by N Burrell, Marketing, Research and Analytics, CIPFA
Making the most of fees and charges
Alternative ways of generating income are becoming more common, and necessary among local authorities against a backdrop of austerity.
So how do you create a strategy that balances your need for income with your public service obligations?
As they look to address a funding gap expected to reach £5.8bn by 2020, local authorities are increasing the amount of income-generating activity they carry out. While the amount of revenue created varies from 2% to 50% of expenditure across local authorities, there has been an increase in income generated across nearly all UK regions in recent years. Some councils have seen dramatic increases in response to funding pressures: in Aberdeen, which is Scotland’s lowest-funded council per head of population, income from fees for services rose from £14m to £41m over a four-year period.
Local authorities also find that income generation does more than just create more funds: it can also increase autonomy and reduce reliance on central government support.
An important source of income
Using discretionary fees and charges is one of the key income-generating options available to local authorities. Section 93 of the 2003 Local Government Act allows authorities to charge for services that they have a power (but not a duty) to provide. And while the income they can earn from these charges is restricted to the cost of providing them, there is no restriction on how the costs are calculated. So while fees and charges can’t be used to make a profit, they could provide the opportunity to invest in infrastructure, because all aspects of service provision can be included in cost. Authorities can also use differential charging based on people’s ability to pay.
Simple yet strategic
Compared with commercial trading activity, for which authorities are required to set up separate entities and present business cases, fees and charges offer a relatively quick and straightforward way to generate revenues. They can nonetheless make a strategic contribution: Grant Thornton cites the example of Flintshire County Council, which used structured parking charges to reduce congestion and support town-centre commerce. Commuters were encouraged to use car parks at the periphery of town centres while short-stay spaces close to town centres were promoted for shoppers and visitors.
What to consider when introducing or amending fees and charges
In its
Enterprising Councils [1] guidance, the Local Government Authority (LGA) identifies three areas that should be considered to inform decisions around fees and charges.
- Decide why/when to charge - As with the earlier Flintshire example, charges should be in line with strategy. The LGA cites Rutland County Council’s regeneration of a brownfield site, which met a number of objectives including stimulating the economy and supporting a health and wellbeing agenda. Charging for some types of waste removal, for example, can encourage higher levels of re-use or donation. The guidance also suggests asking fundamental questions around whether the service should be delivered and whether the local authority is in fact best placed to deliver it. It’s also important to note that different legal models will be needed if your objective is to go beyond cost recovery.
- Identify the costs and risks - Understanding the true cost of delivery makes it possible to decide how to set charges, and also to see whether more efficiencies are needed for the service to be competitive – or whether it should be charged for at all. The LGA notes the importance of taking all costs into account – support services such as ICT and finance as well as overheads like property and pensions. The risks of charging can not only be financial but also reputational: charges can be unpopular and social media ensures that a backlash travels fast. Transparency and communication is important, particularly around demonstrating that services are in line with the market and offer good value for money.
- Benchmarking - This is an extremely powerful tool both to support decisions around fees and charges, and to periodically monitor the position in relation to other local authorities. It reveals how charges compare with other providers, whether it’s possible to be competitive, and whether there’s scope to change your charging strategy.
How CIPFA benchmarking can help define your charging strategy
With fees and charges a key driver of income generation, CIPFA’s benchmarking solutions have been specifically designed to help local authorities shape charging strategies in a way that is informed by market practice and reliable evidence. Our benchmarking reports answer essential questions around fees and charges:
- Should we introduce a charge for this service?
- Are our charges fair?
- Should we be charging more, or less?
- Should this service be free
- What are our peers doing?
- What is a sensible charging mechanism?
CIPFA fees and charges benchmarking solutions bring three important benefits:
Insight - detailed graphical reports that put your local authority in context, together with reports that outline peer strategies.
Analysis - a full database of benchmark survey results is available for drill-down on areas that matter to you.
Advice - our consultants can help interpret survey results to support your transformation and improvement.
Benchmarking is a foundational stage in ensuring that your local authority is making the most of fees and charges. Find out more on CIPFA’s Fees and Charges page, where you’ll also find a sample questionnaire and sample report. Or contact Nicole Burrell on 01244 394626.