Local Government Finance Settlement 2013-14

– in the Scottish Parliament on 27th November 2012.

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Photo of Tricia Marwick Tricia Marwick None

The next item of business is a statement by John Swinney on the local government finance settlement 2013-14. The cabinet secretary will take questions at the end of his statement, so there should be no interventions or interruptions.

Photo of John Swinney John Swinney Scottish National Party

My statement will cover two areas. I will set out the terms of the provisional local government finance settlement for 2013-14 and I will make a number of announcements on business rates.

The settlement is firmly set in the context of the on-going relationship between the Scottish Government and local government. We have reaffirmed our commitment to working together on our joint priorities to deliver better outcomes for the people and communities of Scotland.

As a result of our partnership working, we have worked closely with local government to provide fair and equitable settlements. Between 2007-08 and 2012-13, the resources available to the Scottish Government through a combination of the departmental expenditure limit and non-domestic rates increased by 6.4 per cent. Over the same period, local government’s budget increased by 8.9 per cent, demonstrating the strength of the financial settlement that we have agreed with local government in challenging financial times.

Following spending review 2011, total funding for local government from 2012 to 2015 would be a larger share of the funds controlled by the Scottish Government than the position we inherited when we first came to office in 2007-08. Although in 2013-14 our DEL will in cash terms decrease by £162 million compared with the previous year—the equivalent of a real-terms cut of 3 per cent—our record shows that we have provided a fair settlement to local government that continues to represent the best outcome that can be achieved in the current financial climate.

The draft budget 2013-14, which was published on 20 September, confirmed our draft budget for the second year of our current spending review period, including the headline allocations for local government. However, this local government finance settlement comes at a time of major restructuring of the services that are delivered by local authorities with the creation of the new Scottish Police Authority and fire service. As a result, funding for police and fire has been removed from the settlement from 2013-14, which means that exact funding comparisons with previous years are no longer possible.

Today, I can announce the provisional funding allocations to individual local authorities for 2013-14. Copies of summary tables containing the key information in my statement are available at the back of the chamber.

The Government reached an agreement with the leadership of the Convention of Scottish Local Authorities on an approach to delivering joint priorities between national and local government. That was described in my letter to COSLA of 21 September last year, which set out the terms of the local government settlement for 2012 to 2015. As part of the settlement, local authorities will deliver certain specific commitments: freezing the council tax, which is continuing to help families during tough economic times, maintaining teacher numbers in line with pupil numbers and securing places for all probationers under the teacher induction scheme.

However, the package being offered to local authorities is conditional. Although it is agreed between the Government and COSLA’s leadership in principle, it is now up to individual authorities to decide whether they wish to accept it. If they accept, they will receive their needs-based share of the overall revenue funding; if they choose not to accept, they will not receive their full share of the package of resources. The conditional amount of the overall package is worth in total £109 million across the whole of local government and includes £70 million for the council tax freeze and £39 million for the teacher commitments.

Total support for local government in 2013-14 will amount to more than £9.9 billion, which includes revenue and capital funding along with income raised from business rates. That represents an increase in funding of £35.2 million on a comparable basis with 2012-13.

Within the total available, support for revenue will amount to £9.4 billion in 2013-14, which represents a flat cash settlement on a like-for-like basis. There have been a number of changes to the local government budget for 2013-14, and the changes to revenue funding included in the draft budget were as follows: a net reduction of £954.7 million as a result of the transfer of responsibility for policing to the new Scottish Police Authority; a net reduction of £274.8 million as a result of the transfer of responsibility for the fire service to the new Scottish fire and rescue service; an increase of £23 million following the United Kingdom Government’s abolition of council tax benefit—as agreed with local government, 80 per cent of that sum will be distributed initially, with the final 20 per cent distributed as a redetermination when 2012-13 data is available—and an additional £3 million for free personal and nursing care.

There have also been a number of changes to the local government budget since the draft budget was published: £1.5 million for the provision of early learning and childcare for looked-after two-year-olds; £3 million for family support funding; and £720,000 for the blue badge scheme. In addition—and not included in today’s figures—are the moneys transferring from the Department for Work and Pensions for the devolved social fund programme, which is subject to final agreement with the DWP and COSLA.

Although the net reduction for police included in the 2013-14 draft budget document was £954.7 million, there might be a slight reduction in that figure following on-going discussions with individual local authorities and the current police boards. The outcome of the consultation process will determine the exact figure to be removed.

Following the outcome of spending review 2011, overall local government capital funding was increased by £34.7 million in 2013-14 and £47.6 million in 2014-15 as a result of consequential funding announced at stage 3 of the 2012-13 budget bill. That delivered on the Government’s commitment to maintain local government’s share of the total capital budget at 28 per cent.

Following the transfer of responsibility for the police and fire services, capital funding has been reduced by a total £29.9 million in 2013-14. That means that capital funding for local government in the settlement for next year amounts to £0.5 billion. In addition, local government will benefit from capital funding for the school building programme, which is estimated at £61.2 million, and funding for digital infrastructure of £14.8 million in 2013-14.

I turn to business rates, which are a key issue for Scotland’s business community and an integral part of local government finance. This Administration acknowledges that business rates play a part in attracting and retaining businesses in Scotland. We are delivering the most competitive business rates available anywhere in the United Kingdom, for example through the small business bonus scheme. I am delighted to say that the scheme is at a record high, with more than 89,000 business properties benefiting from it.

In our election manifesto and in our economic strategy, we committed that we would not allow the poundage for business rates to rise above what it is in England during this session of Parliament. The UK Government is expected to announce the English poundage in the next few days. I reaffirm my commitment to match the English poundage and will confirm the Scottish poundage rate as soon as possible after the rate for England is announced.

As well as maintaining a competitive approach to business rates, we must acknowledge that business rates are an integral part of our public finances that help fund the services on which our communities and businesses rely. That is why I have committed to embark on a review of business rates in advance of the next revaluation to provide the best support that we can for business.

I am pleased to confirm today the publication of our business rates consultation, which will provide a comprehensive and fundamental review of the rating system. The consultation delivers on my commitment to undertake a review and enables us to seek the views of all business ratepayers, representative bodies, professional advisers and agents, and citizens. The scope of the consultation will seek views on the full spectrum of business rates policy, including the effectiveness of current reliefs, transparency and openness, and tax avoidance. In addition, I am aware that some ratepayers are dissatisfied with the appeals system and the consultation poses questions on how that can be improved.

Any changes to the rating system resulting from the consultation will be put in place in time for the next revaluation, but early actions that are identified and affordable can be implemented much sooner. However, I must emphasise that the needs of all ratepayers must be balanced against the need to fund services, so the cost of any reforms must be balanced from savings elsewhere within the rating system.

The next revaluation would normally take place in 2015, but, as Parliament knows, the United Kingdom Government has taken the decision to delay its next revaluation to 2017. That decision creates a set of circumstances that could undermine our commitment to match the poundage rate south of the border. Given that for many years before we took office business rates were set at a higher level than in the rest of the UK, I believe that that danger must be avoided. I confirm, therefore, that the date of the next revaluation will be 2017. The Scottish Government is confident that by that stage we will have a range of economic powers achieved through independence that can create further competitive advantages for businesses in Scotland.

The outcome of spending review 2011 maintained local government’s revenue funding and ensured that local authorities would receive a larger share of the funds contributed by the Scottish Government, including business rates, than they did under the position that we inherited in 2007-08. The provisional allocations that I have announced to Parliament today maintain our social contract with the Scottish people, and ensure that the revenue funding available to local government for its remaining responsibilities is maintained.

The revenue allocations are inclusive of resources to enable local authorities to continue to freeze their council tax, which is a crucial element of the social contract with Scotland. That is one bill that, in the face of increasing costs, families can know will not rise. I hope that all local authorities will take up that offer and deliver a much-needed boost for hard-pressed families in these tough times.

In line with our manifesto and economic strategy, I am delighted to have confirmed for 2013-14 that the Scottish Government will again deliver on our commitment to businesses that we would not allow the poundage rate for business rates to rise above what it is in England during the lifetime of this session of Parliament. To keep Scotland’s competitive edge, I have today launched our consultation on business rates to provide a thorough and comprehensive review of the business rates system in advance of the next revaluation in 2017.

Today marks the start of the normal consultation period with local government on the provisional allocations. I will bring the final figures to Parliament as part of the local government finance order early in the new year.

The Presiding Officer:

The cabinet secretary will take questions on the issues raised in his statement. I intend to allow around 20 minutes for questions; we will then move to the next item of business.

Photo of Sarah Boyack Sarah Boyack Labour

I thank the cabinet secretary for the advance copy of his statement, but I am disappointed by its contents. The settlement is no surprise, given that local services took the lion’s share of the cuts last year, but the reality is that it will be tough across Scotland.

Most of the questions in Professor Bell’s report to the Finance Committee this year focused on local government, but we have yet to hear answers from the cabinet secretary to those vital questions.

The cabinet secretary calls the budget “fair”, but where is the analysis of the impact on jobs and on the people who rely on services and who will see those services cut or face increased charges? As the Scottish Government publishes its paper on supporting growth, where is the acknowledgement that capital for local authorities has been slashed and that the squeeze on revenue will mean that prudential borrowing simply is not an option for the projects that are needed locally? Local companies rely on local authority projects and on people spending in local shops and businesses. The squeeze will not make things easy for them.

The Scottish National Party likes to talk about shovel-ready projects and local authorities are ready with their shovels, but they do not have the cash to get social rented housing built again. That is a key building block for Scotland’s recovery.

Where is the fairness for people who will find their services rationed and their charges increased? That is the cost of the underfunded council tax freeze.

We need to know how many jobs will be lost, and there has been nothing about wages. We welcome the fact that the living wage is being adopted across Scotland, but how many jobs will go in our local authorities in the next 12 months?

Photo of John Swinney John Swinney Scottish National Party

I reiterate that the local government settlement that the Government has put forward is based on a strong series of financial settlements that we have put in place for local government. The analysis that I provided to members was that, between 2007-08 and 2012-13, the Scottish Government’s income increased by 6.4 per cent, but the local government budget increased by 8.9 per cent. I will explain matters quite simply. That demonstrates that local government’s allocation of resources has grown at a faster rate than the Scottish Government’s overall budget. To me, that is a good settlement for local government.

Sarah Boyack talked about reductions in capital. I do not know whether the Labour Party has missed the fact that the United Kingdom Government has dramatically reduced capital expenditure budgets across the United Kingdom. I cannot allocate money that I do not have—I have frequently gone round the houses on that point with the Labour Party. Local government was assured that it would have 28 per cent of the capital budget available to the Scottish Government as part of the spending review settlement, and I have fulfilled that assurance.

I am glad that Sarah Boyack has acknowledged that the Government’s leadership on the living wage is encouraging more participation by local authorities in taking up that priority. On behalf of the Scottish Government, I unreservedly welcome the number of local authorities that now pay the living wage, and I am delighted that our partners in local government are working with us so effectively in that respect.

On local government’s approach to borrowing, it has a prudential code to follow in borrowing for capital investment purposes. The First Minister and the president of the Convention of Scottish Local Authorities, Councillor O’Neill, wrote jointly to all the local authorities in September to encourage the maximisation of investment in capital projects. I have seen a number of very helpful and positive responses from leaders of local authorities in Scotland of all political persuasions, and I welcome the contribution that they have made to the process of strengthening the capital expenditure provisions in Scotland in such difficult financial times.

Photo of Margaret Mitchell Margaret Mitchell Conservative

I thank the cabinet secretary for advance sight of the statement on the financial settlement. Given that he said in the statement that the revaluation of business rates will be delayed until 2017, I would be grateful if he could confirm the following. First, who specifically was consulted on that decision? Secondly, why has there been no public consultation in advance of the decision being taken? Finally, why has it taken the cabinet secretary 11 months to launch the business rates review consultation, which last December he promised would follow “shortly”?

Photo of John Swinney John Swinney Scottish National Party

Clearly, as I have set out, my decision on the business rates revaluation was taken for the reason of ensuring that we can fulfil our commitment to match the English poundage for the duration of this parliamentary session. That was the commitment that we made to the people of Scotland in our election manifesto.

On the question of public consultation, the regulatory provisions that need to be put in place to delay a revaluation will be subject to parliamentary scrutiny and dialogue within Parliament. Of course, that gives rise to consultation in that respect.

Finally, on the timing of the business rates review consultation, after making the comment to Parliament that Margaret Mitchell correctly identifies, I took a decision that I would wait for the outcome of a significant case about business rates, which was heard by the Court of Session in May. I expected to have the outcome of that within a number of weeks after May, but I did not get the outcome until much later in the year—in October, if my memory serves me right. As a consequence, I did not think that it was sensible to proceed with the consultation until I had the opinion of the court on what was a fundamental issue relating to material change of circumstances. That is the rationale for why the Government held off from issuing the consultation paper until such time as the court judgment was with us, so that we could have a more open discussion based on the knowledge that we gained from the judgment. Of course, the consultation period is now open, and I very much look forward to the input to that process from all interested parties.

Photo of Kevin Stewart Kevin Stewart Scottish National Party

Will the cabinet secretary outline how schemes such as the business rates incentivisation scheme will benefit councils that are successful in attracting new investment into their communities?

Photo of John Swinney John Swinney Scottish National Party

Essentially, the business rates incentivisation scheme is designed to provide a motivation for local authorities to encourage economic growth within their localities. The scheme enables local authorities to share a greater proportion of the growth in business rates revenue from their localities than has been the case in the past. We have now given local authorities the framework within which they can operate in that respect, which obviously provides flexibility to local authorities to try to encourage a greater degree of economic activity as a consequence of the work that they undertake. I very much encourage local government to take a full part in that scheme, which I think can deliver real benefits to local economies from the greater growth that could be delivered as a consequence of the actions of local government in Scotland.

Photo of Anne McTaggart Anne McTaggart Labour

What impact will the transfer of financial resources and responsibilities to Scotland’s new police and fire services have on local government budget settlements? Furthermore, how will the Scottish Government ensure that any initial or subsequent adjustments to the figures are redistributed in a way that is transparent and accountable both to local government and to residents and businesses across Scotland’s 32 local authorities?

Photo of John Swinney John Swinney Scottish National Party

I have placed at the back of the chamber a note—I think that it is as transparent as they get, although I would be the first to say that it is quite complex—which goes through the way in which we have removed the element of local government funding that is related to police and fire services. A number of adjustments are set out in that note, which is available for members to scrutinise.

With regard to on-going budgets, the police and fire services budget will no longer appear in the local government finance settlement; it will appear in the justice budget. Therefore, parliamentary scrutiny of the issue will be focused on the contents of the justice secretary’s budget rather than the local government settlement.

I mentioned in my statement that there is one remaining adjustment to be made, which relates to some of the funding arrangements that affect a couple of police boards in Scotland. Judgments on that are yet to be arrived at. The sum of money that is involved is relatively small in the grand scheme of things, but we are continuing discussions to seek agreement on the final adjustments that will be required. I stress that that applies, I think, to just two police board areas in Scotland.

Photo of Kenneth Gibson Kenneth Gibson Scottish National Party

I welcome the cabinet secretary’s statement. In light of Sarah Boyack’s questions, will the cabinet secretary tell us where local government would be now if, on assuming office, he had followed the advice of Labour’s Wendy Alexander and top sliced the local government budget by at least 3 per cent year on year, and where our businesses would be if the tax rate poundage remained on average 8.5 per cent above England’s, as it was for seven consecutive years under Labour and the Liberal Democrats?

Photo of John Swinney John Swinney Scottish National Party

I have two points for Mr Gibson. I reiterate that, since 2007, the local government budget has increased at a faster rate than the Scottish Government’s budget, which demonstrates and validates the strong settlement that we have given to local government over the years. Figure 2 in the consultation document that the Scottish Government has published today sets out the relative poundage rates in Scotland and England in the period between 2000-01 and 2007-08. Mr Gibson will see that, in every year, the poundage rate was higher in Scotland than it was in England. Of course, we have maintained the poundage rate at the same level as in England throughout the period.

On small business rates, between 2003-04 and 2007-08, our predecessors spent between £20 million and £25 million each year on the small business rates relief scheme. Since 2008-09, the Government has spent between a low of £73 million, which was when we started the scheme, and a high of £145 million, which was in 2012-13. That is a clear illustration of the scale of assistance that has been put in place for the small business community in Scotland.

Photo of John Pentland John Pentland Labour

Although the Local Government and Regeneration Committee has completed its report on the budget, this is my first chance to question the cabinet secretary on the issue. We are asked to accept that the settlement is fair, but how can it be fair that local government is carrying the overwhelming burden of Scottish Government cuts? North Lanarkshire Council is suffering more than most. Services and more than 1,000 jobs are threatened in an area that desperately needs economic growth. Will we get the chance to explore the issue in my committee?

Photo of John Swinney John Swinney Scottish National Party

I most definitely have not refused an invitation to go to the Local Government and Regeneration Committee to discuss those issues. If that committee wishes to question me about them, I will of course attend. I have not had that request, but I will certainly attend if a request comes.

On Mr Pentland’s substantive point about local government and the reductions in public expenditure, I must return to a point that I have made about three or four times now. Since 2007-08, the resources that are available to the Scottish Government have increased by 6.4 per cent, but the resources that are available to local government have increased by 8.9 per cent. I do not know how one can look at those two figures and say that local government is bearing the lion’s share of the cuts in public spending. I point out to Mr Pentland that, between this year and next, on a like-for-like basis, we are actually allocating more resources to local government, albeit for specific purposes that we have agreed with local government in relation to council tax benefit, free personal care and other matters that are included in the settlement that I have announced today.

Photo of Willie Rennie Willie Rennie Liberal Democrat

I thank the finance secretary for providing an advance copy of his statement. Last year, he made a commitment that every council in Scotland would receive at least 85 per cent of the average funding. We supported him last year so that Aberdeen could get extra finance. Since then, the fire and police funding has been reviewed, as the cabinet secretary set out. It now seems that Aberdeen City Council’s funding has fallen to 79 per cent of the average. Can he confirm that he will make up the difference to 85 per cent?

Photo of John Swinney John Swinney Scottish National Party

On local government funding, we continue the practice of our predecessors and, once we establish a spending review settlement for a three-year period, we apply various measures—let me call them protective measures—for local government finance over that period. For example, we apply the funding floor to protect a range of different local authorities from changes in the settlement over the three years.

Last year, I applied the approach that gave further protection to the City of Edinburgh Council and Aberdeen City Council, as we had set out that we would do. That approach is applied over the duration of the spending review, so no review of it will be undertaken until we embark on a further spending review to provide for funding after the conclusion of the financial year 2014-15. That continues the practice of our predecessors in office.

Photo of Willie Coffey Willie Coffey Scottish National Party

Will the cabinet secretary outline how the local government settlement will implement reform of public services and the proposals of the Christie commission?

Photo of John Swinney John Swinney Scottish National Party

Local government is a central participant in the public sector reform work that the Government is undertaking. We are taking forward a range of different responses to the Christie commission, principally on the integration and collaboration of local public services.

Local government is actively involved in that work with a range of third sector providers, the health service or the police service at a local level. It is also a full and active partner with the Government on implementing the preventative expenditure agenda.

Local government is actively involved in the public service reform agenda on a range of areas, and we welcome its participation in that process.

The Presiding Officer:

I remind members that they should keep to issues that are in the statement when they ask a question.

Photo of Chic Brodie Chic Brodie Scottish National Party

The cabinet secretary should be aware that, in the past financial year, South Ayrshire Council underspent its budget by just over £7 million and, after provisions, reserves and overspends, still had a net underspend of £3.7 million. It also invested £7 million in Birmingham City Council and Salford City Council at approximately half the Bank of England base rate.

Will the cabinet secretary reaffirm the guidance that the Government and COSLA have given on local council investment and spend strategies? Will he consider the involvement of the Accounts Commission and Audit Scotland to ensure that South Ayrshire Council and others fulfil their expenditure and monetary responsibilities in the current economic climate and in the future?

Photo of John Swinney John Swinney Scottish National Party

Guidance is in place on local government investment strategies as part of councils’ treasury function. Individual local authorities must make appropriate judgments about the destination of any investments that they make. They must take into account factors of risk and return. However, that is fundamentally a matter for each local authority to determine.

The Accounts Commission will, of course, be actively involved in scrutinising those issues in relation to local authorities’ financial performance, so the independent scrutiny that Mr Brodie requested is part of the existing arrangements.

Photo of Neil Findlay Neil Findlay Labour

I refer to the table that was given with the statement. What additional finance will be provided to West Lothian Council to cope with the appalling situation following the closure of Hall’s of Broxburn?

Photo of John Swinney John Swinney Scottish National Party

As Mr Findlay knows, that matter is the subject of active dialogue between me and West Lothian Council. We are providing practical assistance, which comes at a cost, to support many of the individuals whom Hall’s of Broxburn has already made redundant. That financial contribution does not come through the local government finance settlement; it comes through other financial arrangements.

The Hall’s of Broxburn task force will also consider issues relating to the economic recovery within West Lothian. I have already signalled that the Government will make a financial contribution towards that.

The Presiding Officer:

Given the importance of the statement, I intend to continue until all members who have requested to ask a question have had an opportunity to do so.

Photo of Colin Beattie Colin Beattie Scottish National Party

Will the cabinet secretary outline what impact the public health supplement has had on businesses and how the proceeds from the supplement will be spent in the coming year?

Photo of John Swinney John Swinney Scottish National Party

The resources that have been generated from the public health supplement form part of the assessment of non-domestic rates income that I have made within the budget settlement. In addition, we have clearly set out, in partnership with local government, various ways in which we are taking forward a range of preventative spending measures—the total over the spending review period is £500 million—that are designed to ensure that we take early action to remedy some of the challenges and difficulties that we experience in our society.

The public health supplement forms part of the assessment of non-domestic rates income that I have made, and it is reflected in the policy priorities of the spending review.

Photo of Mark Griffin Mark Griffin Labour

Will the cabinet secretary collate the savings packages that the 32 local authorities will produce as a result of the finance settlement that has been outlined today, to allow his department to carry out a full economic impact assessment of them? Will he make that information available to the Parliament?

Photo of John Swinney John Swinney Scottish National Party

That really is a matter for each individual local authority to take forward. As Mr Griffin will know from his experience in North Lanarkshire Council, a range of options are put forward, a large proportion of which are not pursued by the elected members for the simple reason that they do not have to make all the savings that are suggested.

As we go through a process of reform of public services, we clearly identify other and different ways in which services can be delivered, which can have better outcomes for people in Scotland. We should not be afraid to change the way in which we deliver public services to deliver better outcomes for the citizens of our country.

The Presiding Officer:

I call Gavin Brown, to be followed by a brief question from Margo MacDonald. That does not mean that Gavin Brown should not be brief as well.

Photo of Gavin Brown Gavin Brown Conservative

How many local authorities will get a cash-terms cut to their revenue budgets in 2013-14?

Photo of John Swinney John Swinney Scottish National Party

Mr Brown will forgive me if I do not give him an answer to that specific question in relation to the budget today, but if he needs me to write to him about that later, I will certainly do so. I am sure that, given a couple of minutes, I could run my eye down the table and tell him the exact answer.

The reason why any local authority will receive a cash-terms cut is because of the application of the distribution formula for local authorities, which, as he will know, is affected by a wide variety of indicators—principally population change, but also deprivation, sparsity of population, issues such as special island status and a variety of matters of that nature. Those are the relevant factors.

If Mr Brown looks at the table that I have supplied to members, he will see that the expenditure, taking account of the police and fire changes, totals £9.365 billion in 2012-13 and that it will be £9.396 billion in 2013-14, which is, of course, a higher number than in 2012-13.

Photo of Margo MacDonald Margo MacDonald Independent

Mr Findlay’s question made me think of this. Will the budget be affected in any way if the worst happens in Clydeside and a shipyard is closed?

Photo of John Swinney John Swinney Scottish National Party

The Government responds to any particular circumstances that have an adverse economic impact on different parts of the country with a variety of different interventions. The Government is working, of course, to avoid the outcome that Margo MacDonald suggested, and we will continue to do so with all our efforts.