Animal By-Products, Pet Passport and Animal Health (Fees) (England) (Amendment) Regulations 2023
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Lord Benyon
That the Grand Committee do consider the Animal By-Products, Pet Passport and Animal Health (Fees) (England) (Amendment) Regulations 2023.
The Minister of State, Department for Environment, Food and Rural Affairs (Lord Benyon) (Con)
My Lords, these regulations were laid before the House on 18 April. This instrument seeks to make amendments to the Animal Health (Miscellaneous Fees) (England) Regulations 2018 and the Animal By-Products and Pet Passport Fees (England) Regulations 2018 to ensure that there is no under-recovery or over-recovery of costs. These amendments do not contain any changes to policy or processes, only to the fees that the Animal and Plant Health Agency can collect on behalf of the Secretary of State in relation to statutory animal health services carried out by the agency.
The fees are designed to fund APHA’s front-line statutory animal health services for safeguarding animal health and supporting our domestic and international trade. These are: inspection of consignments and licensing of facilities involved in the trade of livestock semen, eggs and embryos; inspection and licensing of facilities involved in the handling, storage or incineration of animal by-products not destined for human consumption; inspection of live animals arriving from third countries at our border control posts; surveillance of commercial poultry flocks for salmonella; licensing and proficiency testing of private laboratories carrying out salmonella tests under our national salmonella control programme; and registration and approval of premises intending to export breeding poultry, day-old chicks and hatching eggs from Great Britain.
The proposed amendments also include the removal of the fees regime for pet passports, as APHA is no longer involved in the issuance of passports for the movement of pets to and from the UK and other countries. Following public consultation, new fees for these services were last introduced in 2018, with a commitment to businesses that fees would be reviewed biennially to ensure the charges and exemptions were appropriate.
Due to the agency’s focus of effort and resources on EU exit work, Covid and avian influenza, these reviews were put on hold and the fees for these schemes have consequently not been refreshed. As a result, businesses are being charged in a way which does not reflect full cost recovery for APHA. The schemes are failing to achieve recovery of their full costs, with a deficit of between £0.4 million and £0.5 million per year. This shortfall is currently being funded by the public purse.
Following the cost recovery principles of the Managing Public Money guidelines, APHA and Defra finance teams have developed a new fee schedule to deliver full cost recovery. No additional margins or profits have been included, and my counterparts in His Majesty’s Treasury have approved the approach taken.
The average increase to overall scheme fee income to achieve full cost recovery would be 51%. Given the substantive cost increases for some elements within the fee schedules, in designing this instrument we have balanced a proportional approach for businesses with the need to cover costs. We are proposing to follow the approach agreed in the 2018 consultation and apply a phased increase in fees over two years, with 50% of the fee uplift delivered in July 2023 and full cost recovery for the services delivered from July 2024. Border control post services are the exception to this phasing option. Here, we are proposing to increase fees and achieve full cost recovery from July this year. This will help us avoid any operational conflicts with changes that may follow the review of the new borders and boundaries fees process.
Delaying this uplift further would only increase the gulf between cost and recovery, and the impact of the changes would be even greater because of the impact of compounding factors such as inflation. APHA has continued to engage with business users and business associations on service performance and service fee schedules following the 2018 consultation, and these businesses are aware of the proposed new fee schedules and have engaged solely on service performance, rather than the fee increases themselves.
This statutory instrument applies to England only. The Scottish and Welsh Governments are following a similar approach, as APHA provides the same services to both Administrations. The Scottish and Welsh Governments have laid their own corresponding legislation. I commend the draft regulations to the House.
Baroness McIntosh of Pickering (Con)
My Lords, I am grateful to my noble friend for presenting the regulations before us. First, can he explain when the last consultation was? He said that there had been a consultation in 2018. Paragraph 10.1 on page 4 of the Explanatory Memorandum refers to a consultation but seems to indicate that the last one was held in 2018, which is five years ago.
Secondly, these are huge increases. They are not 5% or 10%; we are looking at a 41% increase for the cost of animal by-products regulations, a 53% increase in the current fees of the animal health regulations, 65% for the animal health regulations relating to artificial breeding controls, and a more modest 21% increase for animal health regulations relating to the poultry health scheme. In the context of the general situation and the increases we have seen in public sector salaries, everyone balked at a 14% increase and 5% or 10% increases. I quite accept that, as my noble friend said, there has not been an increase since 2018, but these are huge increases. Can he put my mind at rest and say that there has been a more recent consultation with the industry, which is feeling fairly beleaguered?
Earlier, the noble Baroness, Lady Anderson of Stoke-on-Trent, referred to the cost of living crisis. What is becoming clear is that, while supermarket prices are going up, those increased costs are not being passed on to, for example, producers of meat and poultry. I am concerned. I realise that they are spread over two years but these are really big increases. If there has been a more recent consultation, I would be interested to know what the feedback from the industry has been in this regard.
Lord Benyon (Con)
I thank noble Lords who have contributed to this debate. As I described earlier, this instrument will maintain alignment of animal health inspection fees with the UK Government’s policy to recover the full costs of official checks essential to managing the risks arising from commercial activity.
My noble friend Lady McIntosh and a number of other noble Lords asked about consultation. A full public consultation was held between October and December 2015 to support the introduction of these fees, which came into force in 2018. As part of that process, a road map of two-yearly reviews of the fees was discussed with stakeholders. We have now established a process for charging fees based on this consultation, which follows option 2—to introduce fees with phased fee increases to achieve full cost recovery. This option had the widest support.
On advice from the better regulation team, and as we are still proposing the same methodology and approach as before, neither an impact assessment nor a consultation is required. We are uplifting existing fees only; there is no introduction of new fees. APHA has engaged with key stakeholders—for example, in the liaison group meetings with stakeholders and associations—and shared a detailed package of proposed changes. In August 2022 and again in March this year, letters and emails were sent to targeted stakeholders and articles were published on GOV.UK. An article published on GOV.UK in June last year informed stakeholders that:
“Any scheme uplift will be phased in over 2 years except BCP. As FCR wouldn’t be achieved until October 2023 the fees will not be reviewed for another uplift until 2 years after that. Therefore, with the exception of BCP, APHA wouldn’t be considering an uplift again until 2025 depending on the outcome of the review.”
The fees have not been uplifted for five years, so the gap between costs and income has been a burden on the taxpayer. The longer the fees are left unchanged, the more the gap will increase. APHA is spreading the increases over two years, except for BCPs. This is to give customers time to uplift their charges and make their own customers aware of the impending increase. APHA is required to fully recover costs for these services.
APHA can have statutory services only when the service is provided only by APHA and there is no alternative supplier for the customer. If there is an alternative supplier, the service should be charged as a commercial service. It is government policy that businesses benefiting from a service should pay the full cost of delivering the service rather than looking to the taxpayer to subsidise it.
I was asked why we are charging for some activities and not others. We can charge only for services that have primary legislation and allow fees to be collected. Several statutory services undertaken by APHA have a commercial benefit to their users. Decisions on which primary legislation powers to use and which services to start to charge for are based on several criteria, including the cost-effectiveness of fee recovery, availability of data and the impact on the end-user.
The fees are calculated on a whole range of different categories, including the proportion of payroll costs, non-project costs, notional charges and depreciation. Payroll costs include salary, overtime, national insurance contributions, pensions, bonuses and allowances. Non-project costs include the costs required to support the staff in performing the chargeable work: staff support, consultancy, operating consumables, training, information and communications technology, outsourced vet expenditure—a point raised by the noble Baroness, Lady Bakewell, which I will come to—and other overheads. The charge-out rates used for calculating the fees are service delivery only. Therefore, the specific costs relating to the science division work are excluded from the costs apportioned across the staff’s production hours. Our approach is in line with the duty to manage public money by demonstrating a clear timeline to the introduction of full fees. That is an accepted method across government.
The noble Baroness, Lady Bakewell, asked about vets. There is a shortage of vets in APHA. Attempts to solve this matter fill my mind, and I am working with the royal colleges and the new veterinary schools, as well as with the Home Office to make sure that the English language requirements for vets from overseas are being fulfilled. We are doing this through the “one health” agenda, making sure that we are not denying people in other countries the veterinary coverage they need but working with them to try to make it a fair system.
The noble Baroness asked about camelids. The requirement to collect fees for bovine and porcine semen approval is a statutory requirement set out in domestic legislation for those species. The APHA fees and charges team is looking at extending those fees in the workstream 2 new fees phase. The animals being reviewed as part of that workstream include deer, goats and sheep. The animals being reviewed are farmed livestock bred for furs or skins, for entering the food chain or for working the land. Horses and camelids will not be reviewed as part of workstream 2. I hope that answers the key point that the noble Baroness raised.
The noble Baroness, Lady Anderson, asked about the level of engagement. I hope I covered that in my comments on the ongoing work that APHA and Defra are doing with the key groups, making sure that it is not just them and that they are discussing it with their customers, because this undoubtedly will have an impact on them.
As I have outlined, the regulations ensure that UK government policy for full cost recovery for our animal health services is maintained and that the costs of providing these services are met solely by businesses using them. With that, I hope I have covered all the points raised and I commend the draft regulations to the Grand Committee.