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Our fee charging scheme

The requirement for a fee charging scheme

Article 11 of the Charter requires the PRP to prepare, consult publicly upon, and publish a scheme for charging fees to regulators in relation to the functions of recognition and cyclical review, to come into force from the third anniversary of the date upon which the Charter becomes effective. That is, November 2017.

Article 11.5 states that fee sums specified in the Charter are subject to the indexation formula (CPIA/CPIB) X 100.  The initial amounts payable in respect of applications for recognition and for cyclical reviews, will vary annually according to the indexation formula.

Aim of the fee charging scheme

Article 11.3 of the Charter states that the aim of the charging scheme is to recover the PRP’s full costs of determining applications for recognition and for conducting cyclical reviews. 

The fees become due and payable irrespective of the success of an application or the outcome of a cyclical review.

PRP costs

Direct costs

The PRP will incur direct costs for assessing applications for recognition and when reviewing the recognition of approved regulators. This will include the costs of acquiring, at market rates, suitably experienced executive staff, as well as the cost of convening relevant Board meetings to assess applications and deal with issues relating to the continuing compliance of regulators.

Indirect costs

The PRP derives its authority from the Charter. To assess applications for recognition legitimately and to review the ongoing compliance of approved regulators, the PRP must comply with its Charter obligations. These include responsibilities for reporting and for managing assets.  Fulfilling these obligations can be described as indirect costs relating to the functions of recognising and reviewing approved regulators. 

Other indirect costs arise due to our published guidance on applications and on cyclical and ad hoc reviews.  For example, in our guidance on cyclical and ad hoc reviews, we state that to ensure the effective conduct of cyclical reviews and to help inform when an ad hoc review might be appropriate, the PRP must maintain some element of proportionate active awareness of the industry and of recognised regulators.

Other than in the exceptional circumstances set out in Article 11.7 of the Charter,[1] the PRP’s only means of generating future income is charging regulators fees. These fees must therefore aim to cover the PRP’s full costs, not just the direct costs of determining applications for recognition and for conducting cyclical reviews.

Restricting the PRP’s income to fees charged to regulators[2] is a fundamental principle which helps ensure the PRP maintains its independence from government.

This also means that PRP’s income is limited to the fee limits set by the Charter, which effectively sets a financial limit on the PRP’s budget once it achieves business as usual as an oversight body. 

Fees for cyclical reviews (for a sole regulator)

Article 11.4(b) allows the PRP to charge fees relating to cyclical reviews (and implicitly, the ongoing responsibilities as an oversight body), for each year a regulator remains recognised. The Charter sets an initial maximum allowable fee of £220,000 per annum subject to annual variation by an indexation formula[3] but allows the PRP to “determine to set different fees for different circumstances”. As explained above, we are currently not proposing a scheme which differentiates in this way. 

The PRP must aim, as far as possible, to recover its costs from fees. The PRP currently has oversight of one recognised regulator and there is no indication that this number will increase in the foreseeable future. The maximum the PRP anticipates being able to receive annually from fee income is therefore £220,000 subject to annual variation by the indexation formula in the above footnote, for as long as the regulator remains recognised. 

As mentioned above, operational experience to date of overseeing a single regulator indicates that the actual costs as a business as usual oversight body will be no less than the maximum permissible annual fee for cyclical reviews.

The PRP will charge the Charter’s maximum permissible fee of £220,000 per year (subject to indexation, as before) for the 2018/19 cyclical review.

Fees for future applications for recognition

The PRP will not charge the existing recognised regulator for its application, as we received and assessed it during our first three years when a grant from the Exchequer covered our costs.

If one or more regulators apply for recognition after the introduction of the fee scheme, that is after 3 November 2017, the PRP would be able to charge each one an application fee. Article11.4 (a) of the Charter allows the PRP to charge a fee not exceeding “an amount equal to £300,000 per year for each of the first three years of recognition” subject to variations set out in the indexation formula set out in Article 11 of the Charter. Article 11.4 allows that “the Board may determine to set different fees for different circumstances”.

As explained above, we do not believe that circumstances warrant us implementing a charging model that accounts for the characteristics of a regulator or applicant, and we therefore propose that any fee levied for a future application for recognition should be a flat amount regardless of the size of the regulator or the outcome of the application.

Based on the Charter’s requirement that PRP fees should aim to cover full costs, and in the light of the PRPs actual budget requirements and costs incurred when assessing IMPRESS’ application during 2016, the PRP sees no alternative other than to charge the maximum permissible fee of £300,000. This is subject to economies of scales arising from multiple participants in the recognition system that result in a reduction in indirect costs, and is also subject to annual variation in accordance with the indexation formula set out in the Charter.

Based on previous experience, we anticipate that a single charge of £300,000 should be sufficient to cover the PRP’s costs of assessing a future application. However, should costs exceed the sum arrived at, the PRP will recoup in the following year or two up to the Charter’s annual cap of £300,000 in each year, and therefore not exceeding a total application fee of £900,000 (subject to annual variation in accordance with the indexation formula set out in the Charter).

Conversely, should the PRP costs prove lower than the fee payable, the PRP will consider refunding the applicant the appropriate amount and will review this scheme in the light of the experience.

Aggregation of fees

Article 11.4(d) of the Charter allows the PRP to aggregate the annual fees chargeable. However, we do not consider this would be appropriate in the current circumstances. The organisation’s costs are projected to be consistent year on year, assuming no unforeseen changes. If the PRP receives another application for recognition, the costs associated with the assessment process are likely to be incurred during a period of no more than 12 months, and are not expected to exceed the maximum permissible charge per year.

Timing of fee payment

Applications

This charge will be levied shortly after the applicant applies for recognition and will be payable before the application is assessed.

Cyclical Reviews

Fees become due a year prior to the start of the next cyclical review and the Charter specifies when cyclical reviews start.  The next cyclical review will take place from October 2018. The first fee for cyclical reviews will become due on 3 November 2017.

Staggering payment

Where the costs of assessing an application exceeds the maximum permissible amount, the PRP will recoup the extra costs in the following one or two years.

Indexation formula

The PRP will use the following indexation formula to vary all financial amounts specified in the Charter:

(CPIA / CPIB) X 1000

Where no period of variation is specified, the amount shall be varied on each anniversary of the date this Charter becomes effective.

  • CPIA represents the Consumer Price Index all items index figure for the month before the proposed revision is to be made.
  • CPIB represents the Consumer Price Index all items index figure for the month before the effective date of this Charter.

VAT on Fees

The PRP is awaiting a response from HMRC on the question of whether the VAT is chargeable on fees for applications for recognition and for the conduct of cyclical reviews.  

We will update the fees guidance section of our website as soon as a determination has been made.

[1] Article11.7 of the Charter states: “In the event that the Board considers that its income (from whatever source received) is likely to be insufficient to meet its expenditure relating to (a) legal or other expenses arising from litigation or threatened litigation, (b) ad hoc reviews or (c) wholly unforeseen events, it shall have the right to request further reasonable sums from the Exchequer. In response to such a request, the Exchequer shall grant such sums to the Recognition Panel as the Exchequer considers necessary to ensure that the Purpose of the Recognition Panel is not frustrated by lack of funding”.

[2] Other than in the exceptional circumstances permitted in Article 11.7 of the Charter

[3] (CPIA/CPIB) x 100