Life, the Universe and Everything: can sense be made of licensing fee regimes?

This article appears in the November 2019 issue of the Journal of Licensing. The Court of Appeal are due to hear the appeal in R (Rehman) v Wakefield Council in Leeds on 26 November 2019. An update will follow after the handing down of judgment in that appeal.

Like dark matter, fees are found throughout the licensing universe. The most rudimentary scheme requires applications to be processed and licences to be issued. In many regimes, regulators conduct resource-intensive enforcement activities against both licensed and non-licensed entities. All this has to be paid for. The charging of fees to applicants and licence-holders has long been the first port of call for recoupment of those expenses.

Fee regimes do not lack for ingenuity, nor (sometimes) for ambition. Replacement lanyard for your Stockton-on-Tees hackney carriage driver’s badge? A snip at £1. Your non-remote casino hit a £400m gross gaming yield last year? Then that’s £572,836 for next year’s licence.

A unified theory?

Fees found in the universe are not without their quirks and idiosyncrasies. As I shall reveal, current Government Guidance on fee setting for scrap metal dealer’s licences is based on case law reversed 4 years ago by the Supreme Court: at what continuing cost to ratepayers, one wonders? And it has been ever thus: the annual fee a licence to be authorised to keep one dog remained unchanged between 1887 and 1985: seven shillings and sixpence, or 37½p, equivalent (at today’s prices) to a reduction over that period from £49.55 to £1.14.

The dog licence regime, abolished long after the point when it had cost more to administer that it raised in revenue, was an example of a licensing scheme where the fee was fixed by central government. As was pointed out by the claimants in the recent case of R (Rehman) v Wakefield Council [2018] EWHC 3664 (Admin), this is not the only model. It was suggested, with judicial concurrence [10-11] that four categories of fee regime existed:

(1) Where no fee can be charged (e.g. for street collections under the Police, Factories, & c. (Miscellaneous Provisions) Act 1916).

(2) Where only fixed fees can be charged (e.g. under the Licensing Act 2003, as prescribed in the Licensing Act 2003 (Fees) Regulations 2005, and under the Gambling Act 2005).

(3) Where the regime only permits specified expenditure to be recouped (as the claimants suggested was the case for fees for private hire driver’s licenses under s 53 of the Local Government (Miscellaneous Provisions) Act 1976).

(4) Where the regime gives the regulator a wide discretion to charge a reasonable fee (as the claimants said was the case for sex licensing and street trading).

In Rehman, the council had contended that that there was a general principle that licensing schemes should be self-funding. The judge at first instance, HHJ Saffman (sitting as a Deputy High Court Judge) was not persuaded that there was any such general principle [15, 17]. He expressly refused to rule whether the particular regime in question (“taxi” licensing under the 1976 Act) was itself self-funding. The council has appealed to the Court of Appeal, with a hearing listed for December 2019 [update: 26 November 2019], and I understand it seeks to pursue that issue there.

The struggle to find overarching sense in the fee system continues to strain the brains of many learned licensors. Will a combined fee theory emerge? Or is it simply a tale, full of sound and fury, signifying nothing?

Powers to be exercised for the purpose for which they were conferred

In R (oao David Attfield) v Barnet LBC [2013] EWHC 2089 (Admin) the plucky Mr Attfield, a solicitor and a resident of East Finchley, judicially reviewed his local council’s decision to increase in the cost of resident parking permits from £40 to £100, and of visitor parking vouchers from £1 to £4. By s 45 of the Road Traffic Regulation Act 1984, the local authority had power to designate parking places on the highway, to charge for their use, and to issue parking permits for a charge.

Mr Attfield’s case was that the price hikes were unlawful because their purpose was to generate a surplus, beyond the monies needed to operate the parking scheme. The local authority’s plan was to use the surplus to meet projected expenditure for road maintenance and improvement, concessionary fares and other road-transport costs, s 55 of the 1984 Act requires income from the parking scheme to be kept in a separate account, with year-end surpluses to be applied to specified highways and transport purposes.

Lang J. agreed with Mr Attfield that this was unlawful: parking charges could not be deliberately set in order to raise surplus revenue for other transport purposes. In reaching her decision, Lang J. set out a helpful review of general principles applying to the fee charging powers of local authorities.

The starting point (see Attfield at [38]) is that a public body must exercise a statutory power for the purpose for which the power was conferred by Parliament, and not for any unauthorised purpose. An unauthorised purpose may be laudable in its own right, yet still unlawful. The issue is not whether or not the public body has acted in the public interest, but whether it has acted in accordance with the purpose for which the statutory power was conferred. Where a statutory power is exercised both for the purpose for which it was conferred and for some other purpose, the public body will have acted unlawfully unless the authorised purpose was its dominant purpose.

In R v Tower Hamlets LBC, ex p. Chetnik Developments Ltd [1988] AC 878, 872 Lord Bridge of Harwich expressly approved the analogy drawn in Wade & Forsyth’s Administrative Law that:

Statutory power conferred for public purposes is conferred as it were on trust, not absolutely - that is to say, it can validly be used only in the right and proper way which Parliament when conferring it is presumed to have intended.

Determining the purpose for which the statutory powers were conferred

How does the court identify the purpose for which the statutory powers were conferred? Lord Nicholls of Birkenhead summarised the approach in R. v Secretary of State for the Environment, Transport and the Regions, ex p. Spath Holme Ltd [2001] 2 AC 349, 396:

No statutory power is of unlimited scope. The discretion given by Parliament is never absolute or unfettered. Powers are conferred by Parliament for a purpose, and they may be lawfully exercised only in furtherance of that purpose: “the policy and objects of the Act” in the oft-quoted words of Lord Reid in Padfield v Minister of Agriculture, Fisheries and Food [1968] AC 997, 1030. The purpose for which a power is conferred, and hence its ambit, may be stated expressly in the statute. Or it may be implicit. Then the purpose has to be inferred from the language used, read in its statutory context, and having regard to any aid to interpretation which assists in the particular case. In either event, whether the purpose is stated expressly or has to be inferred, the exercise is one of statutory interpretation.

No taxation without representation

Where a public body uses its discretionary powers to levy taxes, the courts will strike down demands which are unauthorised by statute. In Vestey v Inland Revenue Commissioners [1980] AC 1148, 1172 Lord Wilberforce said:

Taxes are imposed on subjects by Parliament. A citizen cannot be taxed unless he is designated in clear terms by a taxing Act as a taxpayer and the amount of his liability is clearly defined.

In Congreve v Home Office [1976] QB 629 (another challenge brought by a plucky solicitor) the Court of Appeal held that demands for an additional £6 against those who had renewed their TV licence early in order to avoid a well-trailed price hike were unlawful. In the words of Lord Denning MR at 652:

They were made contrary to the Bill of Rights. They were an attempt to levy money for the use of the Crown without the authority of Parliament: and that is quite enough to damn them: see Attorney General v Wilts United Dairies Ltd (1921) 37 TLR 884 (CA), (1922) 38 TLR 781 (HL)

Wilts United Diaries itself concerned a charge of 2d per gallon as a condition of the grant of a licence to purchase milk. The sums raised were to be paid into the National Exchequer. Referring to the Bill of Rights 1689, which had declared “That levying Money for or to the Use of the Crowne by pretence of Prerogative without Grant of Parlyament for longer time or in other manner then the same is or shall be granted is Illegall”, Atkin L.J. said at 886:

... there can be no doubt that this statute declares the law that no money shall be levied for or to the use of the Crown except by grant of Parliament. We know how strictly Parliament has maintained this right - and, in particular, how jealously the House of Commons has asserted its predominance in the power of raising money.... In these circumstances, if an officer of the executive seeks to justify a charge upon the subject made for the use of the Crown (which includes all the purposes of the public revenue), he must show, in clear terms, that Parliament has authorized the particular charge.

He added, at p 887:

It makes no difference that the obligation to pay the money is expressed in the form of an agreement. It was illegal for the Food Controller to require such an agreement as a condition of any licence. It was illegal for him to enter into such an agreement. The agreement itself is not enforceable against the other contracting party; and if he had paid under it he could, having paid under protest, recover back the sums paid, as money had and received to his use.

Scrutton L.J. had said:

It is conceivable that Parliament, which may pass legislation requiring the subject to pay money to the Crown, may also delegate its powers of imposing such payments to the executive, but in my view the clearest words should be required before the courts hold that such an unusual delegation has taken place. As Wilde C.J. said in Gosling v Veley (1850) 12 QB 328 , 407: “The rule of law that no pecuniary burden can be imposed upon the subjects of this country, by whatever name it may be called, whether tax, due, rate or toll, except upon clear and distinct legal authority, established by those who seek to impose the burden, has been so often the subject of legal decision that it may be deemed a legal axiom, and requires no authority to be cited in support of it.”

The doctrine of ultra vires and its boundaries

Private persons may do anything they choose which the law does not prohibit. Their freedoms are not conditional some distinct and affirmative statutory justifications. But for public bodies, the rule is the opposite. Any action which a public body takes must be justified by positive law: see R v Somerset CC, ex p. Fewings [1995] 1 All ER 513 at 524F per Laws J (as he then was). If a public body (such as a local authority or any other statutory body) carries out an activity which is not authorised by statute (whether directly or by implication), its actions are said to be ultra vires and unlawful.

An unduly rigid application of the ultra vires rule would hamper the actions of statutory corporations. The common law developed a principle that it was acceptable for a statutory body to do “whatever may fairly be regarded as incidental to, or consequential upon, those things which the Legislature has authorised” (Attorney-General v Great Eastern Railway Co (1880) 5 App.Cas. 473 at 478).

For local authorities, this common law rule is now codified by s.111(1) of the Local Government Act 1972. It provides:

Without prejudice to any powers exercisable apart from this section but subject to the provisions of this Act and any other enactment passed before or after this Act, a local authority shall have power to do any thing (whether or not involving the expenditure, borrowing or lending of money or the acquisition or disposal of any property or rights) which is calculated to facilitate, or is conducive or incidental to, the discharge of any of their functions.

“Functions” in s.111(1) embraces all the duties and powers of a local authority, the sum total of the activities Parliament has entrusted to it: Hazell v. Hammersmith and Fulham LBC [1992] 2 A.C. 1 at 29B-F.

In McCarthy Stone Developments Ltd v. Richmond upon Thames LBC [1992] 2 A.C. 48, a property developer challenged a £25 charge imposed by the council (as local planning authority) for giving pre-application advice. The planning regime only made provision for the charging of fees for planning applications. By reason of the principle in Wilts United Diaries, it was common ground that to make the charge, the council needed further statutory authority, and that this could only be found in s.111(1), either in its express words or by necessary implication.

The House of Lords held that it was clear that the consideration and determination of planning applications was a function of the council, but the giving of pre-application advice, although it facilitated, and was conducive and incidental to that function, was not of itself a function of the council. It was therefore clear that the giving of pre-action advice was permitted under s.111(1) and was not ultra vires. However, going further and charging for that advice was, in the words of Lord Lowry (with whom the rest of the House of Lords agreed), “at best, incidental to the incidental and not incidental to the discharge of the function”. Neither express words in nor necessary implication from s.111(1) could permit the charge. The council’s argument that the provision of the advice was akin to a discretionary service (as opposed to one it was duty-bound to provide) did not change the position, nor did the fact that the council could state on a “take or leave it” basis that it was willing to provide the advice (as that would conflict with Wilts United Diaries insofar as it made no difference to the unlawfulness of an unauthorised tax if persons agreed to pay it).

With the passage of s.93 of the Local Government Act 2003 (as amended by s.3 of the Localism Act 2011), local authorities may now charge for providing certain discretionary services (including pre-planning application advice), but McCarthy Stone Developments remains good law as to the approach to be taken to determining whether the imposition of a charge is indeed calculated to facilitate, or is conducive or incidental to, the discharge of a function.

In general, licensing fees cannot raise general revenue

In R v Manchester City Council, ex p King (1991) 89 LGR 696, a challenge was brought to the council’s decision to increase its street trading licence fees from £169 to £1,500-2,500 p.a. The relevant statute provided (Local Government (Miscellaneous Provisions) Act 1982, Schedule 4, paragraph 9) that a council “may charge such fees as they consider reasonable for the grant or renewal of a street trading licence or street trading consent”.

The council argued that its fiduciary duty to “maximise” its revenue empowered it to set fees at a level it considered to be a market rate. In rejecting this argument, the Divisional Court held that it was unlikely that Parliament intended general revenue purposes to be served by the implementation of a street trading licence provision, and in the absence of any express statutory authorisation, the fees had to relate to the budgeted costs of operating the scheme, rather than being set at whatever level the market would bear. Roch J. said at pp 709-710:

The fees charged … must be related to the street trading scheme operated by the district council and the costs of operating that scheme. The district council may charge such fees as they reasonably consider will cover the total cost of operating the street trading scheme or such lesser part of the cost of operating the street trading scheme as they consider reasonable. One consequence of the wording used is that, if the fees levied in the event exceed the cost of operating the scheme, the original position will remain valid provided that it can be said that the district council reasonably considered such fees would be required to meet the total cost of operating the scheme.

Ex p King was relied on in the parking case of Cran v Camden LBC [1995] RTR 346, where McCullough J. held that the requirement imposed on local authorities by s 55 of the Road Traffic Regulation Act 1984 to use a year end surplus from the parking account for other transport purposes did not, in the absence of any words which suggested Parliament had authorised a taxation raising provision, allow a local authority to set parking charges with regard to the manner in which s 55 would permit surpluses to be spent. Cran was followed in Djanogly v. Westminster City Council [2011] RTR 9 and in Attfield (above), the latter case expressly following Ex p King.

It was common ground in the Hemming litigation (R (Hemming) v Westminster City Council) that the council was not permitted to make a profit from the sex establishment licensing scheme. The no-profit rule was applied to the licensing scheme for houses in multiple occupation in R (Gaskin) v Richmond on Thames LBC (No.1) [2017] EWHC 3234 (Admin) at [32].

Obiter approval of the principle can also be found in the recent decision of Ouseley J. in R (LPHCA Ltd t/a Licensed Private Car Hire Association) v Transport for London [2018] EWHC 1274 (Admin) at [12]. That case involved the Private Hire Vehicles (London) Act 1998, which - on its face - contains no fetter on the power of TfL to prescribe fees to applicants and licence-holders (s 20). Ouseley J. held that in fact the Parliamentary intention in the 1998 Act was the same as that found in the provincial legislation (the Local Government (Miscellaneous Provisions) Act 1976) the fee setting discretion in London being “neither broader nor narrower”. So, to use the categories identified in Rehman, Ouseley J. saw no distinction between (a) an unfettered power, (b) a category 4 scheme, and indeed (c) a category 3 scheme (which was what the claimants in Rehman contended the 1976 Act was).

Self-funding regimes

If licensing regimes cannot make a profit, it is permissible for them to be run so they do not make a loss? In other words, so that they do not have to be subsidised by others (such as by council tax and ratepayers where the licensing authority is a local authority)?

Following the passage of the Local Government (Miscellaneous Provisions) Act 1982, schedule 3 of which contained adoptive provisions for local authorities to regulate sex shops, eleven applications for judicial review by sex shop operators came for hearing before Forbes J. The lead case was R v Birmingham City Council, ex p. Quietlynn Ltd (1985) 83 LGR 516, but the important one on the issue of fees was R v Westminster City Council, ex p Hutton. The statute provided that “An applicant for the grant, renewal or transfer of a licence under this Schedule shall pay a reasonable fee determined by the appropriate authority”. Hutton was one of a group of sex shop operators who challenged Westminster’s increase of the annual fee from £5,000 to £11,000. The council had adopted a policy that the ratepayers, insofar as was reasonable, should be relieved of the burden of subsidising the sex establishment licensing regime. Hutton did not contend that this policy was wrong, nor that the council had done anything other than embark on a serious attempt to isolate the costs attributable to the control of sex establishments.

Whilst ex p King forbade profit making schemes, it clearly sanctioned self-funding ones (“such fees as they reasonably consider will cover the total costs of operating the street trading scheme”). Judicial approval to the correctness of the concession in Hutton was given by the Court of Appeal in Hemming [2013] EWCA Civ 591 at [13].

As already mentioned, in R (Rehman) v. Wakefield Council, HHJ Saffman was unpersuaded [15-17] that Hutton and Hemming supported the conclusion that there was a general principle that licensing regimes were self-funding, and declined to make any determination as to whether this was the case for the scheme in question [18]. However, some authority can be found for the proposition that licensing schemes not only may be self-funding, but that they should be self-funding: in other words, that they should not be subsidised by the ratepayer.

In R v Tower Hamlets LBC, ex p. Tower Hamlets Combined Traders Association, unreported, 19 July 1993 (CO/629/93), Sedley J. (as he then was) considered the street trading fee regime found in s 32 of the London Local Authorities Act 1990. He held (at page 40) that “the purpose of the legislation … is to ensure that the cost of running street markets falls, but falls fairly, upon traders”. In reaching this view he said (at page 16) that:

The budgetary exercise required of a local authority under section 32 is a part of its larger duty to administer its funds so as to protect the interests of what is now the body of council tax payers. The broad object of section 32 is to enable the council to break even over time on its market trading account so that no special burden is transferred to the general fund. ... The council remains under an obligation to balance the market trading books.

This was notwithstanding s 32(1) providing that the council “may charge such fees … as they may determine and as may be sufficient to cover in whole or in part the reasonable administrative and other costs in connection with their functions under this Part of this Act, not otherwise recovered”.

Sedley J.’s formulation was adopted by Leveson J. (as he then was) in R (West End Street Traders) v Westminster CC [2004] EWHC 1167 at [35], a case which involved similar (but not absolutely identical) provisions in s 22 of the City of Westminster Act 1999. Leveson J. rejected a submission made on behalf of traders who were complaining of the level of fees that Westminster were not obliged to recoup their costs in their entirety. He was not persuaded by reliance on Roch J.’s observation in Ex p. King that the judgment of what was a reasonable fee “for the purpose of recouping in whole or in part the costs of operating the street trading scheme” was for the local authority, pointing out that this was a challenge to a fees set at a commercial rate rather than at cost. It is not entirely clear why that should have been a distinguishing feature.

An interesting and currently open question in the light of these two authorities is whether a local authority is permitted to subsidise the cost of a regime for the wider benefit of the community - for instance to encourage street markets, perhaps in a particular part of its area.

Year on year surpluses and deficits

One line of challenge taken by the claimant in Hutton was that the fee for the for the year in question (1984/85) was based on global costs of administering the sex establishment licensing scheme which included a sum representing a shortfall in fee income against administration costs for the previous year (1983/84).

Whilst Forbes J. accepted that to carry forward deficits from year to the next may result in anomalies when considering the effect of that process on applicants for grants or renewal of what were annual licences, with no certainty that money would be extracted from those who “morally” ought to pay, he found that this was of no import in the context of local authority finance, where statutory accounts were structured on the basis that shortfalls in one year must be carried into the next. Where the fees were based on an annual budget, the only sensible way to fix the level of charge was to take one year with another. He held that there was nothing in the requirement of reasonableness which drove him to conclude that the fee must in some way reflect, with any particular accuracy, the benefit which applicants may or may not derive. Given that the unchallenged policy decision was that no part of the costs should fall on ratepayers, that necessarily imported the concept that in calculating the cost, the authority would have to bear in mind any deficit from the last year’s operations.

In R (Cummings) v. Cardiff CC [2014] EWHC 2544 (Admin), which concerned the setting of fees in the taxi licensing regime, it was conceded by the local authority that it should have taken into account surpluses in previous years [7]. This is a concession that would seem to flow from the approach in Hutton and the no-profit rule in ex p King. Hickinbottom J. (as he then was) made a declaration that:

A local authority when determining hackney carriage and private hire licence fees under section 53 and 70 of the Local Government (Miscellaneous Provisions) Act 1976 must take into account any surplus or deficit generated from fees levied in previous years in respect of meeting the reasonable costs of administering the licence fees as provided by sections 53 and 70.

Some caution might need to be adopted in relation to this declaration: it did not flow from contested argument, and its wide wording (“A local authority”) is despite only one local authority being party to the proceedings. The safest course, it is suggested, is to treat “must take into account” as meaning “must consider” rather than “must refund or recoup”. It is too prescriptive to require that a deficit in Year 1 must be recouped in the fee setting exercise in Year 2: there could be all sorts of valid justifications why this should not be done.

R (Gaskin) v. Richmond upon Thames LBC (No.1) [2017] EWHC 3234 (Admin) concerned the local authority licensing scheme for houses in multiple occupation (“HMOs”) under Part 2 of the Housing Act 2004. Section 63 of the Act permits the local authority to require applications to be accompanied by a fee fixed by it, and expressly provides that in fixing the fee, the authority may take into account all costs incurred by it in carrying out their functions under the parts of the Act relating to HMO licensing and management orders (which may be made by local authorities where they consider that it is necessary to do so to protect, inter alia, the health, safety or welfare of persons occupying HMOs). Mr Gaskin raised various challenges to the fee of £1,799 demanded of him in 2014 on renewal of his five year licence including (a) that it was the same fee charged on a grant and (b) that the authority had reserves of between £63,000-75,000.

Giving the judgment of the Divisional Court, Bean L.J. rejected both these grounds of challenge. Evidence was called on behalf of Mr Gaskin from Mr Offord of the National Landlords Association to the effect that it was to be expected that renewal applications would cost substantially less than grants. The local authority disputed this, submitted that on a five year licence scheme there was little variance between the costs incurred in respect of newly granted licences as opposed to renewals, as the bulk of the costs relating to enforcement and inspection. Bean L.J. said [32] even if Mr Offord was right, s 63 “expressly permits the Council in fixing fees … to take into account all costs incurred in carrying out their functions under the relevant part of the 2004 Act”. It was not unlawful to charge the same for renewal as an application. As for the surplus, the local authority was entitled to retain funds in its licensing account to meet the budget and overheads of administering the scheme [33].

Cross-subsidisation

The taxi licensing regime is, as is well known, a “two tier” system, involving two types of distinct vehicles, hackney carriages and private hire regimes. In the hackney carriage tier drivers and vehicle proprietors are licensed; in the private hire tier, the licensed entities are drivers, vehicle proprietors and operators. There are therefore five categories of licence.

The fee setting powers within the Local Government (Miscellaneous Provisions) Act 1976 do not distinguish between these five categories. Rather there is a split between (a) drivers and (b) vehicle proprietors and private hire vehicle operators.

As to drivers, s.53(2) provides:

Notwithstanding the provisions of the Act of 1847, a district council may demand and recover for the grant to any person of a licence to drive a hackney carriage, or a private hire vehicle, as the case may be, such a fee as they consider reasonable with a view to recovering the costs of issue and administration and may remit the whole or part of the fee in respect of a private hire vehicle in any case in which they think it appropriate to do so.

As to vehicle proprietors and operators, s.70(1) provides:

Subject to the provisions of subsection (2) of this section, a district council may charge such fees for the grant of vehicle and operators’ licences as may be resolved by them from time to time and as may be sufficient in the aggregate to cover in whole or in part—

(a) the reasonable cost of the carrying out by or on behalf of the district council of inspections of hackney carriages and private hire vehicles for the purpose of determining whether any such licence should be granted or renewed;

(b) the reasonable cost of providing hackney carriage stands; and

(c) any reasonable administrative or other costs in connection with the foregoing and with the control and supervision of hackney carriages and private hire vehicles.

In Cummings, it was conceded by the council at [7] that there should be no “cross-subsidisation” between the various categories of licence. Hickinbottom J. made a further declaration, on the basis of this agreed position, that:

A local authority must keep separate accounts for and ensure when determining hackney carriage and private hire fees under section 53 and 70 of the Local Government (Miscellaneous Provisions) Act 1976 that any surplus accrued under each of the hackney carriage and private hire licensing regimes, and between each licence within those regimes, are only accounted for and taken into account within the regime under which they have accrued and a surplus from one licensing regime shall not be used to subsidise another.

This declaration has since been prayed in aid by licensing consultants seeking to recover fees by particular limbs of the taxi trade on the basis of the provision of unlawful cross-subsidies. As a declaration given on the basis of a concession, it of course carried only persuasive weight. It is perhaps difficult to reconcile the need for five separate accounts when the Act expressly looks at driver fees and vehicle and operator fees in aggregate, and there is plain benefit to the individual elements of the trade that other elements are regulated, as well as overlap between enforcement tasks.

However, judicial approval for the concession in Cummings can now be found in the May 2018 decision of R (LPHCA Ltd t/a Licensed Private Car Hire Association) v Transport for London [2018] EWHC 1274 (Admin). This concerned a challenge to increases in the fees charged by TfL for London PHV operator’s licences, one of the claimant’s grounds being that the increases constituted a cross-subsidy from London PHV operators to the hackney carriage regime and PHV drivers and vehicle proprietors.

It was common ground between LPHCA and TfL that cross-subsidisation was unlawful across the five strands of fees [11]. Ouseley J. regarded this as correct, “although the case law is quite thin” [11]. He referred to the concession in Cummings as “a considered concession by leading counsel, accepted by Hickinbottom J.” [13]. He went on:

[14] In my judgment, there is no power to use the fee charging provision in order to act as a market regulator. A cross-subsidy would be a form of market regulation, which the licensing system cannot be used to achieve, in the absence of an express power. There is no power to refuse a licence because an authority might wish to encourage black cabs over private hire or vice versa, or because there were so many drivers and vehicles that fewer made a living than was thought desirable. The fee structure cannot be used to the same end, as between black cabs and private hire.

[15] Nor can the licensing system be used to raise revenue from one strand of private hire licences to favour another strand of private hire licences, say, to favour drivers over operators: it would be unlawful to structure licence fees on the basis that all the costs of enforcement should be borne by operators and not by drivers, for whatever reason, or to appeal to some imagined public sentiment about who should pay. And by the same logic, the simple words of the Act mean that the contribution of the operators of varying sizes must equally avoid cross-subsidy from the larger ones to the smaller ones or vice versa. The fee contribution to the overall costs attributable to private hire licensing, including compliance checks and enforcement, must on that same basis be apportioned to operators, drivers and vehicles in some manner, where perfection is not attainable, which reflects their respective contributions to the costs.

[16] This is all inherent in the statutory language enabling fees to be charged for the application for and grant of a licence, and the basis upon which such applications may be refused. It is a licensing function, not a competition or market regulation power, or one which permits one form of operator or driver or vehicle to be favoured over another, or to favour drivers at the expense of operators on the grounds, stated or implied, that one but not the other may be a corporate body. Still less is it a revenue raising power.

On the evidence, Ouseley J. was not persuaded that the increases in operator fees had subsidised the drivers and proprietors of PHVs and black cabs. Licensing, compliance and enforcement tasks between the streams overlapped to a very large extent [10] and he was not persuaded that explicit apportionments TfL had made in apportioning costs between operators and the rest of the trade [64] constituted a cross-subsidy [67-69]. The application was dismissed largely because of a lack of evidence pointing to the contrary: the LPHCA had been “making bricks without straw” [74]. He wryly (and accurately) observed [70]:

It is unlikely that any methodology, data, or judgment on such an apportionment would meet either approval amongst all licence streams or be beyond criticism, let alone one which could produce a perfect fit between fees and costs.

In Rehman, heard in December 2018, Cummings was described by HHJ Saffman (at [31]) as “authority for the proposition that there can be no cross-subsidy between different work streams”. It is clear from the judgment that this was not an issue between the parties (see [32-33]). It does not appear that LPHCA was cited to the court in Rehman.

So far as I am aware, there has been no reported case where issues of cross-subsidisation was the subject of adversarial argument between the parties. The closest is perhaps the parking cases of Cran, Djanogly and Attfield, although these involve a prescriptive regime which explicitly permits cross-subsidisation in the case of surpluses that happen to arise. Given the increasing trend of Cummings­-based fee challenges, it is not impossible that the point might actually be litigated yet.

Costs of enforcement and the Provision of Service Regulations 2009

Under domestic law, it was uncontroversial that regulators were permitted to reflect the costs of enforcing the licensing system in the fees which it charged, including enforcement against unlicensed actors. As Roch J. said in King at p. 710:

[Local authorities] may take into account the costs which they will incur in operating the street trading scheme, including the prosecution of those who trade in the streets without licences.

In Hutton, Forbes J. noted at p. 517 that it was not in dispute that there could be self-financing provision of

… administrative machinery not only for processing licensing applications but also for inspecting premises after the grant of licences and for what might be called vigilant policing of establishments within the city in order to detect and prosecute those who operated sex establishments without licences.

Westminster’s practice, as recorded in Hutton, was to charge applicants for sex shop licences a fee made up of two parts, one related to the administration of the application and non-returnable, and the other (considerably larger) for the management of the licensing regime and refundable if the application was refused.

In Hemming, it was contended that the charging of the second limb of the fee had become unlawful as a result of the making, under s 2 of the European Communities Act 1972, of the Provision of Services Regulations 2009 to give effect to Parliament and Council Directive 2006/123/EC of 12 December 2006 on services in the internal market (OJ 2006 L376, p 36).

Regulation 18 of the 2009 Regulations provides:

(2) Authorisation procedures and formalities provided for by a competent authority under an authorisation scheme must not –

(a) be dissuasive, or

(b) unduly complicate or delay the provision of the service.

(3) Authorisation procedures and formalities provided for by a competent authority under an authorisation scheme must be easily accessible.

(4) Any charges provided for by a competent authority which applicants may incur under an authorisation scheme must be reasonable and proportionate to the cost of the procedures and formalities under the scheme and must not exceed the cost of those procedures and formalities.

Under Regulation 4:

‘authorisation scheme’ means any arrangement which in effect requires the provider or recipient of a service to obtain the authorisation of, or to notify, a competent authority in order to have access to, or to exercise, a service activity …

Both the High Court (Keith J. [2012] EWHC 1260 (Admin)) and the Court of Appeal ([2013] EWCA Civ 591)ruled that, by virtue of Regulation 18(4), Westminster was now no longer entitled to reflect the costs of enforcing the licensing regime against unlicensed operators in the fee.

Westminster took a fresh line of argument in the Supreme Court (where HM Treasury and a considerable number of regulatory and professional bodies intervene), contending that Regulation 18 was only concerned with charges made in respect of authorisation procedures and their cost, and placed no prohibition on a licensing authority from charging a fee for the possession or retention of a licence, which fee had to be proportionate (by reason of overarching provisions in the Directive) but which could be set at a level enabling the authority to recover from licensed operators the full cost of running and enforcing the licensing scheme, including the costs of enforcement and proceedings against those operating sex establishments without licences, an argument that the Supreme Court accepted (R (Hemming) v. Westminster City Council (No.1) [2015] UKSC 25 at [17]).

In Hemming (No.1) the Supreme Court drew a distinction between schemes of Type A and Schemes of Type B. Schemes of Type A involve charging a fee to cover the cost of processing the application at the time of application for the grant/renewal of a licence, and then subsequently charging a further fee for the running and enforcement of the regime if the application is successful. Schemes of Type B involve charging both the application fee and the fee for the running and enforcement of the scheme at the time of application, with the latter fee being refundable in the event that a licence is refused. The Supreme Court referred to the Court of Justice of the European Union the narrow question of whether charges resulting from a scheme of Type B were lawful.

In C-316/15 Hemming, decided in 2016 [2018] AC 650 the CJEU held that it was not lawful to charge a fee for the running and enforcement of the licensing regime at the time of submitting the application, even if that fee was refundable.

In R (Hemming) v. Westminster City Council (No.2) [2017] UKSC 25 the Supreme Court held at [9-12] that the Type B scheme operated by Westminster was only defective in so far as it required payment up front at the time of the application of sums to cover the costs of running and enforcing the scheme. That was a limited invalidity and did not require the whole scheme to be invalidated, and the money which Westminster had refunded to the claimants following the Court of Appeal’s ruling should be repaid to it.

R (Gaskin) v Richmond on Thames LBC (No.2) [2018] EWHC 1996 (Admin) was the second part of Mr Gaskin’s challenges to the fee of £1,799 demanded of him in 2014 when he applied to renew his HMO licence. This second part was confined to Mr Gaskin’s contention that the HMO licensing regime fell within the ambit of the Provision of Services Regulations 2009 and that therefore the local authority’s fee for renewal, calculated as it was on the basis of including a significant contribution to the costs of management and enforcement of the regime on a non-refundable basis, was unlawful. Giving the judgment of the Divisional Court, Hickinbottom L.J. concluded that the regime did fall within the Regulations (the issue being whether or not HMO landlords were providing a service) and that, on the basis of an eventual concession by the local authority, the fee demanded was therefore unlawful.

Richmond had restructured its fees since the 2014 demand made to Mr Gaskin - its current application form provides for what is a Hemming Type A scheme:

…. applicants for an HMO licence will need to pay the first part payment with the application (based on the number of rooms being let – see table below). This is the “fee on application”. An additional “fee on grant of licence” is payable just before the licence is granted.

This raises an interesting question on the construction of s 63(3) of the Housing Act 2004, which - in setting out the sum total of local authority’s fee raising power in relation to HMOs - provides in relation to applications for a licence:

The authority may, in particular, require the application to be accompanied by a fee fixed by the authority.

Is the requirement for payment of a further fee if the application is successful within s 63(3)? Does the authority have power to require the payment of a further fee following the application?

Identical or similar provisions are found in other licensing and regulatory regimes, including the selective licensing of residential accommodation in the 2004 Act, s 87, caravan site licensing under the Caravan Sites and Control of Development Act 1960, s 3(2A), the regulation of solicitors by the Law Society under the Administration of Justice Act 1961, s 9 and in the Scrap Metal Dealers Act 2013, Schedule 1, paragraph 6(1) (“An application must be accompanied by a fee set by the authority”).

In relation to scrap metal dealer licensing, Schedule 1, paragraph 6(2) goes on to provide that “in setting a fee under this paragraph, the authority must have regard to any guidance issued from time to time by the Secretary of State with the approval of the Treasury.” The most recent guidance is dated 12 August 2013, so after the Court of Appeal’s decision in Hemming, but before its reversal by the Supreme Court. The guidance, which is shown as current on gov.uk website, asserts:

The licence fee cannot be used to support enforcement activity against unlicensed scrap metal dealers. Any activity taken against unlicensed operators must be funded through existing funds.

I am aware that numerous local authorities do not charge enforcement fees for scrap metal dealers’ licences, perhaps on the basis of this out-of-date guidance. It is noteworthy that Richmond takes the same attitude to scrap metal dealers licence fees as it does to HMO licensing: a Part A scheme is run.

Given the potential difficulties identified by the intervenors in Hemming (No.1) it seems a safe bet that any court would strive to give a purposive interpretation of “accompanied by”. One approach may be to have an application form which has to be “accompanied by” (1) money now in relation to the application charge (2) a promise to pay money more conditional upon the grant of the application (or agreement that no licence will be furnished save on the production of more money).

The search for the answer to life, the universe and everything

To a weary licensing practitioner, the Local Government (Miscellaneous Provisions) Act 1976 sometimes feels as if it was drafted by Lewis Carroll. Just for a laugh, the great humourist incorporated two different fee charging provisions, one for drivers (s 53(2)) and the other for vehicle proprietors and private hire operators (s 70(1)). These are set out above, and form part of the battleground on which Rehman v Wakefield is currently being fought.

It has been suggested by some, including Button on Taxis (4th edition, paragraph 4.11) that the local authority power to set driver’s licence fees to “such a fee as they consider reasonable with a view to recovering the costs of issue and administration” excludes from the fees that can be charged to drivers the costs of enforcement, since enforcement is not “administration”.

A contrary view would be that “administration” here refers to administration of the entire licensing scheme, including enforcement, which was certainly the sense in which that word was used in the report of Hutton. It makes no sense that provincial drivers should somehow be exempt from enforcement costs in a scheme where (as was accepted in LPHCA) there is significant overlap between the different limbs of the trade.

Some sit on the fence, the General Editors of Paterson’s Licensing Acts 2019 pointing out in paragraph 2.54 that “… until the matter is resolved by the High Court it remains uncertain whether the recovery of enforcement costs as part of a driver’s licence fee is or is not lawful” - a comment that HHJ Saffman in Rehman dryly found at [28] to be “not particularly helpful from where I am sitting”.

In Rehman it appears that the local authority took the same approach as that suggested in Button, namely that enforcement costs could not be recovered against drivers under s 53(2), and instead sought to recover those enforcement costs against vehicle proprietors and PHV operators: see [19]. HHJ Saffman rejected that approach [22]. Whether the Court of Appeal will consider what must be an obiter but nonetheless key question of whether s 53(2) fees cover enforcement costs (Wakefield not seeking to recoup any fees on this basis) remains to be seen.

Those who seek to make sense of the fee universe will no doubt be watching the case with as keen an interest as Loonquawl and Phouchg awaited the Ultimate Answer from Deep Thought. Will it be 42?