The case involved a group of sex-shop owners who claimed that Westminster City Council had been charging too much for their sex establishment annual licence fee.
They claimed that only 10% of the annual fee was justified and that the remainder, spent by Westminster City Council on prosecuting unlicensed operators, should not be charged back to the licensees. The case has been running for three years, and on the 24 May 2013 the Court of Appeal handed down its decision, finding in favour of the sex-shop owners and agreeing that the annual fees charged by Westminster City Council for the sex establishment licences were not justified.
Westminster City Council has been charging sex shops in the West End of London £29,102 for their annual licences since 2005. New European laws came into force in the United Kingdom in 2009, which prevent licensing authorities from charging fees beyond the actual cost of the authorisation process.
The EU directive states that “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 costs of those procedures and formalities”.
Westminster City Council has been calculating the sex shop annual licence fee to include the cost to the local authority of managing the licensing regime, enforcement operations and prosecuting unlicensed operators, as well as the cost of investigating and processing individual licence applications and, once licences were in force, monitoring compliance of the licence holders.
Indeed, it was the intention of Parliament when it enacted the provisions for sex establishments that local authorities could recoup the cost of licensing, enforcement and activities related to unlicensed operators.
However, the EU directive prevents the local authority from including the costs of enforcing the licensing system against unlicensed operators. The Court of Appeal agreed that these were not “authorisations, procedures and formalities”, and could no longer be reflected in the annual fee.
Good guys
The good news for alcohol licensed premises is that the EU directive applies to a wide range of authorisations, procedures and formalities, including those under the Licensing Act 2003.
The judgement will limit activities included in annual fees that local authorities will be able to charge under the Licensing Act. Local authorities will have to remove costs included in the annual fees that relate to enforcement action and prosecution against unlicensed operators. The reductions are not likely to be huge (they were about 90% in the Westminster City Council sex entertainment case, but this was unusual) and they are likely to vary depending on your local authority.
However, before we get too excited we are likely only to see a relative reduction, and only if the Government enacts the relevant provisions of the Police Reform and Social Responsibility Act 2011.
Currently, annual alcohol licence fees are set centrally by Government. The Police Reform and Social Responsibility Act 2011 introduced powers to allow local authorities to set annual premises licence fees within limits to be prescribed by the secretary of state. The powers will allow local authorities to include administrative costs, and make specific reference to costs incurred in connection with the monitoring and enforcement of the Licensing Act, prosecuting offences under the Act and powers on the closure of problem premises.
In effect, therefore, the Government intends to widen and increase the costs recoverable by local authorities from the fixed amounts that have been applied since 2005.
The recent Court of Appeal decision could now prevent the enforcement aspect of these proposed costs — so far as they relate to unlicensed operators — from being included in the annual fees charged to licensed operators, ensuring that the good guys won’t have to pay for the bad.
Whether these costs, if the provisions come into force, will now be picked up by the Crown Prosecution Service or local government generally is not a problem, thankfully, that licensed operators will have to worry about.
The Home Office has not yet introduced the regulations necessary to legislate for the setting of fees by local authorities. One thing that is for certain is that the Court of Appeal decision will impact on whether or how the provisions allowing local authorities to set fees are implemented by the Government.
We may still see an increase in annual fees, but it’s not going to be quite as large as was originally intended.