LA cost recovery charging and the setting of licence fees

Local authorities are facing pressure from all sides as they try to balance budgets in times of rising inflation, high energy costs, reductions in government funding and a multitude of other problems. Any opportunities provided by statute to claw back monies by way of fees or charges to recover the costs involved in delivering services or undertaking functions is being fully investigated by councils in these cash-strapped times. Rob Hann looks at the options.

However, cost recovery charging has never been straight-forward and Councils always have to be mindful of the potential for legal challenge over the way in which fees and charges are calculated, set and levied. Carefully consider must be given to what costs can or cannot be taken into account when charging on a ‘cost recovery’ basis.

In particular, the local authority licensing sector has faced increased scrutiny from businesses, associations representing specific groups of licensees and the public over how costs are calculated and levied for certain licensing functions.

Councils are responsible for administering a huge range of licencing functions as set out in relevant legislation. The majority of statutory regimes governing a specific licencing activity will usually contain a mechanism which permits costs of the licensing authority to be recovered through the licence fees set by each council and paid by licence applicants. Locally set fees should reduce the risk of the subsidisation of licencing functions by local tax-payers, but, as ever, in the world of local authority charging powers, the devil is in the detail.

Two unrelated cases on two different licensing sectors have caused considerable concern to local authorities in recent years.

The first is the Court of Appeal case of Rehman (on behalf of the Wakefield District Hackney Carriage and Private Hire Association), R -V- Wakefield MBC and the Local Government Association (2019) EWCA Civ 2166 (‘Rehman’)

Local authority powers to licence taxi operators, vehicles and drivers can be found in different sections of Part II of the Local Government (Miscellaneous Provisions) Act 1976 (where appropriate, read with the Town Police Clauses Act 1847).

The Court of Appeal held that each of the three types of licence – vehicle, operator and driver – (despite being found in the same piece of legislation) had a comprehensive and self-contained statutory regime, which addressed grant, terms, suspension, revocation and fees.

“There is no cross-referencing in relation to any of those matters. The notion that the fee for one type of licence can reflect the costs involved in another, far from being implicit in Part II of the 1976 Act, is entirely contrary to its structure,” according to the Court.

Accordingly, Wakefield’s appeal over whether it acted unlawfully when it resolved to fix the fees for vehicle licences for taxis and private hire vehicles at an amount which included recovery of all or part of the cost of supervising the conduct of drivers licensed to drive such vehicles, was dismissed.

The case of Hemming-v-Westminster City Council (2016) (Case C-316/15) concerned the licensing of sex shops under the Local Government (Miscellaneous Provisions) Act 1982. One of the key questions which was eventually decided by the Court of Justice of the European Union (pre-Brexit) was whether Article 13(2) of the Services Directive (which then was brought into force in the UK by the Provision of services Regulations 2009) limited ‘cost recovery’ to the administrative cost and processes involved in granting such licenses only and in particular, cost recovery did not extend to factoring in the cost of enforcement. The CJEU decided that where a council charged a single fee to applicants designed to cover all costs (including e.g. enforcement) this was not compatible with the services directive. Licensing authorities have since had to amend their fee structures to ensure that application fees relate solely to the cost of authorisation, such as the costs associated with reviewing an application and granting or refusing a licence. Successful licence applicants could, however, subsequently be charged an additional fee relating to the costs of administering and enforcing the relevant licensing framework.

The LGA have published some helpful guidance on the impact of these and other cases (see ‘open for Business’ Open for business: LGA guidance on locally set licence fees | Local Government Association) which, amongst other things, includes helpful summaries of the case law and a section on what costs a local authority might (subject to what the specific legislative code says which governs the licensing activity) might be included as part of its cost recovery calculations.
What’s next?

Following Brexit, the Services Directive 2006/123/EC no longer applies to the UK.

As regards the continuing application of the Provision of Services Regulations 2009 and their impact on this area post Brexit, the position is that they are to be revoked at the end of 2023 by section 1 of the Retained EU Law (Revocation and Reform) Bill (if passed in its current form). The Bill is currently due to have its report stage and third reading in the House of Lords on a date to be announced.

The Provision of Services Regulations 2009 are to be revoked at the end of 2023 unless they (or specified provisions) are exempted, or the revocation date is extended, by legislation made under sections 2 and 3 of the Bill, respectively.

At present there is no draft legislation that intends to replace the Provision of Services Regulations 2009 if revoked. If this legislation goes perhaps the time is ripe for a thorough review of cost recovery issues affecting licensing which could be (as far as local authorities are concerned) a good news Brexit story. Given the importance of licensing and the fees it brings to local government Sharpe Pritchard will be closely tracking these developments and will report back.

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This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any issue raised in this article, please contact us by telephone or email This email address is being protected from spambots. You need JavaScript enabled to view it.