Why we need to review our regulatory charges

In October this year, we launched a 12-week consultation on our plans to update the charges for some of our permits and licences.

The proposals laid out would see chargepayer’s pay for the full regulatory services they use rather than relying on the public purse – a more financially-sustainable model that will lead to long-term environmental improvements.

With the consultation due to close on 7 January 2023, our Regulatory Futures Team Leader, Martyn Evans explains why we’re taking these steps now, what it means (and doesn’t mean) for businesses in Wales and how you can share your views to help us shape the proposals.

We all want our environment to be well managed and maintained for the benefit of present and future generations. Now more than ever, we need to take definitive action to tackle the climate and nature emergencies, to protect our natural environment, and to minimise the loss of biodiversity, wildlife and habitats.

Regulation is a key part of the work we do to achieve this ambition in Wales. Our regulatory approach is there to provide a minimum standard as a foundation to prevent environmental harm.

This includes assessing and issuing permits with conditions to protect the environment, and working with people and businesses all around Wales to monitor how legislative standards are being met and complied with.

But if we are to deliver the environment we want to see, and if NRW is to support a high-quality environment, we need to ensure our regulatory charges are more closely linked to the actual cost of delivering these activities. After all, our government funding can only go so far in ensuring our natural resources are sustainable now and into the future.

Where we are now

The fees and charges that we currently raise to cover regulatory costs cover 16% of our funding for this financial year. While our regulatory charges haven’t fundamentally changed since NRW was established in 2013, our roles and responsibilities have increased significantly, our range of legislative duties have changed, and our priorities and the way we regulate have also all changed.

Quite simply, our charges and fees haven’t kept pace with these changes, which mean they now no longer reflect the amount of work we need to do to assess and determine an application.

This means that we are significantly under-recovering across the majority of our charging schemes. This has led to a reliance on government funding – or Grant in Aid - to fill the gap. Taking this money away from other parts of our work means that we’re simply not able to offer some of the services that we’d like to offer. It also has negative impacts on our ability to undertake compliance activities.

The review

For us, it’s really important that the public purse isn’t used to cover any shortfall in that regulatory income. NRW is required by the Welsh Government, under ‘Managing Welsh Public Money’, to fully recover the costs of our regulatory services from those we regulate, rather than through dependency on the taxpayer.

Over the last few years, we’ve developed a programme to strategically review our charging, which has given us real insight into how much it costs to deliver effective and efficient regulation. This has been the first real deep dive we’ve done in this area since NRW was established nearly ten years ago.

We’ve worked closely with a range of teams to understand all the different actions associated with applications for new or amended permits, looked at time recorded data and process mapped all our learning so we can get a clear picture of what we actually do, and what it actually costs. We’ve also learnt from similar reviews of charges already undertaken in England and Scotland.

We’ve also used this programme to look at improvements and efficiencies in our service. There is more work to do on this, but we’re committed to future process and service improvements.

Underpinning all this work is the ambition to ensure the charge payer pays in full for the services they use. This will enable us to improve our customer focus, to strengthen our compliance work, and to make sure we have a more sustainable method of funding for our permitting service in the medium term.

What we’re proposing

Our consultation is split into two parts.

The first looks at making changes to a number of charging schemes associated with applications for new and amended permits across six regimes: Industry regulation, site-based waste, water quality, water resources and reservoir compliance and species licencing.

The second part looks at our annual subsistence fees, which primarily cover the fees for compliance monitoring, to ensure future inflationary pressures are managed effectively.

Applications

Some charges we propose in the first part of our consultation will be new, some will decrease, and others will see increases – some significant. These increases will apply largely for one-off applications for new permits – or for existing permit holders that are looking to transfer, vary or surrender their permit.

The water industry is likely to see increases, mainly due to water quality and resources charges have remained largely unchanged for the last 20 years and the fact that the polluter pays principle has not been applied. There will also be impacts on applicants for species licences as this area has not previously been charged for.

We have worked closely with the industry as we’ve developed our proposals to ensure they can plan effectively and respond to the consultation as they need to.

Impacts on farmers

We have also engaged widely with the agricultural unions throughout this process as we’re particularly mindful of the financial impact on this sector when set against the backdrop of wider financial pressures.

I attended the Royal Welsh Winter Fair in November to talk to farmers and the unions about our proposals. I know many were concerned about the proposed charges that are likely to impact farmers – particularly for those intensively rearing pigs and poultry; permits for the disposal of waste sheep dip to land; water abstraction and impoundments and reservoir safety compliance fees. I’m also aware that some might be affected by the new proposed charges for applications for activities that could damage protected species’ habitats, or for the disturbance, trapping or handling of protected species.

One of the main points I emphasised is that most of our proposed changes apply to one-off application fees. This means, beyond the proposed increase to annual subsistence charging, existing permits held by farmers and landowners would not be impacted by the proposed changes to application fees, unless they are looking to vary a permit, surrender a permit or looking to expand or diversify their business for which a new permit would be required.

One of the areas which will see the biggest increases is the permit for application of waste sheep dip to land. However, the proposals apply to a small subset of farms, as NRW issues an average of 40 permits in this area per year. So, while we fully understand the impacts the increases will have on those looking to make new or amend their permits, it will only impact a small number of farmers. Indeed, our work indicates that no single proposed charging scheme is projected to affect more than one percent of farms in Wales.  

And, of course, there are alternative ways to dispose of waste sheep dip to land, such as bringing in a contractor to take it away and deal with it appropriately. Further guidance on this is available to farmers on our website.

With the consultation window still open we still want to hear your views and analysis so that we can understand the impacts and benefits of the proposals. If there are significant impacts, we would like to hear from you about any mechanisms you think could be used to mitigate these effects or any suggestions you might have on how we can improve these proposals.

I can’t stress how much we truly value your engagement – and how appreciative we are of the agricultural sector, and the many other organisations – that have supported our charging review to date.

Cost of living crisis

We know these proposals arrive at a very difficult time. We’re all feeling the impacts of energy price rises, inflationary pressures and the subsequent rising costs of everyday life, so we completely understand the financial impact our proposals might have on people and businesses across Wales. But we too are feeling those pressures as an organisation, and we have a duty to make sure our customers get the regulatory services they (quite rightly) expect of us.

There are also many areas where we do propose reductions in our fees and charges. For example, there are reductions for some site-based waste charges and larger complex installations. We’ve also taken a precautionary approach to the introduction of species licencing charges to make sure charges aren’t counter-productive for nature or protected species. So, we have outlined waivers for otherwise chargeable applications.

Underlining all of this is the need to recover all the costs of our regulation so that we can reinvest resources in more compliance activity and in preventing pollution happening in the first place. We also want to make our processes simpler for applicants, to introduce a charging scheme that’s fit for a modern regulator, to ensure our approach reflects the commitment of businesses in Wales to be compliant, and supports the people, economy and environment of Wales.

Ultimately, our ambition is to create a fairer and more transparent charging system which will result in more effective protection and improvement of our natural environment in Wales.  

Share your views by 7 January 2023

On behalf of NRW, I want to thank those that have already shared their views on our proposals to date.

The consultation on the proposed changes for new permitting charge applications and our annual review of subsistence charge balances will run until 7 January 2023 and we encourage everyone to share their views before then.