Local Government Finance Settlement

– in the Scottish Parliament at 2:34 pm on 8th December 2004.

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Photo of Murray Tosh Murray Tosh Conservative 2:34 pm, 8th December 2004

The next item is a ministerial statement on the local government finance settlement and non-domestic rate poundage. As is normal in these circumstances, the minister will take questions at the end of the statement and there should be no interventions.

Photo of Tom McCabe Tom McCabe Labour 2:37 pm, 8th December 2004

I offer an apology to the spokespersons of the Opposition parties for getting copies of the statement to them rather late. The Executive has experienced some information technology difficulties over the past hour and a half. Copies of what I am about to say and other information will be available at the back of the chamber, but slightly later than would normally be the case.

The purpose of this statement is to announce the local government finance settlements for the next three years and the outcome of the five-yearly rating revaluation of business properties and the revised rate poundage for next year. I will set out the details of the core revenue allocations to local authorities, or aggregate external finance, which is the proportion of local authority revenue expenditure that the Executive supports. That is supplemented by council tax income, and the two combine to become grant-aided expenditure, which is the indicative amount that the Executive believes local government needs to spend in specific areas such as roads and social work. As the Presiding Officer said, I will be happy to take questions following the statement.

The Scottish Executive is committed to the delivery of excellence in public services. Local authorities are one of the main delivery agents of those services, and the people of Scotland rely heavily on the services that are provided. Those core services, including education, community care, police, fire, transport and environmental services, are crucial to improving the quality of life in our society, providing new opportunities and offering stability and security to all Scottish citizens. My predecessor, Andy Kerr, announced the outcome of the Executive's 2004 spending review on 29 September. That statement set out the aggregate levels of local government core revenue support for 2006-07 and 2007-08. The figures for 2005-06 were set as part of the 2002 spending review.

Since the end of September, we have been working on dividing the aggregate external finance resources between services and on distributing those funds between Scotland's 32 local authorities according to a formula agreed with the Convention of Scottish Local Authorities. I am now in a position to set out the detail of that work.

First, I can confirm that the total level of Scottish Executive funding for local government core revenue in the next three years is as follows: in 2005-06 it will be £8.1 billion; in 2006-07 it will be £8.3 billion; and in 2007-08 it will be £8.5 billion. Those figures represent year-on-year increases of 4.4 per cent, 3.3 per cent and 2.4 per cent respectively. That is a cumulative increase of 10.4 per cent over the period. Those increases build on the substantial sums that have been invested in local government in previous years. In the current year, funding has increased by £2.1 billion, or almost 40 per cent in the five years since 1999. By the end of the current spending review period, funding will have increased by more than £3 billion, an increase of almost 55 per cent compared with 1999.

Back in 2000, we introduced three-year financial settlements for local government. It is important that we take that improvement to the budgeting process into account and recognise that it provides councils with greater certainty and allows them to plan ahead. Another significant factor is that the various initiatives surrounding the efficient government regime will have come to fruition by 2007-08 and, through that, councils will be able to reinvest significant savings in front-line services.

The overall local government finance settlements for 2006-07 and 2007-08 mean that councils should be able to increase their revenue spending on core services by more than £300 million and £540 million respectively. That additional grant funding is intended to support the increased levels of revenue spending that the Executive considers are necessary to maintain and improve the levels of service currently being provided to the people of Scotland.

The increased spending will be funded by the revenue grants that I outlined earlier plus a proportionate contribution from council tax of not more than 2.5 per cent in 2006-07 and 2007-08. In 2005-06, we expect councils to keep council tax rises as low as possible. I also urge them to take all possible steps to improve their council tax collection rates, which lag behind those of other parts of the United Kingdom. Such an improvement would minimise the need for any rises. Of course, the setting of council tax levels is a matter for local authorities, but ministers have repeatedly said that we expect councils to keep council tax rises to reasonable levels, and that remains the case.

Today my officials will be informing all 32 councils, by means of a finance circular, of their provisional grant allocations for each of the next three years. In keeping with previous settlements, the Executive and COSLA have agreed that a stability measure—the floor calculation—should be included to ensure that councils with declining populations are protected from much smaller than average increases in grant support. The 3.4 per cent floor for 2005-06 was set in the previous settlement and remains unchanged. I confirm that the floor calculation has been set at 2 per cent in 2006-07 and 1.75 per cent in 2007-08. That will give specific benefit to six councils in each year. In 2006-07, those will be Comhairle nan Eilean Siar, Dundee City Council, Glasgow City Council, West Dunbartonshire Council, Aberdeen City Council and Shetland Islands Council; and in 2007-08 they will be Comhairle nan Eilean Siar, Glasgow City Council, Dundee City Council, West Dunbartonshire Council, East Dunbartonshire Council and Shetland Islands Council. That guarantees that all councils will receive increased grant support in those years by at least the floor amounts.

The distribution arrangements that are applied in the three-year settlement to divide the amount of grant between councils use a needs-based formula that has been discussed and agreed with COSLA and which reflects the most recent information, including updated data on pupil numbers and the 2001 population census.

The continuation of the quality-of-life fund in the settlement reflects our commitment to allow local communities to focus on improving the environment and promoting community well-being. It will allow councils and their partners to be responsive to local needs and to build safer, stronger communities.

We support the use of outcome agreements as a positive approach to turn national priorities into local action. Over the past three years, we have piloted an outcome-based approach in areas such as homelessness, regeneration and adult learning, but I am now interested in developing that approach further. Positive progress on an outcome-based model is vital to ensure that funding supports a more streamlined and useful performance and quality measurement system. Over the coming months, I will work with local government to agree workable procedures to monitor progress in each of those areas. I look forward to seeing the evidence of measurable change in communities across Scotland.

The figures announced today are provisional, so local authorities and COSLA will have the opportunity to comment on the detail. The final figures will be debated during the parliamentary debate on the local government finance order in early February next year. That debate will provide the statutory basis for the revenue support grant payments that will be made during 2005-06.

I am happy to say that other revenue grants will be provided to local government in addition to the revenue funding for core services within the local government finance settlement. Such grants will amount to around £1 billion in each of the next three years to allow local councils to fulfil a number of spending commitments on behalf of the Executive. A few decisions have still to be confirmed, but I am delighted to say that we have been able to confirm that revenue grants outwith core aggregate external finance will rise from £978 million in 2004-05 to £1.1 billion in 2007-08, which is an increase of 12.3 per cent over the period.

On capital expenditure, I can confirm that there will be overall significant increases in capital expenditure support across Scotland, which will help to underpin the key 2004 spending review priority of supporting investment in capital infrastructure. Today, I can announce that total support for capital to councils will exceed £2 billion over the next three years. That will mean record levels of capital support, as capital grants will increase by 35 per cent over the period. By 2007-08, local government will receive loan charge support to provide for more than £900 million of new capital investment over the period.

The prudential borrowing regime, which came into effect in April this year, is now providing substantial flexibility for local authorities. Of course, local authorities are required to have full regard to the auspices of the prudential code, but the new regime is more good news for Scotland's local authorities, as it further increases their flexibility and room for manoeuvre. That will ensure a strong and steady planned programme of capital investment in infrastructure by councils over the next three years, which will be backed by increased central support from the Executive.

In total, revenue and capital funding outwith aggregate external finance will increase by 15.9 per cent over the three-year period. Taken together with aggregate external finance increases, overall funding to local authorities will stand at almost £10.4 billion by 2007-08, which represents an increase of 11.3 per cent over the period. Further details of the funding streams have been shared with the Convention of Scottish Local Authorities and will be published shortly in an official-level circular.

Under the Executive's efficient government plan, which I announced last week, we have set ambitious targets to reduce inefficiency and bureaucracy and to redirect savings of more than £1 billion to front-line public services. Let me re-emphasise the important part that local government must play in that process.

Local government spends one third of the total Scottish budget, so it is crucial that such a significant sum is well managed and well spent.

Making public services more efficient means delivering more for our customers. That means more teachers, police officers and fire officers. It means better schools and improved transport links. Together, the Executive and local authorities can take positive action to regenerate and enhance Scottish communities.

A challenging local government efficiency savings target of £325 million has been identified, so it will be important to demonstrate that we set the same challenges to other parts of the public sector. After discussions with COSLA and individual local authorities, I am aware that the funding package for 2007-08 is perceived as tight. I intend to continue that dialogue and will consider representations on the matter in the context of the overall Scottish budget and local government's progress in implementing efficient government.

In addition, I look forward to receiving high-quality, innovative bids from local government for allocations from the efficient government fund. I know that there are already examples of best-value excellence in the public sector and I encourage councils to work together to share their knowledge and to integrate good ideas.

Turning to non-domestic rates, I recognise the issue's importance to Scottish business—and even more so in light of the 2005 revaluation. As a result of that revaluation, some key policy decisions require to be made and over the past two years we have consulted widely on a number of them. That said, I am able to announce today the outcome of the revaluation; the non-domestic poundage rate for 2005-06; the transitional arrangements that will follow the revaluation; and adjustments to the small business and rural rate relief schemes.

The revaluation has shown that, on average, rateable values in Scotland have increased by 13.3 per cent, compared with 17.7 per cent in England. Each year, we set a uniform poundage rate that is applied throughout Scotland. This year, because of the revaluation, we are reducing the poundage rate to offset the increase in rateable value. That will ensure that there is no overall increase in the rates burden on Scottish business. However, the poundage rate for 2005-06 also depends on a range of other factors, including the expected level of revaluation appeals and a provision for inflation.

After taking account of those adjustments. I can announce that the poundage rate for Scotland for 2005-06 will be 46.1p, which is a 5 per cent reduction on the current year's poundage rate of 48.8p. Unlike England, Scotland is not tied by statute to having the retail prices index, which is referenced to September 2004, as its inflation indicator. As a result, England has to use an inflation allowance of 3.1 per cent in calculating its poundage rate. In Scotland, we will apply a smaller figure of only 2 per cent, which more than meets our partnership agreement commitment to increase the poundage rate in 2005-06 by no more than the rate of inflation.

Indeed, this will be the third consecutive year in which we have adjusted the poundage rate in Scotland by less than the retail prices index: in 2003-04, we froze the poundage rate and in 2004-05 we held the increase at 2.1 per cent, compared with the RPI of 2.8 per cent. Those decisions mean that, over the period, rates will be 4 per cent lower than they would have been. I hope that Scottish business will acknowledge the impact of that decision.

As in previous years, we have put in place transitional arrangements. As revaluation can result in sudden changes in rates bills, the aim of such arrangements is to protect ratepayers from sudden sharp increases in their bills in the period immediately following the revaluation. That gives ratepayers the time to plan how to accommodate the true bill over a longer period.

I am pleased to confirm that, following our extensive consultation on the matter over the summer, the Scottish Executive will put transitional arrangements in place on 1 April 2005. Under the scheme, increases in rates bills of more than 12.5 per cent in real terms will be phased in over a three-year period. That transitional protection will be funded by phasing in real-terms decreases of more than 10 per cent over the same period. We estimate that about 35 per cent of non-domestic subjects will be affected by these transitional arrangements. The rates of the majority—65 per cent—of ratepayers will increase or decrease within the percentages that I have just referred to.

Since 1997, small businesses in Scotland—unlike their English counterparts—have benefited from a discount in the poundage rate. In April 2003, the Scottish Executive introduced a more focused rate relief scheme for small business that provided rate relief of between 5 per cent and 50 per cent.

Independent consultants were appointed to carry out an initial evaluation of the scheme and a copy of the evaluation report is available on the Executive website. I will not announce any structural changes to the scheme today; rather, I would like to allow interested parties time to look at the evaluation report. Executive officials will shortly be writing to invite representatives of the business community to meet them during January to hear their views on how the small business rate relief scheme might be improved. Depending on the outcome of those discussions, the intention would be to issue a short consultation paper around 2005.

Today, I am pleased to announce that the rateable value thresholds for the small business rate relief scheme will be uprated to reflect revaluation. We will also adjust the rateable value thresholds for the rural rate relief schemes in line with the general increase in valuations. Following the short rural consultation exercise undertaken by the Executive in the summer, I am pleased to announce that we will remove the 1km rule. Based on the revised boundary and population data provided by the General Register Office for Scotland, we estimate that dropping that rule will result in petrol filling stations, hotels, public houses, small food stores, post offices and general stores in approximately 12 additional settlements qualifying for 50 per cent mandatory rate relief. In addition, the sites of cashline machines located in those settlements will now be exempt from rates.

I am aware that there are strong voices within the business community who believe that we are at a competitive disadvantage compared with England and who would like to see further changes. I have made it clear that I want to continue a dialogue that allows them to quantify their case. I assure them now that, within the resource constraints that we face, our minds are open and that I am willing to listen to the evidence that they provide.

As I have outlined today, we have increased the poundage rate by less than inflation for the past three years, putting Scotland at a competitive advantage. We have schemes for small business rate relief, rural rate relief and transitional relief that target assistance with rates. As further evidence of our willingness to assist the competitive position, I will be considering the case for expanding rate relief to support companies involved in research and development. We will begin exploring that issue with the business community in the new year.

I would like to say a word or two about the information available to ratepayers on the 2005 revaluation. Information on indicative rateable values for 1 April 2005 is available on the Scottish Assessors Association internet portal, which went live at the end of October. A link from the portal will take ratepayers to the local government website, and a rates calculator will give ratepayers an indication of their rates bill, based on the information provided by the ratepayer. However, I stress that a ratepayer's exact liability can be provided only by their local authority when it issues a formal rates bill. We are also providing a local government website that provides useful information on local taxation matters, including business rates. Technical notes showing the calculations behind the poundage rate for 2005-06 will also be available on the Executive's website. We will also produce a number of information leaflets, which will be issued to ratepayers during the period January to April 2005, either by their local authority assessor or by the business rates section within their local authority. Copies of the leaflets will be placed on both the Scottish Executive and local government websites.

Good partnership in whatever we do is vital and we recognise that the Executive must work hand-in-hand with the Convention of Scottish Local Authorities and individual local authorities to achieve our goals. Of course, there will be times when our respective positions differ, but it is important that, as our constitutional position matures, we look for an increased understanding of the need to identify new ways of serving people here in Scotland. Local government finance is complex and we are both committed to reviewing the terminology and the presentation in a way that will allow the public to understand the system better.

The funding streams announced today will provide a real increase in investment that will lead to better services for the people of Scotland. I have set out a number of challenges and opportunities for local government and I will expect it to play its part in this important period; after all, our priorities are the same: to provide services that are the cornerstone of our society; to improve the quality of life; to provide new opportunities; and to offer stability and security to all people in Scotland.

Photo of Murray Tosh Murray Tosh Conservative

The minister will now take questions on the issues raised in his statement. I will allow around 40 minutes for questions.

Photo of Alasdair Morgan Alasdair Morgan Scottish National Party

I thank the minister for what he said about the lateness of the statement. Clearly, the road to efficiency through the use of information technology systems is often a rocky one.

The minister said recently—I think that it was to the Finance Committee—that he wanted himself and the Executive to be judged on their record looking backwards, and I want to be helpful to the minister in that regard. I know that he finds percentages difficult, so I am not going to dwell on the 50 per cent rise in council tax since the Tories were last in power. Can he tell us why he does not expect that the efficiency savings that he has been talking about will enable a freeze in council tax this year, next year or even the year after? If not, can he say what he predicts will be the real-terms council tax rise over all of the next three years? If he can do that, when we go to the polls in 2007, the people of Scotland will be able to judge him—as he wants to be judged—on his record looking backwards, which will be one of squeezing the council tax payers of Scotland for the past 10 years.

Photo of Tom McCabe Tom McCabe Labour

I have always known that SNP members are somewhat inward looking, but I was not aware until today that they have a problem with IT developments in our society. The Executive sees our approach as forward looking, adopting the best practices and procedures that we can adopt. Any computer can break down. As SNP members do not seem to be hooked into the IT revolution, perhaps it is left to the Executive parties to ensure that we continue our drive to follow that approach.

Mr Morgan made a number of points about council tax. Again, I know that SNP members are rather inward looking, but I did not realise until today that they had become such a centralising party. In case the SNP had not noticed, we do not dictate to councils up and down Scotland how they expend their finances. Of course, the Executive expects councils to be as prudent as they possibly can be in how they levy their local taxes. We have acknowledged that, under the 2005-06 settlement, there is perhaps a bit more scope for rises in council tax than we would ideally like, and we have spoken to our colleagues in councils and told them that we think that it is in their interests, and in the interests of the people they represent, to keep rises in 2005-06 as low as possible. We have also made it perfectly clear—and I referred in my statement to record levels of funding—that we do not think that there is any reason for council tax rises to go above 2.5 per cent in the years 2006-07 and 2007-08. If that happens, it will be a clear result of decisions taken by individual local authorities.

As I said in my statement, local authorities have expressed concern about the tightness of the settlement in its final year. I mentioned that I would expect the efficiencies from our efficient government initiative to have kicked in by then. I also say to local authorities that it is only because we introduced three-year budgeting, which allows them to plan ahead, that they have sight of the position in the third year. In years gone by, they would not have been able to make an assessment of that year. Now they can; now we can engage in a dialogue. We can hear their concerns and they can hear the views of the Scottish Executive.

Photo of Brian Monteith Brian Monteith Conservative

I, too, am obliged to the minister for the early copy of his statement. I trust that the technical problems did not delay his press briefing at lunch time, before he came to the chamber.

The minister likes to boast of a 10.4 per cent increase in financial support in the next three years. Of course, he does not care to list the increased financial demands that he and his fellow ministers place on councils and, ultimately, on the council tax payer. The minister and, indeed, the First Minister have said that council tax increases should be limited to 2.5 per cent next year, yet they know that salaries in the public sector will rise by 2.9 per cent and that councils planned last year for a 4 per cent increase in council tax.

I have two questions for the minister. First, if all the available information and academic studies suggest that council tax increases will be at least 4 per cent next year, what reasons can the minister give to support the suggestion that an average increase of 2.5 per cent can be met? That is the figure quoted by the First Minister at previous First Minister's question times. Will the oracle speak on the future?

Secondly, do the minister's calculations on the average council tax bill include an increase in the collection rate from council tax payers? What is the assumed rate of collection? I ask that question because that figure might be of substance in relation to expectations of what the council tax rate might be.

Photo of Tom McCabe Tom McCabe Labour

First, I refute the spurious allegation that has been made about a press briefing. I am sure that Mr Monteith will take the opportunity to withdraw that remark. There was no press briefing before the statement was made. I am sure that he will take the opportunity to withdraw the allegation.

Photo of Brian Monteith Brian Monteith Conservative

If the press briefing that I was led to believe was taking place at noon was cancelled, I apologise to the chamber for suggesting that it might have taken place.

Photo of Tom McCabe Tom McCabe Labour

I am obliged that Mr Monteith recognises that he did not check his facts before he came to the chamber. That is reflected in his remarks about the council tax. Mr Monteith is having a bad afternoon, but we will try to assist in any way that we can.

Of course, I expect councils to concentrate on improving their rates of council tax collection, as I said in my statement. If they improve their income, that should be of considerable assistance to them when they decide the eventual rate of council tax increase and ways to expand their services.

It does not stand examination for the Conservatives to come to the chamber and attempt to talk up council tax increases. We have demonstrated that council tax increases look good now compared with what happened under the Conservatives' stewardship. On the one hand the Conservatives try to scare people in Scotland about the potential level of council tax increase, but on the other hand they have announced that they want to strip £600 million out of education funding. Their position cannot be squared.

If, as they have said they are, the Conservatives are determined to strip money out of local government and to take money away from public services, and if councils are to return to the position that they were in when I was a councillor in the mid-1990s, trying to defend local services against the Conservative onslaught, it is obvious that councils would have no alternative but to look for other ways of securing the finance to maintain and defend services. Conservatives in Scotland are not in the business of maintaining or defending services.

Photo of Iain Smith Iain Smith Liberal Democrat

I welcome the minister's statement today. It reinforces the good news about what the Liberal Democrat-Labour Executive has done for local government over the past five years and highlights the increase in resources to local government. Does the minister agree that it is unbecoming for the Conservatives to criticise the council tax increases when by year 3 of this period the council tax increase for the entire period of the Scottish Parliament will be less than the Conservatives managed in the last three years of their time in Government? Will he also criticise SNP members for continuing to include the last year of increase under the Conservatives in the figures that they quote about there being a 50 per cent increase under Labour? It is not for me to defend Labour, but those figures are wrong.

Photo of Mary Scanlon Mary Scanlon Conservative

Is this a question on the ministerial statement?

Photo of Iain Smith Iain Smith Liberal Democrat

It is. It is about the council tax increase.

Does the minister also agree that it is strange that neither the SNP's nor the Conservatives' leading spokesmen have mentioned the business rate today? Is that perhaps because they now recognise that the Liberal Democrat-Labour Administration has reduced the level of business rates in Scotland in comparison with the level in England, that businesses in Scotland are paying, on average, 3 per cent a year less in rates bills than businesses south of the border and that the parties' claims about having a uniform business rate are complete hokum?

Photo of Tom McCabe Tom McCabe Labour

I agree completely with my coalition colleague. That is a sound contribution. He correctly outlines the terrible things that happened during the Conservative years. As I have said before to the Parliament, the Conservatives have a cheek in trying to portray themselves as the defenders of local services. Communities the length and breadth of Scotland were under unbelievable pressure for an extended period because of the approach that the Tories took. We are obliged to answer questions in the Parliament, but the people of Scotland well remember that situation. They know how they suffered under the Conservatives. The Tories can try to cloak themselves in new clothes, but it will do them no good, because people in Scotland have long memories and the last thing that they would do would be to reinstate that mob to any position in which they had an influence over decisions.

As for SNP members, they are somewhat confused, to say the least. [Interruption.]

Photo of Tom McCabe Tom McCabe Labour

Although the SNP claims to defend services, last week at First Minister's question time it demanded reductions in council tax levels. Mr Morgan's question showed that, under the SNP, local government would be subject to increased central control and would not be able to make its own decisions. In effect, local government would find it difficult to notice any difference between the situation that the SNP would foist on it and the situation that it found itself in during the 1990s under the Conservatives.

Photo of Murray Tosh Murray Tosh Conservative

I encourage remaining members to put their questions on the content of the minister's statement and not to encourage him to repeat his earlier answers.

Photo of Elaine Murray Elaine Murray Labour

I welcome much of what was in the statement, especially the consultation on the improvements in the small business rate relief scheme, the dropping of the 1km rule, which I am sure will help many people in my constituency, and the examination of the case for expanding rate relief for companies that are involved in research and development. However, council tax in Dumfries and Galloway has risen by 3.5 per cent in the current financial year and there are reports that it may increase by 4 or 5 per cent next year so that financial pressures can be accommodated. Does the minister believe that rises in council tax of that magnitude are indeed as low as possible and, in the context of today's announcement, is it justifiable for Dumfries and Galloway Council to increase council tax by that amount?

Photo of Tom McCabe Tom McCabe Labour

I welcome the question. I ask Dumfries and Galloway Council to consider any intended increases against the backdrop of the allocations that it receives. It gets the seventh highest allocation of aggregate external finance per head of population of all mainland councils. On that basis, it seems to sit in a fairly advantageous position. Its share of the £170 million of the quality of life fund is £5.1 million over three years. Given the way in which Dumfries and Galloway Council has been treated under the present settlement, it is clear that it is one of the councils that are best placed to resist unnecessarily high council tax increases.

Photo of Mark Ballard Mark Ballard Green

I, too, thank the minister for allowing us to have early sight of his statement.

In his statement, the minister mentioned the potential for revaluation to result in sudden changes to rates bills. He will be aware that revaluation could have a dramatic effect on the Scottish energy industry. It appears that although rateable values for unsustainable coal and nuclear power stations are set to fall, the rates for wind and energy generators could soar. That is partly because the Scottish Assessors Association, unlike its counterpart in England and Wales, has chosen to include in the valuation income that is derived from renewables obligations. Will the Executive make representations, as the Office of the Deputy Prime Minister has done in England and Wales, to ensure that those environmentally friendly renewable businesses are not penalised in that way?

Photo of Tom McCabe Tom McCabe Labour

I mentioned the transitional scheme that people will have the opportunity to take advantage of, which seeks to absorb shocks and to level out the impact of increases or decreases in rates. However, I acknowledge that different business sectors across the Scottish economy have made representations on that. I would welcome representations from any sector that felt that it was receiving prejudiced treatment and if, in the light of those representations, we thought that there was a situation that needed attention, we would consider opening up a dialogue with the assessors, who, after all, work on an independent basis.

Photo of Tommy Sheridan Tommy Sheridan SSP

I have four short questions for the minister. First, does he agree that the council tax remains an inherently unfair tax and is an unfair way in which to raise revenue, as it disproportionately taxes pensioners and low-paid workers? Secondly, will he confirm that the grant settlement for Glasgow, which is Scotland's poorest city, remains below the average for all authorities across Scotland? Thirdly, can he further confirm that the settlement figure includes expected savings of £325 million a year across the local authorities and tell us how the settlement compares with the last three years in respect of the best-value regime and other local efficiency savings? Finally, given that non-domestic rates continue to be classed as a local tax, does he agree that the central setting and distribution of non-domestic rates makes local authorities less accountable to their local electors and, if so, will he agree to return to the local authorities the right to set and keep non-domestic rates?

Photo of Tom McCabe Tom McCabe Labour

I thank Mr Sheridan for those questions.

We have instituted an independent review of local government finance and the review group will provide the Scottish Executive with the outcome of its work as soon as it has finished that work.

Clearly, that is when we will take forward any issues that arise from the review. That is as much as we can do. If anyone in Scotland has a view about the way in which we raise local finance, I have no doubt that they will feed their view into the independent review of local government finance in the hope that it will hold sway when the final recommendations are made.

I recognise that Glasgow is a powerful driver of the Scottish economy. Undoubtedly, it is a great Scottish city—indeed, I have recognised that fact publicly on other platforms, and I have said that I have a great admiration for the work that the city does. In my view, the city is beginning to flourish: it is showing tremendous imagination and a tremendous willingness to work with its partner organisations. The results of that work are starting to show and to benefit not only the city's environment and facilities but the economic opportunities that are available to its citizens.

As I did previously, I want to stress that Glasgow has the highest aggregate external finance allocation per head of population in all of Scotland. That says enough about the way in which the Executive recognises the city. On top of that, a series of other funding streams are making their way towards the city of Glasgow—and rightly so.

I confirm that the announcement includes an assumption for efficiency savings. That is right and proper as we pursue the goal of a more efficient regime not only in local government but in the public sector right across Scotland. We cannot escape the fact that local government consumes one third of the Scottish budget. It is therefore fair that it carries a considerable burden in the quest to achieve efficiency savings. From the past performance of local government with regard to best value, we can see that it is well able to work with us in achieving those savings. I have great confidence in local government and a great respect and regard for it, as does the Executive. As the years pass, we will demonstrate that in our relationship with local government. We will look to local authorities to assist us in that work by providing as much additional resource as possible. We are asking local government to achieve savings for the sole purpose of reinvesting the resources in front-line services.

I emphatically confirm that I have no intention whatsoever of reversing the current arrangements for non-domestic rates. I do not agree with Mr Sheridan that it would necessarily benefit local government if it were to set the rate. We have no intention of returning control of non-domestic rates to local authorities.

Photo of Bristow Muldoon Bristow Muldoon Labour

I thank the minister for the statement and, in particular, for the Executive's continued strong support for local government funding over the next three-year period. Will the minister expand on issues such as the presumptions that have been made about the inflationary pressures on local government over that period and the levels of additional expenditure that will be required to develop the service enhancements that will result from the policies that have been developed by the Executive and local government? In what proportions will additional funding, council tax and the Executive's proposed efficiency targets support inflation costs and service enhancements?

Photo of Tom McCabe Tom McCabe Labour

I confirm that we have fully funded the teachers' pay settlement and that we have made an allowance for pay in several other sectors and bodies that come under local government. It would be inappropriate to reveal some of the figures that have been allowed for pay, because COSLA is involved in pay negotiations. If I revealed those figures, COSLA would regard itself as hide-bound. However, I assure members that we have made an allowance for pay increases and that we have used the consumer prices index for price increases in the settlement.

Photo of Stewart Stevenson Stewart Stevenson Scottish National Party

The minister referred to efficiency savings and the need for councils to improve their council tax collection rates. Will he confirm that improved collection rates form part of the efficiency savings that he expects? Will councils that already achieve high efficiency levels in collecting council tax be cushioned from the adverse effect of their previous efficiency? They will not have the same capability to improve their council tax take as have councils that perform at a lower level through their previous failures.

Photo of Tom McCabe Tom McCabe Labour

I confirm that as a part of an overall efficient government drive, we would like increased council tax collection rates, but that is not necessarily contained in the figures. We have told local government that it can achieve a range of efficiencies and that we would like it to improve council tax collection rates.

The argument that councils that have been particularly good at pursuing best value will have fewer opportunities for efficiency is perverse. Councils do not operate in a static situation. There have been remarkable increases in resources that are available to local government. As those resources increase, as management techniques change and as information technology changes, further opportunities arise to adjust how we go about our business and improve the service to people in Scotland. I expect councils that have been leaders to show the same leadership and to gain similar or better efficiencies in the years to come.

Photo of Des McNulty Des McNulty Labour

I welcome much that is in the statement, but the year 3 settlement will be extremely difficult for local government. Through the Finance Committee, I want to discuss further with the minister the projection's achievability.

I will ask about councils with high deprivation levels. West Dunbartonshire Council, Glasgow City Council and Dundee City Council have the lowest year-by-year uplifts and are stuck to the floor. The minister is right to say that Glasgow has received substantial additional resources through other routes, but that has not always been the case for West Dunbartonshire. Whether the deprivation formula adequately meets the needs of the areas with the greatest deprivation must be examined. West Dunbartonshire Council, Dundee City Council and Glasgow City Council require urgent attention before we consider whatever arrangements emerge from the review that the minister has announced.

Photo of Tom McCabe Tom McCabe Labour

I made it clear in the statement that through our dialogue with local government, we received its representations on its concerns about the third year of the settlement, which we acknowledge is tight. I also said that I am prepared to continue a dialogue with local government about the third year against the background of the overall financial situation in Scotland. Local government is an important part of our overall work, but it is a part, and our budget has other competing demands.

I will also assess those discussions against the success and determination that local government shows in implementing the efficient government scheme that we announced last week. It is important that local authorities demonstrate to the public in Scotland that they are dynamic organisations in their communities and that they have actively pursued and gained efficiency savings over a period of time. If I am satisfied that local government has played its part in the drive for savings, I will take that into account before we finalise our discussions and come to conclusions about the third year of the settlement.

I fully acknowledge Des McNulty's points about deprivation. As I mentioned in my statement, the distribution formula that we use for the resources is agreed with COSLA, but we are happy to engage in discussions on that. We have set up an on-going official-level working group to examine the outcomes of the allocation formula, but we are happy to consider representations on the issue from local government. The issue is a difficult one for everyone in local government because no one wants to give up resources to help another area. As my predecessors in the Parliament have said many times, we are willing to work with and talk to local government if it thinks that the distribution formula requires alteration.

Photo of Bruce Crawford Bruce Crawford Scottish National Party

The minister will be aware that some councils predict that their fuel costs will rise by as much as 27 per cent as a result of electricity and gas supply cost increases. COSLA confirmed to the Local Government and Transport Committee that councils did not include those predicted large increases in energy costs in their submissions to the spending review because the predictions materialised only recently. Given the minister's commitment to continue dialogue with and consider representations from councils, will he consider accepting representations from councils on the increased energy costs so that they can be included in the local government settlement, which would help to deal with the potential increase in council tax?

Finally, given that, as annex 1 of finance circular 08/2004 points out, £6 million has been allocated for councillors' severance payments, how many councillors will receive such a payment and, of them, how many will be Labour councillors?

Photo of Tom McCabe Tom McCabe Labour

I am not sure whether Mr Crawford is advocating that we should get rid of councillors. We have always said that we will try to maintain the number of councillors in Scotland. However, if that is the new Scottish National Party policy, I am sure that members will be glad to hear about it.

Local government has demonstrated that it can gain significant efficiency savings on fuel costs by getting involved with buying consortia. The procurement initiative that we have announced as part of the efficient government programme should allow local government to come together to purchase energy far more efficiently and therefore more cheaply. If local government wishes to make representations to the Scottish Executive on any aspect of its resources, we will listen. However, I do not recognise the figure of a 27 per cent rise in fuel costs; I do not recognise it in relation to the everyday lives of people in Scotland and I would be surprised if the figure applied to local authorities or any other public body.

Photo of Murdo Fraser Murdo Fraser Conservative

I want to return to the issue of non-domestic rates. It is noticeable that the competitive disadvantage of Scottish businesses relative to businesses in England and Wales—which was confirmed in the comparative study of business taxation that in-house Scottish Executive economists produced last year—remains in place. In his statement, the minister said that he would engage with the business community to consider the level of rates, depending on resource constraints. Given that, in the past four years, the revenue to the Executive from business rates has been £376 million more than anticipated, surely ample funds exist that could be returned to businesses, thus restoring the level playing field that all business organisations want without impacting on the budget elsewhere.

Photo of Tom McCabe Tom McCabe Labour

There is a swings-and-roundabouts situation. In some years, the income from non-domestic rates exceeds expectations, but in other years it is well below expectations. It is important that we take a longer-term view of public finances and that we do not portray situations only in their best light, picking out particular years.

Any adjustments that would improve the rate poundage would require financing on a recurring basis. It is not just about one-off financing to meet additional demands. We need to talk to people in the business community—and I have indicated that I am more than willing to enter into that dialogue—to hear the case that they wish to make and to consider how that case can be proved. If we feel that we can take on board any aspect of that case, we will be obliged to find ways to include in our baseline—and not in a one-off way—the level of resources required to meet any additional demands.

Photo of Sylvia Jackson Sylvia Jackson Labour

As the minister knows, there is continuing concern about the backlog of maintenance work on local roads, an issue that is also of concern to COSLA. I believe that COSLA has been working closely with the minister on the matter. It has been recommended that there should be a long-term strategy for local roads improvement, particularly following the survey conducted by the Society of Chief Officers of Transportation in Scotland.

I welcome the commitment that the minister has made about roads, as well as the information that he has given to the Local Government and Transport Committee. Could he give the Parliament some details on the financial settlement that he has agreed with regard to local roads?

Photo of Tom McCabe Tom McCabe Labour

I can confirm that COSLA made a bid for money for the maintenance of local roads, and that we met that bid in full. We have provided our proportion of the aggregate external finance, which local authorities will top up to the GAE level. I hope that local authorities throughout Scotland will spend at least the indicative GAE levels on the maintenance of local roads.

Photo of Jeremy Purvis Jeremy Purvis Liberal Democrat

The Minister for Finance and Public Service Reform will be aware of the Accounts Commission's report of earlier this year. On the subject of financial stewardship, it showed that many councils were operating with very high reserves. In light of the positive settlement that has been made, which I welcome, does the minister agree that it would be unacceptable for the Tory-run Scottish Borders Council to propose cuts in front-line services while seeking to extend its reserves, potentially up to 6 or 7 per cent of net cost of services?

Photo of Tom McCabe Tom McCabe Labour

It would not be exceptional for Tory-controlled central or local government administrations to tuck money away and then plead poverty. That has happened before.

It is for individual local authorities to decide on the most appropriate level of reserve to suit their own circumstances. The Accounts Commission, in its recent report, expressed some concern about the level of local authority reserves. If we came across a situation in which a council's reserves were approaching a particularly high level, we would want at the very least to enter into dialogue with that authority. If we came across a situation in which the council tax was rising to an exceptionally high level against a background of the council in question holding exceptionally high reserves, we would want to know the reasons for that.

Photo of Christine May Christine May Labour

I, too, welcome the minister's statement, particularly in relation to the continuation of three-year funding and his willingness to have further dialogue over the 2007-08 settlement. I have two questions about the initiatives that the minister spoke about. The first is about outcome-based agreements and the scale and scope of the discussions that he is prepared to have on those. If he has any more information on that subject, I would welcome it.

My second question is on the efficient government initiative savings. How will those moneys be put back in, and who will decide that? As the minister will be aware, there are occasionally legal and bureaucratic difficulties that could prevent non-departmental public bodies or quangos working together with local authorities. Will he and his colleagues examine examples of that where they exist and remove them if possible?

Photo of Tom McCabe Tom McCabe Labour

On outcome-based agreements, I am interested to continue a dialogue with local authorities and consider ways of reducing the administrative burden that we place on authorities and other bodies throughout the public sector. Sometimes in the Executive we ask inappropriate questions or we ask the same question in different ways and place an unjustified administrative burden on local government. By the same token, it is important that local government takes proper responsibility for the robustness of the information that it supplies to the Executive.

Part of our efficient government drive and overall aim is to ensure that we reduce the bureaucratic burden on local government. We have considered what is happening in other parts of the United Kingdom. I am interested in what is happening in Wales, such as the way in which some of the indicators have been rationalised to give both ministers and the general public a better idea of the breadth and scope of services that are delivered better. An important part of our work is continuing dialogue with local government on those agreements.

On efficient government, I am happy to confirm that when the savings are generated it is for individual organisations to plough them back into the delivery of front-line services in the interests of the people of Scotland. That is the whole rationale. We are not talking about cuts; we are attempting to reassure people that in public services, whether in local government or anywhere else, we are determined to maintain an efficient approach that allows the most appropriate services to be delivered as widely as possible here in Scotland.

On NDPBs, I acknowledge that there are inefficiencies. I said on the record at a committee that I think there are too many. In this country of five million people we should be considering ways of bringing together back-office services and giving back through the other democratic line of accountability—our local authorities and councillors—some of the powers and functions that are exercised by NDPBs. The public would welcome that. There is increasing concern about the amount of public resource that is expended without a clear line of democratic accountability, and it is only right and proper that we in the Executive examine that.

Photo of John Swinburne John Swinburne SSCUP

A plague on all your houses. Whether members realise it or not, since the inception of the council tax pensioners have had to pay increases of 81 per cent while pensions have gone up by only 40 per cent. That might be all right for people who—

Photo of Murray Tosh Murray Tosh Conservative

Do you intend to ask a question?

Photo of Murray Tosh Murray Tosh Conservative

It sounds like a speech to me. Do come to a question; we have very little time left.

Photo of John Swinburne John Swinburne SSCUP

I realise that and I will come to the question as soon as I can.

Photo of John Swinburne John Swinburne SSCUP

Thank you. It is obvious that in a waged household—

Photo of Murray Tosh Murray Tosh Conservative

Mr Swinburne, I have taken your sound from you. Ask the question now or I will move to the next item of business.

Photo of John Swinburne John Swinburne SSCUP

Will the minister convince me that he is being fair to senior citizens? His laudable efficiency drive could result in a 4 per cent increase, or more, in council tax. How can he possibly disadvantage every senior citizen in the country with an increase that is well above the increase in their pension?

Does that satisfy you, Presiding Officer?

Photo of Murray Tosh Murray Tosh Conservative

That was not too hard, Mr Swinburne. Thank you.

Photo of Tom McCabe Tom McCabe Labour

We in the Executive have done many things to improve the quality of life for pensioners in Scotland, including introducing the concessionary travel scheme and the free central heating scheme. The Chancellor of the Exchequer has also done many things to alleviate suffering among Scottish pensioners.

It is easy to talk about pensioners as if everyone were in the same circumstances. We have a council tax benefit scheme, for which a large number of pensioners qualify. A large number of those who qualify are in receipt of maximum council tax benefits. I said in response to a previous question that we have commissioned an independent review of local government finance and we all await the outcome of that work.