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Aberdeen City Council
04/04/2008
Cabinet Secretary for Finance and Sustainable Growth, John Swinney, has responded to a letter from Nicol Stephen MSP, regarding Aberdeen City Council's financial situation. In the letter he says:
Thank you for your letter of 30 March about the financial situation in Aberdeen City Council.
Let me say at the outset that I absolutely agree the Council is facing a set of very difficult circumstances. But your letter seems to me to miss a number of crucial issues. It is clear that the Council's problems are not new. They have been building up over a number of years and no effective action has been taken by previous administrations of the Council to rectify this situation.
What concerns me in particular is that the Council is in a position where, according to Audit Scotland's Best Value report on Aberdeen City Council made public on 20 March, its financial health is now "precarious". That would appear to me to suggest that the new administration of Aberdeen City Council is wrestling with problems inherited from its predecessors.
As I understand the position, the previous administration within the Council was budgeting to fund expenditure which it could only afford by disposing of capital assets. With significant deficits in past years, such a strategy was bound to be risky and must beg the question as to whether the Council had been, to put it simply, spending beyond its means. In these circumstances, the new administration in the Council would appear to have had no choice but to take remedial action.
It is also concerning to note from the Council's own financial returns (Provisional Outturn/Budget Estimate) that the Council has spent almost £50 million more than they had budgeted to spend in the period 2002-07. This has resulted in the Council's general revenue fund balances being reduced from a surplus of £23.5 million on 1st April 2003 to a deficit of £4.4 million on 1st April 2007. This confirms that the previous administrations have indeed been spending much more in-year than was budgeted for and that is a situation that is clearly not sustainable.
As regards this Government's position, Aberdeen City Council is set to receive funding of £1.2 billion from the Scottish Government over the three years 2008-11. They will receive £367.6 million in 2008-09, £385.5 million in 2009-10 and £401.2 million in 2010-11.
Included within the overall figure of £367.6 million for 2008-09 is an above inflation increase of 3.8 per cent plus an additional £3.3 million in support from the Scottish Government to freeze the council tax which is the equivalent of a 3.2 per cent increase in the council tax.
This overall funding package should have been more than sufficient to ensure that the Council was able to not only maintain existing services but also increase the front-line services it provides for the people of Aberdeen.
It is therefore completely misleading to suggest that the decisions which the Council has made are in some way due to insufficient funding from the Government. As Audit Scotland has quite clearly shown, there are other reasons.
Indeed, if the Council wished to sustain its current level of expenditure, I calculate that the Council would have had to increase its Band D equivalent council tax by £307 in 2008-09 (or 34 per cent) for each household. Either that, or there would have had to have been an increase in Scottish Government funding of over 13 per cent. No Council could have expected such an increase this year considering the fact that the Scottish Government budget rose by only 0.5% above inflation.
Your letter concludes by asking this Government to do four things: (i) support a financial turnaround in Aberdeen; (ii) look again at the funding formula; (iii) examine what flexibility can be offered to the Council; and (iv) examine the resources allocated to them as part of the council tax freeze exercise.
I was somewhat surprised that you should raise these points in the way you have as I can also find no evidence that the previous Government (in which you were the Deputy First Minister) took any steps to address the issues you are now raising.
On your first point, as we made clear in the Concordat we signed with COSLA last November, this Government believes that the budgetary decisions made by councils should be the responsibility of each council. As independent statutory bodies, accountable locally to their own electorates, we believe it is right and proper that national government should hold local government to account for their delivery of agreed national outcomes. We do not believe it is for national government to micro-manage councils in the process.
As regards the funding formula, we have used the same needs based formula we inherited when we took office. As you will know this takes into account various indicators of need including population, deprivation and rurality. These indicators are regularly uprated to ensure they take account of the most up-to-date figures available at the time. This methodology is agreed with COSLA with input from Directors of Finance from all Scotland's local authorities.
As you will also know, this formula has been in place for many years. But we are not complacent and I have made clear on a number of occasions, most recently in Parliament on 27 March, that we intend to review the formula. This will be done jointly with COSLA to see what changes should be made for the next settlement in 2011-12.
Your third point is that we examine what flexibility can be offered to the Council. Again I would refer you to the Concordat. It makes clear that we are already extending substantially the flexibility councils have to allocate their resources locally by removing significant bureaucracy and ring fencing.
As regards your final point, because Aberdeen City Council's council tax is relatively high compared to other councils, and we allocated the funding provided for the council tax freeze in line with each council's expected council tax income, Aberdeen City Council has actually already received a relatively high share of the extra funding.
It is crystal clear that the financial challenge now facing Aberdeen City Council is a direct result of previous administrations of the council not living within their means.
In these circumstances, I welcome the Accounts Commission's decision to hold a public hearing. I await the outcome of the findings with interest. I will continue to monitor the situation in Aberdeen and I will continue to assess what further support the Scottish Government can give to the City Council. I have already met with the Council but I would, of course, be happy to meet with you and the leadership of the Council to discuss these issues probably once the outcome of the public hearing is known.
Because of the significant public interest in this issue I am releasing this letter to the media.
JOHN SWINNEY