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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
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:
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.