The Scottish Government

This item was published during the term of a previous administration that ended in April 2007

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Funding settlement for local government

17/12/2003

The 2004-05 and 2005-06 funding allocations for individual councils were announced in the Parliament today.

Finance and Public Services Minister Andy Kerr confirmed the funding increases announced last December as part of the three-year settlement for 2003-06 and gave details of additional money for a number of new initiatives as well as transfers of resources both into and out of the grant paid by the Executive to local authorities.

Over the next two years, local authorities in Scotland will receive:

• £7.667 billion in 2004-05
• £7.992 billion in 2005-06

These figures represent year-on-year increases of £381.9 million or 5.2 per cent and £324 million or 4.2 per cent.

But, because the Department of Work and Pensions (DWP) will be taking over local authorities' responsibilities for funding housing and council tax benefit, the settlement represents an effective increase of £467.4 million or 6.5 per cent in 2004-5.

Mr Kerr said:

"Our priority is to create stability for local government and to provide the platform for the improved delivery of public services - that is what the people of Scotland expect and deserve.

"Local authorities have a crucial role to play in delivering public services. That is why we are supporting them with increased resources. We have provided the stability of three-year budgeting, we have removed council tax capping and we are introducing a new prudential system for capital expenditure.

"Today I am announcing each council's share of these resources. This should ensure that local government is in the best possible position to meet the challenges ahead. This funding will enable our partners in local government to drive forward real and sustainable improvements.

"The settlement guarantees an above-inflation increase in revenue grant for every local authority in both 2004-05 and 2005-06. The distribution of grant is based on a formula agreed with COSLA and will allow councils to deliver the level of services people expect.

"Nothing I have announced today should give local councils any reason to alter their council tax plans. Scottish local authorities have already announced the provisional figures for the next two years. Nothing I have announced today should have an adverse effect on these provisional figures."

Mr Kerr added:

"This settlement announcement also confirms the beginning of a radical change to the framework for capital investment by local authorities. With effect from April 1, 2004, councils will have the freedom and the incentive to increase capital investment in improving services.

"Councils will have the power to decide for themselves how much to invest, within prudential limits. We expect councils to make prudent, hard-headed decisions about that, based on affordable long-term plans and consultation with their citizens.

"In additional to this freedom we have put in place arrangements for the previously ring-fenced capital allocations to become specific capital grants. These grants will amount to £579.8 million over the next two years.

"Local government inScotlandcurrently has prudent financial management in place and is delivering excellent services but there is always room for improvement and I believe that the Executive can help in this by providing it with the tools and resources to provide that improvement."

Table One

INDIVIDUAL LOCAL AUTHORITIES AEF FUNDING ALLOCATIONS 2004-05 (ADJUSTED AND UNADJUSTED)

(1) The adjusted increase shows the increase in local authority funding net of Council Tax/Housing Benefit which from 2004-05 will be fully funded by the Department of Work and Pensions (DWP).

TABLE 2

INDIVIDUAL LOCAL AUTHORITIES AEF FUNDING ALLOCATIONS 2005-06

TABLE 3

The transfers of resources include money transferred in from HM Treasury to cover teachers' pension contributions and money transferred out to the Department of Work and Pensions (DWP).

The transfer out will mean that, in future, local authorities will get back from DWP, pound for pound, whatever they pay out in housing and council tax benefit claims. This is a simplification on the current system and has been welcomed by all the local authorities and other stakeholders

The transfer of resources to DWP is taking affect from 2004-05. The increase between the 20033-04 allocations and the 2004-05 figures are presented adjusted for this transfer, as well as on an actual basis.

Under the new prudential system for capital funding, from 2004-05 councils will have the power to decide how much to spend and borrow for investment in capital infrastructure, such as roads and schools. Councils' plans will be subject to scrutiny by external auditors and councils will have to demonstrate that their plans are prudent and provide value for money for local taxpayers.