The Financial Impact of Short-Term Let Licensing and Planning Controls on Scottish Local Authorities

Leading tourism and business stakeholders have drawn attention to the negative impacts of the proposed short-term let regulations for the economy and tourist industry, especially in light of the pandemic, and have recommended a postponement. However, the costs to local councils of implementing short-term let licensing and planning control areas also needs to be properly considered. This has been made more difficult in the absence of a Business Regulatory Impact Assessment on the proposals.

• Legal and planning stakeholders have highlighted the challenges that the Scottish Government plans will place on local authorities, many of whom did not support the proposals in the consultation process, and the financial impact this will have on already stretched resources.
• In recent weeks, discussions have taken place at City of Edinburgh Council meetings where councillors have sought more detail on the resource implications arising from the Scottish Government’s plans.
• The Financial Memorandum for the Planning (Scotland) Bill estimated that the cost to planning authorities of additional applications resulting from short-term lets would be between £358,207 and £2.7m per year. Given that this was prepared in 2017, the costs may have increased further. In addition, this estimation only deals with one aspect of the regulatory framework, planning, and did not consider the costs of licensing.
• Research carried out by the RTPI in connection with the implementation of the Planning (Scotland) Act 2019 estimated the costs of a planning authority designating all or part of its area as a short-term let control area between £640,710 (lower estimate) and £14,756,800 (higher estimate).[1] It does not appear that additional funds will be available for planning authorities to carry out the necessary work.
• Legal experts have predicted a surge in licensing applications for short-term lets for when the scheme goes live, potentially overwhelming local authority departments. Stephen McGowan, head of Licensing (Scotland) at TLT LLP and an authority on the 1982 Civic Government Act on which the Scottish Government’s plans are based, said the following:

“Provision will need to be made to deal with the impact of such a magnitude of applications on local authority resources. A massive rush of applications of this order could bring licensing administration to a halt, and have a knock-on effect on reporting obligations with Police Scotland and other authorities such as Fire and Building Standards, who will likely have to comment on each application. This could impact on processing times for other types of civic licence.”[2]

• This was echoed by the legal firm Shepherd and Wedderburn:

“In addition to any increased workload for licensing departments, there will likely be an impact on the Police, Fire Service, Building Standards and others who may be required to comment on applications. It will therefore be vital that the Scottish Government ensures the necessary resources are in place together with sufficient publicity to facilitate a smooth transition to the new licensed regime.”[3]

• Similarly, the Law Society of Scotland said:

“We query what opportunities have been considered for sharing services (e.g. with those involved with inspection processes related to Fire and Rescue Services) as some of the inspection processes should replicate ones that exist already. This could involve dedicated teams or an in housing/HMO team. Unresolved issues regarding fee setting is only one part of the resource implications. The numbers of staff involved is the more crucial factor as this licensing regime is imposing on local authorities additional requirement for staff. The number of applications and the need for this process could impact other areas of work such as e.g. liquor, street traders, public entertainment, and taxi licences. This licensing scheme is introducing additional requirements when authorities are already hard-pressed. In certain areas there will be a flood of applications which will require immediate short-term staffing issues, the implications of which should be considered now.”

• Stephen McGowan of TLT LLP also noted the following on the implications of licensing and provided a comparison with changes made to the liquor licensing regime:

“It has been put to me that councils can “gear up” and bring in temporary staff to help process these applications, but that would only take us so far. There are approximately 32,000 properties in Scotland registered on the successful Airbnb platform alone. By contrast, when the liquor licensing regime changed in 2009 there were around 16,500 applications to process and it was a mammoth task for everyone concerned. The licensing system is supposed to wash its own face and it will be for local authorities to determine a fee for these applications to cover projected costs, but even that is not the full picture.

Licensing is a specialist area and the impact of the new regime is not just about the cost of employing temporary office staff to process bits of paper. It’s also about the inspections that will have to occur in order to produce reports that the properties meet the required safety standards.

There is also the impact on police resource. Every application will need to be reported on and every person checked for criminal convictions and so on. The police may also be asked to report on evidence of antisocial behaviour. The police will see no percentage of the licence fee, and all of this will be happening on top of the other licensing business that both the council and the police are dealing with. It is not too wild a projection to see how the licensing system itself could creak and create delay and logjam, without the right precautions being taken.”[4]

• The Royal Town Planning Institute (RTPI) raised a number of concerns with the proposals for local councils, highlighting the following points:
• “major concerns about the resource implications of changes to the regulatory framework
• the related impacts associated with the additional duties for local councils set out within the Planning (Scotland) Act 2019 which remain uncosted
• the overall financial context of diminishing resources in Councils, both staff levels and fee income streams
• the need for effective enforcement measures and joint working across several Council services
• a clear and simple set of procedures with limited data requirements.”[5]
• The Law Society of Scotland also warned on the cost of the regulations and that local authorities may not be ready from a resourcing perspective: “There are unlikely to be resources in place at present in local authority licensing or planning departments to cover such additional and in certain areas, extensive work.”[6] The policy intention is that the fee levels should cover adequately the staff and administrative costs. However, that ignores the considerable cost of establishing the scheme:

“There are often significant infrastructure costs in introducing new schemes, for example new IT systems, which cannot always be fully recovered…We question whether it is proportionate for applicants to be fully liable for costs of establishing a system, including preparing staff to run the scheme. We suggest that it is appropriate to consider this question in the context of balancing the extent of the mischief which the scheme aims to regulate with the potential gain to the wider public of regulation.”

“In addition, there are likely to be practical challenges with this approach. How may each local authority calculate expected numbers of applications be quantified to be able to work out what the costs should be per application? What is the approach to be by local authorities to differing circumstances, for example, those undertaking home sharing versus those undertaking secondary letting? The omission of a BRIA, or partial BRIA, from this consultation make these questions particularly pertinent.”[7]

• The Licensing Law Committee of the Law Society of Scotland emphasised the importance of piloting the new licensing scheme ahead of implementing the new powers – but the Scottish Government have no plans to do this.
• It is clear that increased regulation will place additional burdens on local authority planning and licensing teams to manage the requirements of a new scheme at a time when they can least afford it. A proper impact assessment of the costs is required and it underlines the case that a postponement of the regulations is desirable.

4th December 2020

[1] https://www.rtpi.org.uk/media/1211/rtpi-scotland-financial-implications-of-implementing-the-planning-scotland-act-2019.pdf

[2] https://www.scottishlegal.com/article/licensing-expert-warns-of-flood-of-short-term-let-licences-1

[3] https://shepwedd.com/knowledge/short-term-letting-greater-regulation-licensing-and-control-scotland-post-covid-19-world

[4] https://www.lawscot.org.uk/members/journal/issues/vol-65-issue-02/system-overload-licensing-short-term-lets/

[5] https://www.rtpi.org.uk/consultations/2020/october/short-term-lets/

[6] https://www.lawscot.org.uk/media/363183/19-07-19-plan-lic-short-term-lets.pdf

[7] https://www.lawscot.org.uk/media/369667/20-10-16-plan-lic-consultation-short-term-lets-regulations.pdf