government in England. Fee levels are supposed to be set at a “full cost recovery” level. Therefore, depending on the scale and complexity of the work, the fee levels will vary (as is the case in Scotland). This means for the building regulations work that is chargeable local authorities should fully cover the cost of delivering these services without funding via local ratepayers or central government grant.
• Third, the response to concerns about building safety and fire regulation (post Grenfell) has led to a different approach and response in England and Wales.

5.1.3 This, of course, means that some of the messages from England are not directly applicable to Scotland.

5.2 Approach to Charging in England and Wales

5.2.1 The current approach adopted by local authorities is based on:

• The Building (Local Authority Charges) Regulations 2010^[16] were designed to “build on the principle of devolving charge setting to local authorities in order to provide more flexibility, accuracy, fairness and transparency in the charging regime and also to improve the standards and environment within which local authorities and approved inspectors operate and compete” (as summarised in CIPFA 2010).
• CIPFA 2010 guidance^[17] to local authorities on building control cost accounting (produced in parallel with the updated regulations and intended to support the practical implementation of the regulations). This sets out how to calculate charges in principle.
• LABC have provided more detailed guidance to local authorities.

5.2.2 The 2010 regulations did not lead to any fundamental changes and local authorities in England and Wales have been operating in the environment of setting their own charges and with private competition for many decades.

5.2.3 All local authorities set charges based on full cost recovery using:

• A hourly rate which varies from one area to another and is, for instance, much higher in London.
• The hourly rate is based on the total cost of delivering all forms of both chargeable and non-chargeable building regulations activities and other building control activities.
• The total cost is based on the direct costs of staff time and recharges of other costs across the local authority to the building control department. The direct costs of staff time vary relatively little (per hour), but the methods for recharging can vary from one local authority to another. The total costs are divided by “productive hours” to determine the productive hourly rate.
• The estimated cost of providing a service is based on the expected time spent multiplied by the average hours required. This is used to set the fee. The assumed amount of time per task does not vary much across local authorities as the levels of efficiency are fairly similar across areas.

5.2.4 Each local authority works out its own assessment of the time taken and so the fee to be charged for activities (where charges can be made) is based on a combination of area of the works, number of units (for new build) or value of works undertaken.

5.2.5 As noted above there are non-chargeable building regulations activities and other building control activities. These non-chargeable building regulation activities are set out in Table 5.1 and the other building control activities in Table 5.2.

Table 5.1: Non-Chargeable Building Regulations Activity in England and Wales

Liaison with the fire authority and other statutory authorities on a goodwill basis.

The enforcement of those national and local acts relating to the building regulations that approved inspectors cannot undertake.

Inspections carried out to identify unauthorised building work (excluding regularisation applications).

Giving general advice on council matters to members of the public, their representatives and other council departments on any matters.

Carrying out building regulation functions in relation to work which is aimed to provide facilities designed to secure the greater health, safety, welfare or convenience for disabled people.

The first hour of officer’s time in giving pre-building regulation application advice on specific chargeable functions regarding the requirements of the building regulations and associated legislation.

Table 5.2: Examples of Other Non-Chargeable Building Control Activity in England and Wales

Dealing with dangerous buildings.

Administration of the approved inspectors’ regulations (excluding work resulting from reversions).

Issuing conditions relating to the demolition of buildings.

Street naming and numbering.

The provision of advice to other authorities.

Carrying out audits in relation to fire, energy, access for disabled people or public safety issues.

Administration/enforcement of safety at sports grounds legislation.

Work associated with the administration and enforcement of a competent persons scheme.

Providing information as part of local land charge searches.

5.3 Current Issues in England and Wales

5.3.1 Drawing on the discussions and a LABC recent survey^[18] the key issues regarding the approach in England and Wales are set out below.

How Much Activity is Recovered in Charges?

5.3.2 As in Scotland, English building control departments carry out broadly two types of work. The Building (Local Authority Charges) Regulations 2010 make it clear that only certain building regulation functions may attract a charge (chargeable activities). There are also non-chargeable building regulation functions and other building control services which are both “non-chargeable”. The principle of the Building (Local Authority Charges) Regulations 2010 is that local authorities should set fees to cover chargeable activity only (and of course only charge for those activities which are chargeable).

5.3.3 As in Scotland, there is considerable pressure on budgets for local authorities and it was clear from the consultations that building control departments are aiming to reduce the costs and share of the overall cost of carrying out non chargeable activity. There was discussion around the overall percentage of building control activity (chargeable and non-chargeable) that is currently charged for or recovered in charges.

5.3.4 There is a surprising variation in the share of chargeable activity/costs in total costs. The lowest share was 63% and the highest 83%, typically averaging 75% to 80%. Most local authorities are trying to increase the percentage by, essentially, being as efficient as possible in the delivery of non-chargeable work. In one area the share had increased from 70% in 2016/16, to 75% in 2022/23 with the aim to reach 80% by 2023/24. The upwards shift has been driven by a focus on efficiency in delivery of non-chargeable work and to a limited degree by extending charges to activities that normally are not charged for (there are one or two grey areas that have been exploited).

5.3.5 The 2021 Survey found that taking the last three years average the most common recovery rate was 70% (41% of respondents). For 77% of respondents, the recovery rate was between 60% and 80%^[19]. The Survey found that 72% of respondents considered that there was “pressure internally to achieve wider cost recovery for the building control service as a whole through income from chargeable activity”.

5.3.6 It is worthy of note that LABC are in discussion with the Department for Levelling Up, Housing and Communities (DLUHC) (the department responsible for local authorities and building control in England) around extending the scope of activities where local authorities can charge fees for building regulation functions. The LABC 2021 Survey identified that 83% of respondents would consider utilising new powers to extend charging (covering defective premises, dangerous buildings, ruinous and dilapidated buildings and neglected sites, and notices in respect of demolition). There were similar levels of support for charging for administrative duties in respect of “register of all work self-certified by competent persons registered within a competent persons scheme”.

Recharges/Overheads

5.3.7 There is very considerable variation in approaches adopted by local authorities in respect of charging for central overheads to different functions/departments. The responses on the relative scale of overheads varied widely. The effective uplift on direct costs^[20] was up to around 20% (which is equivalent to overheads being 17% of gross costs). The weighted average across this admittedly small sample is an uplift of 18% on direct costs. This is well below the 30% assumed in Scotland^[21].

5.3.8 There is a considerable degree of discussion and debate between building control department managers and local authority accountants on the basis for these charges (and if they are fair and reasonable). The trend for building inspectors to not be office based is contributing to the debate.

5.3.9 It would be fair to say that none of the managers consulted fully understood how such overheads were calculated and recharged. In some cases, overheads could go up by over 30% to 40% in one year for no apparent reason. This apparently, from a building control department perspective, arbitrary and opaque situation in respect of overheads appears similar to the situation in Scotland. In England the 2021 Survey identified that a significant minority (43%^[22]) of building control departments would like to have a common national recharge factor (% uplift on direct costs) similar to the 30% used for KPO5 in Scotland.

Refunds and Supplements for Work

5.3.10 The regulations allow for local authorities to issue refunds and ask for supplements for work. However, although these powers exist, they are rarely used. Refunds are rarely provided because they tend to require administrative time and cost to implement. Regardless, LABC also advise that the first hour of any refunds should not be paid back to reflect the administrative time involved in the refund. Authorities do look hard at cases e.g. when a full fee is paid but the project does not proceed to delivery/construction phase.

5.3.11 A similar story applies to supplements which are only applied in exceptional circumstances. These are difficult to implement, likely to cause bad feeling and they need very specific working on fee quotes. Also, in the view of one manager, to go down this route would require more detailed contracts and terms of engagement in work which would take more time and resources. Consultees felt that it is different for AIs who often quote a low fee with many provisos and then increase their charges. Building control departments like to provide a clear and fixed price for the work.

Costing Services - Hourly Rates for Chargeable Services

5.3.12 The LABC 2021 Survey noted that across the sample of 90 local authority building control departments, the average hourly rate was £70.5 with the range being as low as £45 and up to £120 an hour in 2021. Our small survey also found a surprisingly wide range from £50 to £92 per hour.

5.3.13 The setting of hourly rates is in part based on the LABC/CIPFA guidance but in reality it is less sophisticated. Once an hourly rate is set then it tends to be adjusted to reflect costs, but also to some degree the competition for building control work locally. The variation reflects the underlying costs (staff costs) which tend to be higher in larger cities and London and other local factors.

How Specific Charges are Set for Specific Services

5.3.14 There was discussion on how authorities assess the time taken to deliver specific services and then work out the charges and whether this is done on an annual basis.

5.3.15 In 2011 LABC produced a model set of charges which many local authorities have used and updated subsequently. There are considerable similarities across local authorities in the specific items for which charges are set that relate back to the model schemes (albeit with different local charges for the works described). This is quite detailed and complicated and for some published charges schedules can run to three or more pages. In England the charging schedules are further complicated as separate fees are quoted for assessing plans and then for inspections. Smaller domestic work tends to have fixed fees (such as for small extensions, garage conversions or loft conversions).

5.3.16 Fee schedules can be based on different parameters: specific activity (e.g. number of windows replaced), floor areas, or value of work. Even where there are full published schedules, most fee regimes state that it is a case of “an individually assessed fee” (e.g. for works over £75,000 in the case of Carlisle or £100,000 in the case of Newcastle). There tend to be standard per dwelling fees for new build domestic dwellings, but with the charge per unit falling as the size of the development increases.

5.3.17 Once the schedules have been created they are not reviewed in totality each year and tend to be all uprated in the same way.

5.3.18 The LABC 2021 survey identified that a slight majority of building control departments were in favour of “national fee calculator for each project type where the only variable would be the individual local authority’s hourly rate” (46% for, 42% against and 12% don’t knows).

Updating Charges

5.3.19 The frequency with which the hourly rate used and fees/charges are updated varies. Some authorities increase charges every year in line with the Consumer Price Index (CPI), while others review charges periodically, but not every year. One authority interviewed has increased charges in 2022/23 by 17% but this is after a two year freeze.

Publication of Charges

5.3.20 There were different opinions and views as to the precise legal requirement on local authorities in respect of publication of fee schedules (one interviewee was of the view that local authorities simply need to publicise that fees have changed not how they have changed). Many local authorities have very accessible and detailed schedules. However, others adopt a less transparent approach and the schedule might be somewhere on the local authority’s website but not in a very visible position. Several authorities have no published schedule or only keep it on the local authority website for a short time (a few weeks only).

5.3.21 However, if potential customers contact the local authority building control department then the team members will provide a quote for the specific work required from the schedule. A competitor (AI) could find out the cost if they wanted. Many local authorities using a LABC service have an online quotation system.

5.3.22 Building control department managers recognise that there is a balance in terms of time to work out fees in response to requests (although increasingly that is being done online) versus publishing charges so that competitors can see.

5.3.23 In the 2021 LABC Survey 38% stated that one of disadvantages of the current system is that “the requirement to publish charges places a local authority at a commercial disadvantage”. This was a point made strongly in the interviews carried out.

What are the Main Areas of Competition from Approved Inspectors (AIs)?

5.3.24 The competition faced from AIs is across the board. The market share of local authority building control activity varies but is often 50% to 60% of the market by number of approvals^[23]. The share has, however, been falling. NHBC dominates the market for large scale new housing which links to their guarantee. The 2021 Survey by LABC highlighted that 76% of responding building control departments thought that “approved inspectors be required to publish charges as well”. This is however not a realistic proposition.

5.3.25 AIs can be set up and/or staffed by locally based ex-local authority building control staff. It was suggested that the general view of local authority departments and their services can be coloured by a bad experiences in another part of the country. Some of the consultees had reservations about the standard of work of some AIs and the 2021 LABC Survey reflected this theme about quality and standards. Only 8% of respondents considered that “existing Building Control Performance Standards ensure that competition in building control does not drive down standards”.

5.3.26 The LABC 2021 Survey showed a large majority in favour of a clear national standard applying across local authority departments and AIs to ensure a level playing field. Overall, 82% supported “clear standards for plan checking and site inspection for all building control bodies through Building Control Performance Standards to help promote a level playing field”.

Main Challenges of the Current System

5.3.27 Consultees raised several challenges in the operation of the system in England. The most significant being:

• Competition from AIs (seen as not entirely fair as a result of the need for local authorities to publish charges) and the quality of work of some AIs.
• Serious issues with loss of staff and understaffing of roles within building control departments (arising from a lack of training, retirement and poaching of staff for much better pay rates in private sector).
• Pressure on delivery costs.

5.4 Building Safety Regulator

5.4.1 The new Building Safety Act (post Grenfell) is creating, for certain works, a new “Building Safety Regulator” (BSR) which will be housed within the Health and Safety Executive (HSE). This will apply to residential buildings over seven stories or 18 metres high. There will be a transition phase to October 2023 when the new regime comes into place.

5.4.2 The introduction of the role for the new Building Safety Regulator is complex and is currently work in progress. Funding for work carried out by the regulator will be from fees charged to applicants. The regulator will then approach the local authority building control department to see if they can undertake the work. There will be a need to demonstrate competence/experience on the part of the authority, but authorities will be paid for their work. The details are still being finalised and authorities are not yet clear if there will be a central standard hourly rate for the work or if it will vary by authority. The strong preference is that local (or at least regionally) hourly rates will apply.