Finance Secretary John Swinney
Local Government Finance Settlement 2008-11
Scottish Parliament, Edinburgh
December 13, 2007
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Presiding Officer, four weeks ago, I delivered this Government's first Budget in which I set out our spending plans for the next three years. I explained how the Budget would enable us to deliver on our plans to make Scotland a more successful country.
We also signed the historic Concordat between the Scottish Government and COSLA, signalling a new and much more productive relationship with local government - a relationship that recognises the unique role local authorities play in the delivery of public services.
The Concordat represents a significant shift in the way national government works with local government.
Built on mutual respect, it creates the basis for national and local government working together to develop an agenda of common purpose which will improve the lives and communities of the people of Scotland.
Last month, I announced that this government is investing record sums in local government - a package worth more than £34.7 billion over the next three years.
Today, I am announcing further details of our spending plans within that overall total - to which some additional transfers to local government have been confirmed since my earlier announcement.
These plans have been discussed with COSLA and demonstrate our commitment to work together with local government.
I will also be announcing the non-domestic rate poundage in Scotland for the next year. Copies of summary tables containing key information in this announcement are available from the back of the Chamber.
Settlement make up
I can announce today, that an additional £37 million in 2008-09, £34 million in 2009-10, and £34 million in 2010-11 funding has been added to the sums I previously announced for local government. This relates mainly to additional specific grant funding, police loan charge support and funding from the Department of Work and Pensions for 'Supported Employment'.
Taking into account these changes the overall local government settlement provides for £11.2 billion for 2008-09, £11.6 billion in 2009-10 and £12 billion in 2010-11. Those sums represent very considerable increases in local government funding. It means that by 2010-11 funding will have increased by £1.4 billion or 12.9 per cent from the equivalent amount in 2007-08.
That uplift has been achieved despite our receiving from the UK Treasury the tightest settlement since devolution.
There will be further additional funding for local government, to be confirmed in due course, including for the Edinburgh Tram project and transfers from the enterprise budget in respect of Business Gateway.
But it does not stop there. Local government will also benefit from European Social Fund and Regional Development Fund receipts which in 2008-09 will amount to almost £55 million.
Overall, therefore, this funding package is a very substantial one indeed. And that demonstrates the commitment and importance this Government attaches to sustaining and improving the public services provided for our local communities.
Key Figures
Let me turn now to the detail, starting with the breakdown of revenue funding.
Revenue funding makes up the majority of the local government settlement. It will amount to £10.2 billion in 2008-09. This is a 4.2 per cent increase on the equivalent 2007-08 figure.
In 2009-10, it increases by a further 4.3 percent to £10.6 billion; and in 2010-11 by a further 3.7 percent to just over a £11 billion.
Overall, revenue funding input is being increased by 12.7 percent across the period. That is a significant increase in such a tight settlement.
Benefits
This is a record level of investment in local government resources, but it is only one part of the package we agreed with COSLA in our Concordat.
The Concordat also contains a commitment to reduce ring-fencing which will give local authorities much greater freedom to allocate their resources, and open up more opportunities for efficiencies.
And, for the first time, we are giving local authorities the opportunity to retain all their efficiency savings to re-deploy to front line services.
To emphasise that we want to concentrate on what really impacts on individuals and communities, we are also moving away from a focus on processes and inputs to outcomes.
In other words, we are saying to local authorities and their partners: These are the national priorities on which we must all focus. We want local and national government to concentrate the resources at our disposal in the most effective and efficient way we can to deliver on these outcomes.
That includes working together to support vulnerable people, in which local authorities have been key players for many years.
Presiding Officer, I would like to set out how the distribution has been calculated.
Distribution
First of all, in line with the Concordat, there have been detailed discussions with COSLA about the distribution of the funding.
Both sides agreed, in those discussions, that it was important to ensure stability.
While that does not rule out further work to refine and improve the distribution mechanism - for example where more reliable or more appropriate data sources can be used - we agreed that, for spending allocations to local authorities, the existing methodology that underpins the allocations process should be maintained.
We have, of course, updated the distribution indicators to incorporate the latest information on population, deprivation, school numbers, police numbers, and so on.
In short, funding that was previously earmarked through local government - for deprivation, victims of domestic violence, mental health, homelessness, 'Supporting People', or for any of the previously ring-fenced grants which are now rolled up - such as flooding - will still be allocated to the same councils in the same way and according to the same practice as before. I have the highest confidence that our local authority partners will continue to deliver strong support in these areas through the national outcomes.
Before I leave distribution issues, there is one further point I would wish to make. I have received representations from a number of quarters that the funding allocated to the City of Edinburgh Council does not take sufficient account of the impact on Edinburgh of its role as Scotland's capital city.
I recognise that Edinburgh is increasingly a gateway for visitors and businesses to the rest of Scotland and that the developments needed to sustain and grow Edinburgh will be of benefit well beyond Edinburgh.
While the distribution formula we use within the local government settlement does take account, for example, of visitor numbers, travel to work flows and population change, l believe there is a case to examine the funding implications arising from that wider role.
As a first step, I have agreed that a study will be undertaken into this question jointly with the City of Edinburgh Council which will inform this process. I would like that to be concluded in time for my settlement announcement for 2009-10.
Floor
We have retained another aspect of the distribution mechanism which is designed to ensure stability - the so-called "floor mechanism".
To provide a fair comparison with 2007-08, and to maintain stability, the "floor" adjustment has been applied to the total core funding package excluding all the new specific grant funding streams that have been incorporated into the settlement from 2008-09. This mechanism ensures that all councils receive at least a minimum increase in grant.
This also has been discussed and agreed with COSLA in advance of this announcement and is in keeping with our new partnership arrangements.
Today I can confirm that we are setting the floor at:
- 3.4 per cent for 2008-09
- 3.0 per cent for 2009-10
- 2.5 per cent for 2010-11
Those councils which will benefit directly from this measure, are:
- In 2008-09, Eilean Siar, East Ayrshire, Inverclyde, the City of Glasgow, West Dunbartonshire and South Ayrshire
- In 2009-10, Eilean Siar, Renfrewshire and the Shetland Islands
- And in 2010-11, Eilean Siar, Renfrewshire, the City of Edinburgh, Shetland Islands, and East Dunbartonshire
This will guarantee that all councils receive at least a minimum year on year increase in grant support for core services in each of the next three years.
Capital
Presiding Officer, I gave the breakdown for revenue figures earlier. Included within the revenue funding is an element - loan charge support - to help local authorities service their existing debt and provides support for over £300 million of new borrowing in each of the next three years to help finance their capital programmes.
Investment in infrastructure is vital to growing the economy which is why we have made a significant increase in the capital budget to local authorities.
This sees around £3 billion invested in local authority capital over the period.
We have front-loaded the investment, so that local authorities are getting the main benefit up-front - with £975 million in 2008-09. That is a 13.3 per cent increase. The equivalent figures for 2009-10 and 2010-11 are £993 million and £994 million respectively.
This substantial increase in capital funding gives local authorities the opportunity to increase their investment in their assets, which are central to the delivery of quality public services, such as schools, housing, flood prevention and roads.
It will help councils in particular to plan for any investment required to deliver the reduction in class sizes in primaries 1 to 3.
As with the revenue funding, a number of specific grants have been rolled up into a General Capital Grant block.
Out of the £975 million capital funding to be provided in 2008-09, only £278 million will be ring-fenced for specific purposes. Local authorities will have the freedom to allocate the remaining funding according to their local priorities.
The significant level of capital funding shows our commitment to supporting a strong planned programme of capital investment in infrastructure by local authorities and delivering on the commitments we have set out.
Ringfencing
In 2007-08, £2.7 billion of funding given to local authorities is ring-fenced. That means over 60 individual funding streams, each of which has to be accounted for individually - 60 sets of agreements with each local authority , 60 reports from each local authority, 60 sets of regulations by the Scottish Government - all part of the micro-management Government has been involved in.
This government wants to give local authorities the freedom, the flexibility and the respect to meet national and local priorities - to manage their own resources. That is why we are rolling up over 40 specific grants worth over £1.7 billion next year - and going even further by 2010-11.
Our approach will involve a substantial reduction in the bureaucracy associated with all the reporting and monitoring that accompanied those former specific grants. Local authorities will be able to plan their services in a more cohesive and integrated fashion working with lead partners - instead of configuring services to meet the rules of ring-fencing.
While the change is a significant one, it should not be taken out of context. In 2007-08, some three quarters of the funding from central government to local government is not ring-fenced.
What we are doing under the Concordat is extending the element that is not ring-fenced to around 90 per cent.
A relatively small number of specific grants will now remain ring-fenced.
The largest is Police Grant which, in 2008-09, amounts to £0.6 billion. And on Police Grant I should add some further comments.
Funding for the Police Service in Scotland is contained within the overall local government settlement. Around half of that funding is provided directly to police authorities as Police Grant. That amount remains ring-fenced. The balance is provided to police authorities by local authorities.
Over the next few years, the Police Service will experience a relatively high level of retirements which will in turn lead to higher pension costs.
I can give assurances today that not only does police grant include an uplift for police pay and inflation and for the completion of the levelling up commitment begun in the last Spending Review, but that the cost of police pensions is included within the wider settlement.
The list of ring-fenced grants that will continue also includes the new 'Fairer Scotland Fund' for improving lives through regenerating communities, worth £145 million in 2008-09, which is the result of rolling up seven previous smaller grants - including the former Community Regeneration Fund.
The allocation to councils of each retained specific grant for the next three years is set out in the Finance Circular which is being sent to each local authority today.
Single Outcome Agreements
Both the Concordat and the Budget document include a commitment to move to a Single Outcome Agreement for every council, based on the agreed national outcomes and indicators.
It is through these Single Outcome Agreements that we will know whether there is delivery across council areas. We, together with local government, are committed to having Agreements in place for every council. I want to see them in place by April 1, 2008.
And we agree that we should seek to have similar Agreements in place for all councils and their community planning partners by April 1, 2009.
Together, they will help our aim of making Scotland a more successful country - one which is greener, is wealthier and fairer, healthier, safer and stronger, and smarter.
What benefits the funding will deliver
Presiding Officer, the over-arching purpose we have set out for this Government is focusing public services, on creating a more successful country, with opportunities for all of Scotland to flourish, through increasing sustainable economic growth.
Through our Concordat with local government we have for the first time aligned the focus of national and local government on shared national outcomes and national priorities - to focus what we want to achieve together for Scotland
The Government Economic Strategy and our Budget in the last month show how we will deliver on this.
This settlement today creates the environment in which local authorities can make an even greater contribution to improving the lives of the people of Scotland.
In the Concordat and in this local government settlement, we have shown how we will back our commitments. For example:
For Education:
- to improve the learning experience for children and young people in schools and nurseries,
- to reduce class sizes to a maximum of 18 in primaries 1 to 3 as quickly as possible;
- to make substantial progress towards a 50 per cent increase in pre-school entitlement with access to a nursery teacher for every child; and
- to give more school pupils opportunities to experience vocational learning.
We have also signed up to:
- extend entitlement to nutritious free school meals to all primary and secondary schools pupils of families in receipt of maximum child or working tax credit; and
- to provide allowances for kinship carers of "looked after children".
For Community Care we have agreed to:
- improve care homes
- to increase the current standard payment levels for free personal care
- to deliver an extra 10,000 respite care weeks per year at home and in care homes, along with additional resources for local care centres
- And for Justice, we are providing £54 million over three years to recruit an additional 500 police officers by 2011 as part of our commitment to make an additional 1,000 police officers available in our communities through increased recruitment, retention and redeployment
Council Tax
Another commitment within the Concordat is that council tax rates in each authority will be frozen at 2007-08 levels.
We have made an additional £70 million available in 2008-09 to cover the cost of a council tax freeze - so that each council can keep its council tax at 2007-08 rates. On average households in Scotland across all income and Council Tax bands will be better off with a Council Tax Freeze.
The measure to freeze the Council Tax is of course the first step to reduce the burden of local taxation which will continue with our proposals to replace the council tax by a fairer local tax.
While our proposals are being developed, the council tax freeze will give some respite to those who have seen their council tax bills growing by well above the rate of inflation over the past decade.
Small Businesses
We are making things better for businesses in Scotland.
Small businesses are the life-blood of our communities: we want to provide them with the competitive advantage that they need.
The Government Economic Strategy identifies lower business taxation for small and medium-sized businesses as one of a range of measures to create a more supportive business environment and increase sustainable economic growth in Scotland.
So in addition to all the other support we - and our partners in local government - provide to Scotland's small businesses, we are acting to relieve directly the burden of fixed costs, which are a disincentive to start up in business and a inhibitor of business expansion.
There has long been a consensus that the current system is unfair on small business. Business rates account for a higher proportion of fixed costs for small businesses than they do for larger businesses. This is why we are introducing the Small Business Bonus Scheme from April 1, 2008 to deliver a substantial reduction in the burden of business rates for the smallest businesses which will benefit the most.
The new Scheme, which will be administered by local authorities, will give firms the freedom and the resources they seek to grow and to invest in their future, creating more and better paid jobs and increasing the vibrancy of our villages, towns and cities.
Non-domestic rates Poundage
A fair taxation system is vital if we are to attract and retain the best businesses to grow and thrive in Scotland and in our local communities.
In our Economic Strategy, we gave a commitment to "ensure that the business poundage rate in Scotland will not rise above the English rate during the lifetime of the Parliament".
I can confirm today that the Scottish non-domestic rates poundage will be 45.8p for 2008-09 - the same as for England.
The modest poundage supplement, which larger businesses pay on properties with a rateable value of over £29,000, will be set at 0.4p, in line with England. This means that Scottish firms, large and small, will not pay more in rates than comparable businesses south of the border.
I would remind Members that businesses in Scotland do not pay the poundage supplement until the rateable value of their premises is £29,000, which is significantly higher than the English threshold of £15,000, or £21,500 in London.
In such a tight settlement, we are targeting our resources at those who need it most. By delivering for the small businesses that sit at the heart of our towns, cities and villages, we are supporting truly sustainable economic growth in our local communities and making this a more successful country for all.
Third Sector
Finally, I would like to talk about another key player in delivering our public services - the third sector. This Government attaches the greatest importance to developing the role of this sector. It is why we are increasing our own funding substantially to the third sector to over £93 million over the next three years.
Of this, £30 million will be for our new Scottish Investment Fund - designed to make social enterprises more sustainable in the longer term and better placed to deliver quality public services.
I encourage local authorities to foster a positive relationship with the third sector and recognise the enormous contribution the third sector can make to the delivery of our shared national outcomes.
Conclusion
Presiding Officer, in conclusion I am delighted to be able to present the detail of the local government settlement before Parliament today:
- knowing that it is based on a new relationship and joint working with local authorities;
- knowing that this government is putting records levels of investment into local government;
- and knowing that we have taken the right decision to open up resources for local government, which will create new and better opportunities for the people, the businesses and the communities of Scotland.
This relationship opens up a new era.
Working in partnership with local government we can make Scotland a more successful country.