Consultation on water and sewerage charges exemption scheme

Our response

SCVO welcomes the opportunity to respond to this consultation.

Question 1

Do you agree that the purpose of the new scheme is correct? SCVO has spoken to and assisted many organisations over the years with problems stemming from the water rates exemption scheme. The way the scheme has developed has caused a great deal of confusion and uncertainty for many organisations, so we have high expectations that the new exemption scheme will eradicate those problems and be as simple, clear and fair as possible. We support the general purpose of the scheme. It provides much needed relief from water charges for organisations who would otherwise struggle to pay. The benefit provided by these organisations to the public easily justifies their exemption. Beyond the exemption scheme there are a number of issues with water charging that have arisen in discussions with our members which are affecting third sector organisations.

Backdating of bills

Backdating of bills has become a serious problem for a number of organisations recently. While we appreciate the Scottish Government listening to and acting on our concerns, there are still problems with large backdated bills which are affecting charities as a result of Business Streams work on ‘discovering’ properties. Cancelling the bills of charities who meet the exemption criteria is a positive step forward but for those who don’t it is still unclear how their accounts will be resolved. A moratorium on all backdated charity accounts until the new scheme is in place would be relatively inexpensive to administer but would recognise the problems inherent with the current scheme.

Rateable value

A number of members have concerns that using rateable value as a significant factor in the calculation of water bills is leading to high and disproportionate bills which bear little relation to water use. Organisations with minimal water use and facilities are facing high bills which have increased over the years because of this factor in water charging. This seems to bear little relation to the total cost of maintaining infrastructure which is unlikely to have increased in the same way water bills have.

Question 2

Do you agree that the principles form a sound basis upon which to design a new scheme? We welcome the proposal to remove the historical exemption which will widen the scheme beyond those qualifying in 1999. This criterion was flawed and unfair, and caused many organisations who should have received exemption to miss out. The lack of clarity around who was eligible caused confusion amongst organisations, with many assuming they had exemption and not planning accordingly. We support the principle that the scheme should be simple for applicants and administrators. Small organisations are often run on volunteer time so any bureaucracy involved should be kept to a minimum. However, a balance has to be struck with fairness and getting the most benefit possible from the scheme. It is also important that the new rules are sufficiently promoted to the sector. SCVO has spoken to many organisations that are suffering the effects of assuming that all charities were eligible for the current scheme and now facing large back-dated bills. The argument in Principle 4 that ‘Larger organisations should be able to meet costs’ is problematic as it doesn’t recognise the reality of third sector income. Many third sector organisations receive restricted funding which can only be spent on particular projects and is tightly monitored and controlled in its application. An organisation with a high income could easily have tighter budgets than that of an organisation with considerably less income. Data from our survey[i] of the sector shows that charities now have less cash reserves in the bank to fall back on as income sources dry up. However, we recognise that there has to be some measure of the size of an organisation and income seems to offer the most practical solution, while at least bearing some relation to ability to pay. To temper the imbalances of using income as a measure, the scheme should exempt capital grants for building repairs, expansions etc. This could be relatively simple to administer but would ensure that organisations receiving a one-off capital grant would not lose their exemption.

Retail outlets & cafes

We would not agree with the proposal to exclude retail outlets from the scheme, provided they meet the other criteria. Restricting the scheme on the basis of what organisations do rather than what their purpose is would be an unfair distinction. Charity shops provide public benefit so they should be included in the proposals. Recent research[ii] has demonstrated the impact charity shops can have beyond their fundraising activities. Similar arguments apply to community cafes which often open to fulfil an unmet need and offer a wide range of benefits to their community. Question 3 Do you agree that the new scheme should be an exemption rather than a discount scheme? There are certainly a number of reasons in favour of introducing an exemption scheme. However, introducing a strict cut-off threshold is a concern for the sector, as it would mean dramatic differences in payment for organisations whose income varies around the threshold level. A graded scheme with two or three levels would allow more organisations to gain at least some relief from water charges. A system could offer 100% exemption for the smallest organisations, 50% for those with higher incomes and 25% for those under the highest threshold. The argument outlined in the consultation that bills could vary from year to year in a reduction scheme could just as easily be applied to an exemption scheme – the difference being with a reduction scheme the implications for the organisations budgets would be less. This would mean that a growing organisation would not suddenly be faced with a full charge for water consumption.

Question 4

Are there other ways in which third sector organisations which are not charities can demonstrate eligibility? We support the use of OSCR data for determining the eligibility of organisations. Ideally this would be electronic to avoid administrative costs and speed up the process. However, to exempt capital grants as outlined above there would need to be an additional process whereby organisations can claim for this dispensation. As charity accounts are not submitted until the following year, consideration should also be given as to how notice is provided in a timely fashion to organisations whose eligibility changes. To allow for fluctuations and minor changes, averaging out the income over three years would generally be a better option for the sector. However, if capital grants are not excluded, this system could cause organisations receiving a large one-off grant to lose exemption for three years rather than just one.

Question 5

Given the additional costs of administration associated with organisations which are not charities, should the scheme be restricted to charities only? The proposal to include all third sector organisations in the scheme for the first time is one to which SCVO has have given a great deal of consideration. It is vital that the scheme should not exclude genuine third sector organisations but it must also prevent abuse by non-third sector organisations through definitions being too broad. Additionally the costs of administering the scheme must also be considered as they will be subtracted from the total pool available for relief. One option for achieving this balance would be to restrict the scheme to charities and other regulated bodies. This would allow bodies such as Community Amateur Sports Clubs (CASCs), housing associations and credit unions to obtain the exemption while also ensuring a level of validation is in place. However, we are aware from discussions with the Scottish Sports Association that this would exclude a lot of their members who are not CASCs or charities, and could not easily become regulated by these bodies without significant bureaucracy and cost. The main concern we would have with simply opening it up to all third sector organisations is defining what a third sector organisation is. This has not been done in legislation before and the four criteria used in the consultation document highlight the difficulty in doing this:

1. Is set up to have a positive community purpose;
2. Is volunteer-led;
3. Is not principally set up to distribute profit to shareholders; and
4. Is not run by or affiliated to a political party or government body

The first of these bullet points illustrates the problem in that a positive community purpose is vague and could include a variety of organisations that might not be considered as part of the third sector. The third point we would strongly disagree with as it would allow organisations to distribute profits for private gain – a key distinction for the third sector. The second and fourth points are valid principles for the sector and should remain in place. As an example, the charity test employed by OSCR looks at whether an organisation has charitable purposes (which are clearly defined in legislation) and delivers public benefit. It also assesses whether any private benefit may result from the activities and whether there is any dis-benefit to the public from activities. They also asses how restrictive an organisation is in its activities and ensure they have a degree of separation from government. This level of assessment and consideration gives a guarantee that an organisation is delivering public benefit and has charitable purposes. If the exemption scheme were limited to charities and other regulated bodies, it would ensure that organisations have been verified by a process and are regulated in their activities. If it is not restricted to charities and other regulated bodies, we would be concerned that it could be open to abuse by organisations that wish to exploit the exemption scheme. However, we appreciate there could be difficulties for many organisations in joining a regulatory body and we would not want a significant portion of the sector to be negatively affected by the introduction of the new scheme. There is an important precedent being set here that could affect the finances of a number of organisations for many years. Consequently it is our view that the practicalities of this issue require further discussion between the Scottish Government, the Scottish Sports Association and other intermediary bodies to determine how we can ensure the fairest possible outcome for the whole of the third sector. SCVO would be happy to participate in or assist with the facilitation of those discussions.

Question 6

Do you agree that, for charities, income information should be sought from Office of the Scottish Charity Regulator? Yes – seeking income from OSCR should be the primary method for assessment of charities income. However, where capital grants are concerned it may be necessary for additional information to be sought directly from organisations.

Question 7

Do you agree that membership should be renewed annually? We would suggest that organisations should receive an annual statement with details of the eligibility criteria, even if it is zero rated. This would ensure that as personnel change, organisations are kept aware of the scheme and can plan for any changes which may occur accordingly.

Question 8

Do you agree that the start date for the new scheme should be 1 April 2015? Yes.

Question 9

Do you agree that transitional measures are required to assist those organisations which lose their current exemption? Yes. Finances are tight for organisations and as much time as possible is available for them to adjust to any additional demands on their budget.

Question 10

Do you agree that a two year notice period for those organisations losing exemption is reasonable? We welcome the transitional measures which would give organisations losing exemption an additional year to find the additional money required for water charges. To assist their planning the amount that will be levied should also be made available at the earliest opportunity.

Question 11

Do you agree that the new scheme should be reviewed after 2 years to ensure it is operating as envisaged? Given the assumptions that have been made for the number of qualifying organisations it is essential that the scheme is reviewed in two years. The commitment to maintain the level of finance for the scheme must be carried forward to that review. If the funding is found to be sufficient to allow an increase in the threshold(s) then legislation must allow that to happen. Further consultation with the sector should be part of that review.

Conclusion

We welcome the reform of the water rates exemption scheme and in particular the removal of the historical exemption. Water bills crop up regularly in problems reported by the sector so the new scheme must help address those concerns. It is vital that the new scheme continues to deliver relief to organisations that are delivering significant public benefit. Further consideration is required to ensure the scheme is sufficiently open to accommodate the diversity of third sector bodies while ensuring an acceptable level of validation is in place