Taxing times ahead for local government in Scotland

View of Glasgow

George Black, Visiting Professor, IPPI

George Black
Visiting Professor, International Public Policy Institute
george.black@strath.ac.uk

19 December 2017

A “fair” financial settlement?

In the lead-in to the Finance Minister’s budget announcement on 14 December, the Convention of Scottish Local Authorities (COSLA) made a call for a “fair” financial settlement which was equated to additional funding of £545 million.

In the event, the Finance Minister announced that local government is to receive a “flat cash” settlement while COSLA claimed the figures represent a cut of £153 million.

COSLA went on to state that “there are serious financial challenges that lie ahead in several areas and there is no doubt that these will have an impact on the essential services that Councils deliver”. Crucially, they added “A particular issue is public sector pay if this is not fully funded”.

So, no mention from COSLA of the £545 million they said was needed just to stand still. Instead, their response is much more measured.

So, why a difference in the figures?

The headline figure of £9.63 billion does indeed represent a “flat cash” settlement. However, it is not a like-for-like comparison with the previous year. The 2018/19 funding includes a number of new Scottish Government policy commitments which will require to be delivered by Councils.

For example, £52.2 million is for the expansion of Early Years Education and Childcare provision. These new policy commitments total £153 million and, once they are deducted from the “flat cash” settlement, there is a cut of £153 million for essential local government services.

While the Finance Minister’s claim may be regarded as misleading, the position is considerably clearer than in the two previous years where the two parties were talking a different language.

For example, revenue grant compared to total estimated local authority expenditure, or local services compared to local government. This clarity is in itself is a positive step forward.

So, in this regard at least, COSLA has been successful. The 2018/19 financial settlement is much easier to explain than the two previous years. And this is not a moot point as I will go on to explain.

Budget negotiations start now

The 2016/17 budget was the last to be presented by a Scottish Government with an overall majority. Under those circumstances they could present a budget package to the Scottish Parliament sure in the fact that it would receive approval.

The 2017/18 budget was different; it was a budget presented by a minority Government. As such, intense negotiations took place after the budget was first presented to Parliament.

One of the outcomes of these negotiations was a late announcement of additional funding for local government, £130 million of revenue funding and £30 million of capital. This late deal came as a result of pressure from the Green Party.

So in looking at the 2018/19 budget announcement it should, therefore, be regarded as a staging post proposal rather than the final position, albeit an important staging post. The opportunity is now there for COSLA to take its case to MSPs, the public and the media in order to secure additional resources.

And this may explain the measured approach taken by COSLA at this stage. Which brings us back to COSLA’s comments about public sector pay. There is currently no additional funding for public sector pay in the local government financial settlement.  

In making their case for a “fair” financial settlement COSLA previously calculated that every 1% pay rise costs £70 million. So, the fact that Scottish Government has announced that other public sector workers earning £30,000 or less are to receive a 3% pay increase will be a major concern to Councils.

Returning to the success COSLA has achieved in making it easier to explain the financial settlement to MSPs, the public and the media, it should now be easier for COSLA to lobby MSPs to ensure a pay increase for local government workers is fully funded.

In this regard the Green Party are on record as saying they want to see increases in public sector pay fully funded, and it is likely that Scottish Government will again look to the Green Party for support in getting their budget plans approved by the Scottish Parliament. So, the opportunity is there.

What does this mean for Councils?

Leaving aside the issue of public sector pay for the moment, the 2018/19 financial settlement, as it currently stands, should give Councils some room for manoeuvre as they will have been planning for a poorer financial settlement.

However, if they have to meet the cost of a pay increase from within the funding already announced they will undoubtedly face a much more serious financial challenge. An added difficulty is that it may be late in the day before Councils find out if they are to receive any additional funding or not.

A far from ideal situation and one that makes it difficult for Councils to plan ahead with any degree of certainty.

Comment

The success, or otherwise, of the COSLA approach is now likely to be determined by the outcome of the political negotiations around the funding of a public sector pay increase. In this regard, the fact that two thirds of councils have used reserves to balance their 2017/18 budget reduces the scope for manoeuvre of many Councils.  So, there’s much uncertainty and much at stake.

What does seem certain, however, is that council tax increases will be at 3%, the maximum level allowed.