Guidance

How the Environment Agency calculates its charges

Published 1 April 2025

Applies to England

Introduction

This document outlines the different types of costs we include when we calculate proposals for new or revised charges. We also provide additional detail about the departments that receive income from our charges and the services they provide in delivering our regulatory role.

We have the power to make our own charges (most are under section 41 and 42 of the Environment Act 1995). When using these powers, we are required to:

• develop a detailed charge proposal setting out all costs included in the charge
• consult publicly
• seek approval from the Secretary of State for Environment, Food and Rural Affairs and HM Treasury before publishing the final charging scheme

As a public body, we develop our charge proposals in line with HM Treasury’s guidance for managing public money. We can only charge for specified chargeable activities that are necessary for us to provide a regulatory service for our customers. Examples of chargeable regulatory activities include:

• total employment costs of those providing the service, including training
• research and development
• advertising
• compliance and monitoring costs

We do not include costs for non-chargeable activities. These include:

• externalities imposed on society (such as costs from pollution and crime)
• costs of policy work (other than policy on the executive delivery of the service)
• enforcement costs
• replacement costs of items notionally insured
• start-up costs (those which are capitalised in the accounts) and one-off capital items

We obtain funding for non-chargeable activities from other income such as government grant in aid. This is money provided by government out of general taxation.

We use one of 2 different models to calculate the full cost of our chargeable activities. These calculate either a fixed or a time and materials charge:

• a fixed charge is appropriate for regulatory activities that can be grouped according to the level of effort needed when we assure compliance – this typically includes registration fees, application costs for permits and annual subsistence costs
• a time and materials charge is appropriate for some specific regulatory services – these tend to include activities where we expect to see greater variation in the level of regulatory effort required

The structure and outputs of our charge models are scrutinised by HM Treasury and Department of Environment, Food and Rural Affairs (Defra) before we publicly consult on a proposed charge. Customers have an opportunity to comment on our proposals during consultation. We take their feedback into account before asking the Secretary of State for Environment, Food and Rural Affairs to give us their permission to implement our final charge proposal.

Developing a charge

When developing our charges we include:

• direct costs (people costs, non-people costs, operations management and support, fixed costs)
• corporate costs (IT, estates, finance, shared services, communications, human resources, procurement and commercial)
• capital finance costs
• bad debt

This simplified table shows a high level breakdown of the costs that typically make up our charge proposals.

Table 1: Typical costs that make up our charges

Type of cost	Percentage of total cost
Direct costs	66%
Corporate costs	32%
Capital financing costs	1%
Bad debt provision	1%

Direct costs included in a charge

Direct functions deliver specific activities required for one or more identifiable charge schemes. They can be based locally or nationally, and their costs are directly related to the source of income. Our direct costs are made up of:

• direct people costs (accounts for most of the direct costs)
• direct non-people costs
• direct operations management and support
• fixed costs

Most of these costs are direct people costs.

Direct people costs

Direct costs are primarily the staff costs of people who are engaged in carrying out regulatory activities. Most of the staff costs are:

• salaries
• employers’ national insurance
• employers’ pension contributions
• some ancillary costs such as travel and subsistence

We model our charges based on our knowledge of the time our different teams spend on chargeable tasks and activities.

For time and materials, there are some differences to direct people costs, such as:

• cost of travel such as fuel, car hire or train tickets, is built into the rate itself, and
• the actual time spent travelling is included as part of the chargeable activities and is charged at the hourly rate

Direct non-people costs

We also include direct non-people costs that are involved in providing the service as given in managing public money. These are the expenses we incur that are not related to the payment of salaries or wages to employees but are necessary for our employees on the frontline to complete their regulatory role.

We include relevant proportions of the following costs in our charging schemes:

• administration costs
• local building costs such as maintenance and repairs
• fees and commissions such as contract payments and professional fees
• IT
• transport and plant
• utilities
• fleet operations (makes sure officers have suitable transport)
• other costs such as protective clothing and laboratory services

Direct operations management and support costs

These are the costs of people who directly manage and supervise people engaged in carrying out regulatory activities.

We seek to achieve a balance between not having too many layers of management while making sure staff doing the regulation have sufficient leadership and support, including access to specialist technical advice.

Fixed costs

The fixed costs are a part of the total charge and are specific to each regulatory regime. The regime specific fixed costs do not vary with changes in staff levels or volume of work. They can include contracts that have to be paid regardless of our activity levels.

Fixed costs are included in our modelling by allocating them across the expected levels of relevant charges and charge types.

The fixed costs typically relate to:

• IT systems, which are used to support regulation
• consultancy fees paid to organisations within Defra group who are required to support our regulatory work

An example of consultancy fees would be where a water discharge, waste or installations application requires habitats assessment in a sensitive location. We are required to consult Natural England, so the charge will also include a fixed cost to pay for their services.

Corporate costs included in a charge

To fully cost recover for an activity we include the cost of:

• our national corporate support teams
• Defra corporate services

These are services provided across all our chargeable and non-chargeable work, whose costs are recoverable under managing public money. Without these support services, a regulatory regime and charging scheme could not operate. These corporate functions exist to support our whole business and our frontline teams, but their costs cannot easily be allocated directly back to specific sources of income.

All charges must make a fair contribution to our corporate costs. To achieve this, our corporate costs are split across all funding streams (including charges and grant in aid). We use total direct revenue expenditure to distribute costs across funding streams and review this annually during our business planning process.

This approach allows the benefit of efficiency savings in our corporate functions to be shared proportionally across all funding streams. Similarly, the corporate costs incurred by a particular funding stream stay proportionate if the funding stream is either in growth or is in decline. It also helps keep charges consistent for customers.

National corporate support teams

Within the Environment Agency, these are made up of:

• centralised teams working on direct delivery of regulation
• teams whose work underpin the direct delivery of regulation
• functions that enable the direct delivery of the regulation

Approximately half of our national corporate support is delivered through the Environment and Business directorate. This includes both the direct delivery of regulation and the teams whose work support the delivery.

Environment and Business delivery teams look at how we can achieve more with our funding by being more efficient and developing innovative solutions.

The remaining half of the national corporate support is made up of functions which help with delivery, such as:

• evidence teams, to make sure scientific and other information is available to regulate effectively
• legal services, to make sure we regulate in line with the law
• learning and development costs
• health, safety, and wellbeing, to make sure our staff carry out their work in a manner which keeps them and the public safe
• internal audit projects, to enhance the effectiveness of our operations

Defra corporate services

Defra corporate services are core services that were transferred to Defra in April 2017. The costs of these services are recharged back to the Environment Agency, and we distribute them fairly across all funding streams.

Defra corporate services deliver work across the whole Defra group and operates a system of accounting to allow the cost to be identified for each Defra entity. In some cases, such as a building shared by a number of Defra group members, the cost will need to be distributed proportionately between these different entities. In other cases, it will be straight forward to isolate the cost of a finance team that solely supports us.

The services transferred and now provided by Defra include the following.

Information technology

Information technology manage the IT we rely on for our day-to-day operations as well as the external services available to the public. Technology has to be maintained and developed to make sure our data is secure and complies with legislation.

Estates

Estates manage our office space and where possible we co-locate with our other partners in the Defra group. Our offices are spread around England to reduce our travel time for our regulatory work.

Finance

Finance produce the annual report and accounts. They make sure the National Audit Office audit is successful and complies with rules set by HM Treasury. They also make sure costs are properly allocated against the appropriate charging scheme.

Shared services

Shared services is outsourced and provide transactional processing of finance, human resources.

Communications

Communications provide essential staff engagement and advice, as well as support for the leadership.

Human resources

Human resources manage all people matters so we can undertake our regulatory work, such as employee pay, benefits and pensions and trade union relationships.

Procurement and commercial

Procurement and commercial provide a range of commercial and procurement advice and support. They manage supplier relationships and commercial risk.

Capital financing costs (depreciation and cost of capital)

We include an element of capital financing costs within all charges. This includes financing costs for specific assets used exclusively by the regimes and a proportion of corporate assets (IT systems, buildings). Financing costs applied in our charges reflect the requirement set by HM Treasury for a rate of return of 3.5% of the value of fixed assets, plus the cost of depreciation of those assets. See managing public money section 6.1 for more information about these costs.

Bad debts

Unlike private sector businesses, we are not allowed to choose our customers based on an assessment of perceived credit risk. This does mean bad debts are higher than would be expected in the private sector, especially for schemes with a wider range of customers.

However, several schemes have no bad debts. This is the case for all charges where we require an up-front payment such as applications charges or rod licences. See managing public money section 6.1 for more information about these costs.

Fees and charges guidance

Check Environment Agency fees and charges for guidance on what to pay for different regulated activities.