Official Report 784KB pdf
The next item on our agenda is an evidence session as part of our scrutiny of the Scottish Government’s budget for 2025-26. We have 75 minutes for the discussion, so I would be grateful if we can keep questions and answers as succinct as possible.
We are joined by Shona Robison, the Cabinet Secretary for Finance and Local Government, and her Scottish Government officials, Ellen Leaver, who is the acting director for local government, and Ian Storrie, who is the head of local government finance. I welcome the cabinet secretary and her officials to the meeting and I invite Ms Robison to make a brief opening statement.
Good morning. Thank you for inviting me to give evidence to the committee.
The 2025-26 Scottish budget seeks to improve the lives of the people of Scotland and to deliver on the Government’s priorities to eradicate child poverty, grow the economy, tackle the climate emergency and support sustainable high-quality public services. The budget recognises the importance of local government and it provides local authorities with a record funding package of more than £15 billion in 2025-26, which is a £1 billion increase on the budget for 2024-25. Independent analysis by the Scottish Parliament information centre confirms that the 2025-26 local government settlement includes a cash and real-terms increase for both resource and capital.
Through the Verity house agreement, the Scottish Government has renewed its commitment to a relationship with local government that is based on mutual trust and respect, and has agreed to seek new ways of working together to ensure that the people of Scotland receive the public services that they expect and deserve.
As we discussed in the evidence session prior to the budget, the Verity house agreement and the fiscal framework represent a journey, not a destination. We are never going to wake up one day and find that all the challenges have been magically resolved. As with any relationship, it takes time and hard work to make things better. We have invested a lot of time and hard work during the first year of the Verity house agreement and there has been demonstrable positive progress in the implementation of the agreement’s principles. That has included joint work on local government pay; enabling councils to double the full rate of council tax on second homes; delivering a new national allowance for foster and kinship carers; and close engagement around the Circular Economy (Scotland) Act 2024.
The settlement has been informed by extensive engagement with local government, at both an official and a political level. That has allowed for evidence to be jointly developed and an improved joint understanding of the challenges that both spheres of government face. The positive impact of that engagement has been recognised by the Convention of Scottish Local Authorities and acknowledged by the Scottish Parliament information centre in the briefing on local government finance that it published on 20 December. The briefing also emphasised COSLA’s positive response to the 2025-26 budget and I welcome COSLA’s acknowledgement that the settlement has increased substantially. I remain committed to continuing to make progress against our shared priorities in partnership with local government and to ensuring that we work collectively to deliver sustainable public services across Scotland.
I look forward to engaging with members and to answering any questions that the committee might have.
Thank you for your statement. I will begin with a couple of questions on the 2025-26 revenue settlement before I bring in other members. I would be interested to hear your response to COSLA when it says that the settlement
“may not be enough to reverse planned cuts to vital services”.
What assessment has the Government made in calculating the cost to councils of providing statutory services and meeting the challenges of inflation?
As I set out in my opening statement, adjusting for pay and pensions, the budget provides a cash-terms increase in revenue of £599.6 million, which equates to a cash-terms increase of 4.5 per cent and a real-terms increase of 2 per cent. Importantly, it also includes £289 million for local priorities—discretionary spend general revenue grants that are not ring fenced in any way. We have also allocated an additional £108 million of general capital grant, which is a real-terms increase of 14.2 per cent. We have reinstated £31 million that was used for the 2024-25 pay deal, giving a total capital increase of £139 million.
The spending power of local authorities is essentially £707 million higher in 2025-26 than it was in 2024-25. Does that mean that there are no difficult decisions for local government or any other part of the public sector? No, it does not; public sector reform and doing things differently is as important for local government as it is for any other part of the public sector. However, there is a recognition of the challenges that local government was facing. As confirmed by SPICe, the settlement is fair and should enable local authorities to minimise the impact on local services and minimise any council tax increases. It is probably a fairer settlement than local government anticipated at the start of the process.
One of the issues that we are all aware of in relation to that settlement is national insurance funding. Will you update us on the funding that is being provided by the United Kingdom Government to cover the direct and indirect costs to the public sector in Scotland of the increase in employer national insurance contributions? How does the amount of funding compare with the estimated cost?
First, COSLA’s analysis of the estimated cost to local government is £265 million, although I note that the Fraser of Allander Institute said that it was more like £220 million. It depends on what local government has included. Some have included arm’s-length organisations and social care commissioned services and so on. We are working with COSLA to get to the fine-tuning of its requirements.
Having said that, we have three pieces of communication to which we have had no response from the Treasury. The most recent was the joint letter from the First Minister and the president of COSLA that was signed by 48 other organisations and made the point that anything short of full funding would not be acceptable. A figure was put into the public domain that had an upper amount of £320 million, which is at least £200 million short of what core public services will require and it does not take into account any commissioned services, general practitioner services or anything like that—it is just core. We have yet to have a confirmed figure from the Treasury, and we have yet to have a reply to our substantive request to the Treasury.
Once there is a final figure, I have said that we will give a fair distribution of that. Clearly, given the figures that I set out at the beginning of this answer compared with what the worst-case scenario might be from the Treasury, local government could not get 100 per cent of its employer national insurance contributions funded, otherwise there would be nothing left for the rest of the public sector. I want to be fair to local government in the distribution.
I should end on an optimistic note. I have not given up on pushing the Treasury for fairer coverage of employer national insurance contributions. We have asked for the full cost to Scotland’s public sector to be covered, rather than just a Barnett share, which would not recognise that we have invested in our public sector and the pay of our public servants over the years. It remains outstanding.
Given how difficult the increase in employer national insurance contributions is, and given that the UK Government is being asked to fully fund it to make it possible for public services to continue, is it clear to the Scottish Government what the upsides to that policy are?
Every £1 million of employer national insurance contributions that is not fully funded by the Treasury is £1 million that cannot be used for the delivery of public services or, indeed, to settle pay deals with public servants.
There is also a read-across to council tax. Every £100 million for local government equates to just over 3 per cent in council tax. To be blunt, if there is a £100 million shortfall in employer national insurance contributions for local government, that could equate directly to 3 per cent on council tax bills that we would rather were kept to a minimum.
All those moving parts are impacting on one another. The basic premise, however, is that Scotland and Scotland’s public services should not be punished for investing in teachers, nurses and other public sector staff to a level beyond that of a Barnett share. I would have thought that that would be recognised as good investment. However, as I say, there are three outstanding pieces of correspondence with the Treasury, and we are chasing it to get to a final position.
I should have said earlier that I am aware that local government will start to set its budget soon, so time is of the essence. We do not have a lot of time to get an answer from the Treasury—we need an answer now.
09:15
Good morning, cabinet secretary. Pay costs sit at around 60 per cent of local authorities’ total spend. If we look at previous years, the cuts that councils have endured mean that they have been unable to provide good public services and they have been worried about maintaining statutory services. There needs to be an overall look at council finances. However, to focus on pay costs specifically, given that councils have previously made representations to the Scottish Government in relation to financial hardship, and given that pay costs are sitting at around 60 per cent of total spend, how confident are you that such representations will not happen again this year?
Fundamentally, COSLA and local government are the employers and lead any discussions around pay. We have become involved to support the resolution of some of the pay disputes, because industrial action is also costly. We have therefore tried to support resolution in order to avoid that.
One of the things that COSLA argued for very strongly was for money not to be ring fenced. In this year’s settlement, we have therefore minimised ring fencing. Since the Verity house agreement, I think that £1.5 billion of funding has been de-ring fenced, including £500 million for 2025-26.
What we have not done in relation to the £1 billion increase is say, “That is for pay, that is for this” and so on. In essence, it is for local government to decide how it will manage its funding. Within that is, of course, the discretionary funding—the £289 million—and real-terms protection for the revenue grant. Each local authority then has to make a decision about the level of council tax.
I guess that that also brings me back to the point that I made earlier. The pay costs of the public sector are substantial, which requires us collectively, including local government, to look at how we support that going forward. That will mean looking at the size and shape of the public sector and doing things differently. Shared services, for example, are perhaps not as extensive in local government as they could be.
I hasten to add that that is a matter for local government. However, when we are looking at public service reform across other parts of the public sector, such as considering how we can do things differently and how back office functions can be shared, I would hope that local governments are also in the space of looking at some of that, which I think that they are.
With permission, convener, given that I have a question on ring fencing further down, I will ask it just now.
In previous years, the Scottish Government has intervened when councils were making tough financial decisions; for example, in relation to teacher numbers last year. Can you give a councils a guarantee this morning that the Scottish Government will not say what councils can and cannot cut? Will it be the local authority’s decision what to implement in order to create a balanced budget?
We have managed to secure an agreement with local government to maintain teacher numbers at 2023 levels. That is in recognition of the fact that £145 million was in the system—which has now been uprated to £186 million—to maintain teachers.
I would imagine that everyone on this committee will recognise the value of ensuring that we have an adequate number of teachers in our schools. There are issues that are current and that are being debated in this Parliament around closing the poverty-related attainment gap and tackling behaviour in our classrooms. It is difficult to see how we would do that with fewer teachers. There is a shared ambition to ensure that we have adequate teaching staff in our schools. In order to stabilise that position, we have an agreement with local government to maintain teacher numbers at 2023 levels.
In addition to that, we have put more money into additional support needs, because we have recognised that, particularly since Covid, there has been an uptick in the number of children with additional support needs.
There is a balance to be struck here. There are Government priorities relating to education and closing the poverty-related attainment gap. Do we maintain some control and influence over how those are delivered, or do we not?
In terms of policy, education policy has been explicitly aimed at closing the poverty-related attainment gap. Teaching staff are not the only workforce in this space and other workforces have a critical impact on it as well, but teachers are at the heart of reducing or closing the poverty-related attainment gap. Therefore, I do not think that it is unreasonable for the Government to say to local government that the funding that we provide for that purpose has to deliver those outcomes, and one outcome has to be that we maintain the teaching staff to deliver that priority.
It is finely balanced. We recognise that local government might have a differing view on these matters, but we have managed to get to a compromise position that recognises the view of local government as well as the policy view of the Scottish Government on an issue that has been debated in the Parliament on a number of occasions.
Thank you.
Good morning. I have a question about council tax, which is everybody’s favourite subject at this committee.
You are on record as saying that you do not think that substantial council tax rises are needed. In your opening remarks, you also said that the settlement should minimise any council tax increases that people may face. Is the Government minded to indicate what it considers to be reasonable at the moment?
When councils set council tax rates, we expect them to give careful consideration to local needs and services, while at the same time being mindful of the impact on residents and on household budgets, which are still under pressure.
As I said in my earlier answers, for 2025-26 councils will receive over £15 billion through the settlement. I think that that should mean that there is no need for any excessive, inflation-busting increases. What do I mean by that? I am not going to set a figure and say, “This is it, and anything above that is absolutely appalling.” I do not think that that would be helpful. I would hope that we will all be in a reasonable space and want to see increases kept to a minimum.
Each local authority will be different. I am aware that some of our smaller authorities might have additional pressures in areas where some of the larger authorities have more resilience. That is why it is important for us to look beyond the budget at the sustainability of some of our local authorities. How can they work together? How can we help them to become more resilient and more sustainable?
We have listened to the desire of local government not to have a freeze or a cap. The other side of that bargain is for them to recognise that, in setting the council tax, they should take account of the needs of local residents. I hope that we can get to somewhere that is a reasonable landing space.
Thank you for that. I thought that I would try to get a good answer.
You must be worried about the potential impact of the NI issue. A moment ago, you said that a £100 million shortfall for local government would be equivalent to a 3 per cent rise in council tax. If that ends up being the figure, or if it is double that—as I think COSLA mentioned—that could mean a 3 to 6 per cent rise in council tax. Surely, you would be concerned if that happened.
I would be very concerned about that, which is why I made the point that getting full funding of the public sector’s NI increase in Scotland is very important. Local government makes the same argument. Just because the local government position in Scotland is beyond what the Barnett share for local government would be, there should not be a punishment for local government—or the health service or any other service—because over the years we have invested in our public services beyond what the rest of the UK has invested in its public services. The UK Government made a decision on employer national insurance contributions out of the blue, without any warning, and the onus is on the UK Government to fully recognise the impact on Scotland’s public services, including on local government.
When it comes to the final number that we get from the UK, what do we do with it? Whatever that number is, I have said that I want to be fair to local government. However, being fair to local government does not mean that I can cover 100 per cent of the costs of employer national insurance contributions, because I would have literally nothing left for the rest of the public sector, including the health service, the police and the fire service.
I want to be fair, and I recognise that timing is an issue for local government, given that budget setting will begin soon, so we need to resolve the matter. All that I can say to you and the committee is that we are chasing the Treasury on a daily basis to get an answer.
Would continuing to be ignored—you say that you have written three letters with no response—force you to reconsider whether to impose a cap, if local authorities chose to apply a big increase in council tax?
No, we will not look at any kind of cap. We are working in partnership with local government, which is why the last letter was co-signed by the First Minister and the president of COSLA. We are all on the same page about needing a fair recognition from the UK Government of employer national insurance costs. COSLA absolutely recognises that if that is not forthcoming, the available quantum will have to be distributed fairly. It understands that that does not mean that 100 per cent of its employer national insurance contributions will be covered.
Through the budget statement that I set out—the £15 billion for local government and the record levels of investment in health—we have built some resilience into budgets, but that is an opportunity cost. For every million pounds that has to go on employer national insurance contributions, there is a million poundss that will not go on front-line services or on resolving this year’s pay disputes—I am getting ahead of myself; I hope that there will be no disputes—or helping with pay negotiations. Those are opportunity costs but, as I say, the final landing space remains to be seen.
You spoke about social care services, and you will be aware of the Feeley review and the Accounts Commission telling us that the demands in that area are pretty severe. If there is any scope, any unallocated resource, would that be among your priorities for additional support, if that were possible?
I recognise the pressures on social care. It is a whole-system pressure, at the end of the day. I am also aware of the COSLA finance spokesperson’s most recent correspondence.
In the draft budget on 4 December, I set out almost £2.2 billion of investment in social care and integration. That exceeds our commitment to increase funding by 25 per cent over this parliamentary session—it exceeds that commitment by more than £350 million. On social care investment, therefore, we have delivered what we said that we would deliver. That includes £125 million to fund the real living wage uplift for adult social care workers in commissioned services. We have funded that because we recognise that those services are profoundly fragile if they cannot hold on to staff, and the real living wage is therefore important.
09:30That level of investment does not mean, of course, that there are no pressures. There are still pressures and that is why we are taking a whole-system approach. The First Minister has talked extensively about the interventions to improve the performance of partnerships, because there is variation in that regard that is sometimes quite difficult to explain. With the resources that we have in the system, those partnerships need to be working effectively to reduce delayed discharge and address all the other matters.
There is a worry around employer national insurance contributions for social care commissioned services, as COSLA estimates that the rise will cost around £85 million. We will continue to discuss that with COSLA, because the last thing that we want is for social care commissioned services to cease because of that rise in contributions, as that would impact on the whole system. We are still discussing those matters to ensure that that situation does not come to pass.
Thank you, cabinet secretary, for your detailed answers to those questions.
Before I bring in Mark Griffin with questions to start on our next theme, which is capital, debt and financial sustainability, I have to ask us all, in the interests of time, to move to more succinct questions and answers.
Mark Griffin joins us online. Mark, come on in.
Thank you, convener.
Good morning, cabinet secretary. In this year’s financial settlement, there is a real-terms increase of £120 million in capital funding in comparison with last year. How would you respond, therefore, to COSLA, which has said that much of that increase has been committed already, and that it only partly reverses the reduction that was made in capital funding in the current financial year?
I would say that we have recognised the position of and the importance of capital to local government. The 2025-26 budget sets out more than £7 billion—sorry, I am just looking at the capital grant figures. [Interruption.] I will come to the affordable housing position in a moment.
In my earlier answer, I referred to the general capital grant. We have allocated an additional £108 million of general capital grant, which is a real-terms increase of 14.2 per cent, and we have reinstated the £31 million that was used for the 2024-25 pay deal, giving a total capital increase of £139 million.
I would perhaps push back slightly on some aspects of what COSLA has said. For example, £40 million was allocated from ScotWind for capital funding for local government, which is essentially completely discretionary as long as it is spent in the net zero space. It is new money, but COSLA has perhaps not recognised it as such in the way that I would have liked or expected it to do. There will be very few restrictions on how that £40 million is spent, but it is not regarded as new money in the way that I think that it should have been.
Ellen Leaver has pointed me to the fact that, beyond that, we also have the £768 million for the affordable housing supply programme. That was one of the big asks from COSLA for the housing budget. We also have other investments from which local government will benefit, such as the energy efficiency and clean heat measures.
I know that COSLA has asked for additional capital, but I think that the capital position is fair.
I also want to talk about the innovative measures to fund the capital projects that you spoke about. You highlighted the example of the Government working with Edinburgh council to unlock investment in Granton. What specifically is the Government’s role in the investment in Granton? What funding streams are being considered, and could other local authorities use similar funding models, particularly in rural areas, where some local authorities struggle because of their size, as you highlighted earlier?
The agreement with the City of Edinburgh Council for Granton is for outcomes-based funding. The Government will help to unlock funding for site remediation, up-front infrastructure and other enabling works that are required for the development at Granton to proceed. The guarantee is that we will pay the revenue costs of that investment from 2028-29 onwards, on the condition that the development meets pre-agreed outcomes.
The City of Edinburgh Council and the Scottish Futures Trust have been working on the detail of the deal to get it landed. The Granton project is important because phase 1 aims to unlock more than 800 new homes and we know how important they are in the Edinburgh area.
Mark Griffin asked whether that could be done elsewhere, and I think that it could. The Granton project is extensive because of the size of the area that is being developed. There are component parts—a transport element, a housing element and a regeneration element—so there is money coming from different parts of Government. I am happy to follow up with more detail on the various bits of that, if the committee would find it helpful.
In principle, I do not see why we could not come to similar agreements with other local authorities. I have made the offer to COSLA that we could work together on the proposition of what the priorities are and where we need to see growth in affordable housing so that we could bring together a similar deal elsewhere. I do not see why such a funding model could not apply in a rural setting. I also think that there is potential for more than one local authority to come together in partnership to agree a similar deal. It is an innovative way to lever in additional investment beyond the traditional routes, and I am keen to see it being further explored.
How does local government play its role in just transition and net zero, given the conditions of existing infrastructure? We have to manage with ageing schools, libraries, council buildings, leisure centres and road networks. Are councils sufficiently funded to take the action that is required to meet the targets in 2045?
It is challenging for local government in the same way as it is for the rest of the public sector, because of the enormousness of it. We need to lever in private investment on the back of well-used strategic investment of public finances.
Let me give you one example. Glasgow is quite far advanced on heat networks. Its concept is that it uses public buildings as an anchor to lever in private finance. Through the heat network, those public buildings have a revenue stream, which enables a hub-and-spoke model that brings in other buildings. A heat network could be built up around such a model. That approach is being used in other parts of the UK and in other countries.
We cannot do that through public funding alone. We must lever in private finance, but to incentivise that investment we need to have derisking and clear revenue streams. One of the reasons why I was keen to give local government some of the ScotWind money was to make sure that the benefits of ScotWind reached all communities. It was also so that communities would be able to use that money in an imaginative way to lever in some of their own external funding sources, and to make choices to collaborate with each other and with other public bodies. That funding was very flexible in order to be able to oil the wheels of investment.
In this space, some local authorities are further ahead of others. It was ever so; 32 local authorities do not all move at the same pace. The cities have an important anchor in the city region. It is more difficult for some of the smaller local authorities to have the capacity and leverage that other, bigger authorities perhaps have, so we will probably see more local authorities working together on a regional basis.
On the financial stability of local government, we have talked in the past about where we are and how confident the Scottish Government is that it has the data that it requires to assess the financial stability of local authorities. We have also talked in the past about the debt and the reserve levels of local authorities.
Given the pessimistic outlook from the Local Government Information Unit’s recent survey, which gave us concern, what are the Scottish Government’s views on local government when it comes to the debt and reserves that specific councils have and their financial sustainability? It is a major issue for local authorities that what they can deal with depends on what they have in their reserves. Some have large reserves and some have very little, but all councils seem to have debt.
First, you are right about variation—the 32 local authorities are all very different. Some quite substantial reserves were built up during the Covid period, but much of that is now allocated to specific purposes.
On the issue of debt, local government has borrowing powers—that is actually something that the Scottish Government does not have. Debt is not unusual, but what is important is how that debt is managed and its sustainability. For example, to compare the position of Scottish local authorities with that of local authorities in England, and considering the powers around general competence—it would not be described as that in an English setting—the level of risk in, and the appropriateness of, the decisions that got some English local authorities into difficulty would raise some eyebrows.
Here in Scotland, local authorities do not have the same ability to make those poor investment decisions and they are therefore not carrying the same level of risk that has led to some of the local authority bankruptcies in England. Local government in Scotland is very keen to have a wide array of powers, such as the power of general competence. I am sympathetic to that, but that needs to be done in a context of sustainability, financial prudence and, as Alexander Stewart pointed out, ensuring that debt levels are in a manageable space. Audit Scotland and the Accounts Commission have important roles here and they have detailed oversight of each local authority, as well as of the collective position. We proceed with caution around the expansion of powers, ensuring that any powers are used within the framework of responsibility that local government would want to operate within.
09:45
We will move to a new area—public service reform and the Verity house agreement. We have a number of questions. I start by bringing in Fulton MacGregor, who joins us online.
Good morning, cabinet secretary and officials, and thank you very much for your evidence so far.
As the convener said, we have a couple of questions on public service reform in the context of the Verity house agreement. First, given the demand pressures on council services, which we have talked about and you have acknowledged, how can the intervention and prevention agenda be further advanced within existing resources?
The approach of prevention and getting far more upstream in our public services is as applicable to local government as it is to any other services. Some local authorities are further along the road than others. In its children’s social work services, through better intervention with families and working in a different way, Glasgow City Council has reduced the number of children who are going into care by 50 per cent. If I was in charge of a social work department in any of the other 31 local authorities, I would be beating a path to Glasgow’s door to see how the city council has done that.
I saw for myself what the council has done. It involves a very different relationship between social work and the families, which has transformed the way that interventions happen in a very positive space. That has kept families together and supported them, and has avoided children going into care. We know that children remaining with their families—where it is safe for them to do so—is a better outcome.
We are working with local authorities in the fairer futures partnerships in Clackmannanshire, Dundee and Glasgow, where families are getting the help that they need where and when they need it. That is helping to maximise support, to get further upstream and to achieve prevention. We are now expanding that into Aberdeen, East Ayrshire, Inverclyde, North Ayrshire and Perth and Kinross councils. It is a matter of getting upstream and avoiding crisis.
There is a lot of other work going on that I am keen to support and to work on with local government. The single Scottish estate, where services can be shared within the public sector, should apply and must apply to local government, too. Instead of investing in a whole new building or utilising the buildings that we have, many of which are underoccupied, we need to get far smarter at sharing the estate and sharing services.
We have invested in the Oracle cloud system, which provides human resources, financing and purchasing capabilities. There are local authorities that are interested in that system, and I do not see why we should not have more and more onboarding of the public sector, so that we can have shared services and back-office functions.
On procurement, there is much more that we can do, through national collaborative procurement, to help bodies, including local government, to get better value for money in their procurement.
Those are just a few things. There are many other areas of reform happening, but I thought that those were probably the best ones to highlight.
I appreciate the comments that you made about Glasgow social work, which I think are very relevant.
You talked about buildings and so on being an area in which resources could be better used. Do you have any thoughts on the community asset transfers that councils have powers to use? Could they be better and more quickly used, and could more community asset transfers be done?
I am a big fan of community asset transfers when they are done well. They are not about offloading surplus buildings to unwilling communities, but about partnership when communities want to take on assets that are underused or are surplus to requirements. When facilities are taken over by communities, something that is hard to explain sometimes happens: facilities suddenly blossom and take on a new lease of life because they are run in a different way, and communities, through their connections, manage to bring people in and breathe new life into facilities. I have seen that happen many times.
That does not mean that community asset transfers are appropriate in every case, but the Government, local authorities and—for that matter—other public bodies should be very open to the idea when there are community interest, demand and willingness. That should certainly be supported.
You will be aware that the committee asked for specific measures in the budget to support sector-led transformation in local government. Will you provide an update on what is in the budget that will support public service reform in councils? I appreciate that you touched on that in your opening statement and in previous answers, but I give you the opportunity to elaborate.
It is for local government to decide how it utilises its resources, but the Convention of Scottish Local Authorities is very much in agreement with us on the need for reform. I encourage local authorities to look across boundaries at providing shared services. There are some good examples of that, but we are scratching the surface of what could be delivered through shared services across local authorities. Quite a lot is happening in planning in that regard, because of the difficulty in attracting planning resource in some local authorities, but far more could be done to share services.
You will be aware that we have established an invest to save fund and have provided up to £30 million for it. I have not said that local government’s share of the fund is £X, but I encourage local government to make proposals. We want proposals that will maximise the return on investment and that represent fundamental game-changing reforms that will make a difference to the way in which local services are provided. Financial sustainability is an element of that, because we need to ensure that services can be sustained.
We are very supportive of the single island authority model, the most advanced work on which has been done by the Western Isles. The model is based on a simple concept. If relatively small communities are trying to attract people to work in local government and the national health service and are, as is the case, quite often competing for the same people in management and front-line staff, a single island authority model makes perfect sense. The governance issues—which are not insubstantial, particularly given that the governance arrangements for the health service are different from those for local authorities—are being worked through. That shows ambition of thought, which is why we are keen to support such work. Thinking outside the box merits our support.
My final question is about multiyear funding settlements. Are you confident that the Scottish Government will be able to provide, from 2025, multiyear funding settlements, which would assist councils in planning for the medium term?
I am very keen to move into a multiyear funding space. First, however, we need to see the outcome of the UK Government spending review. We are expecting the resource and capital spending review around June: I need to see the envelopes that the Scottish Government is likely to receive in order then to be able to make multiyear commitments to local government. I am really keen to do so, because—to go back to the point about reform and sustainability—it is much easier to make the changes that need to be made if we have a line of sight of more than one year of budget, which would mean that we could plan changes over what would, in this case, be a three-year cycle with a review every two years. That is one of the better announcements that the Chancellor of the Exchequer has made.
I am keen to move into that space with the third sector, too, but I need assurance from the spending review outcome with regard to knowing what the broad envelopes are likely to be. Given some of the uncertainty—as I might describe it—around some of the chancellor’s plans, I want to ensure that we have certainty before we make that commitment.
To continue on the same theme, I bring in Emma Roddick.
I recognise the approval of the Visitor Levy (Scotland) Act 2024, but would you consider giving local government the power to introduce other local taxes, if that would make sense, in order to give them some flexibility?
In principle, I am very keen to look at making sure that local government has the maximum number of levers available to it, although that would have to be within the context of financial sustainability and affordability. That does not necessarily mean that local authorities would all use those powers. The visitor levy is a good example of where local government has the option; it does not have to use the levy, but can choose whether to do so.
We are consulting on the potential for a cruise ship levy, and our “Programme for Government 2024-25: Serving Scotland” document makes it clear that we are going to
“Intensify work on designing a cruise ship levy”.
Again, that will not be for every local authority—it will be of interest to some more than it is to others.
Our “Scotland’s Tax Strategy: Building on our Tax Principles” document commits us to establishing
“criteria that should be considered when determining the level of government at which a tax could be delivered”.
That will allow us to consider proposals for taxation in a consistent way.
The joint working group on sources of local government funding and council tax reform is continuing to meet—in fact, we will meet next week. We are looking at proposals for the future of local taxation, because I think that there is a desire for a fairer system in that regard, but trying to build political consensus around that is important. It will not get past first base in a new session of Parliament if it does not have a degree of parliamentary consensus.
I mentioned earlier that we will consult on the general power of competence. Again, that has to be delivered in a way that has substance and meaning for local government, rather than simply being something theoretical that might not be used.
Local government has been keen to pursue a number of areas, including a levy on second homes, for example, which we have delivered within the confines of what we are able to do through secondary legislation. Going further than we have already done on that would require primary legislation.
Second homes and cruise ships have a huge impact on councils in the Highlands and Islands, and motorhomes are also near the top of the list of issues for those councils and have a negative impact. Is the Scottish Government still open to considering how a motorhome levy could be introduced?
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Although we remain open to the idea of a motorhome levy, discussions with councils and land management organisations have highlighted some quite significant issues relating to how it would operate in practice. We would not want to have to build a costly and difficult administrative system. We will consider any developed proposals that work well to support the visitor economy. We recognise the impact of motorhomes on communities and some local authorities, and that some local authorities will want to receive support to manage it. We are open to the concept, but discussions are at an early stage.
I have a question about the fiscal framework. In your letter to the committee on 4 December, you stated that
“it may be unhelpful to consider a final version of the Framework to be a desirable objective”.
However, the Verity house agreement stated that a fiscal framework would be concluded by September 2023. You told us on 8 October last year that it was “at an advanced stage”. What has changed since 8 October, and why has it been such a lengthy process?
First, my intention is to publish the fiscal framework alongside the local government settlement next month, if we can reach agreement on it with COSLA. My officials will know more about this, because they have been working on it in great detail, but one of the issues is about the rules-based framework. Although it seems to be quite straightforward, once you start to explore the pros and cons it becomes anything but. Local government has looked at the pros and cons and is mindful of them. One of the issues with a rules-based framework is whether, if there were to be in-year shifts, that would be it. You cannot have it both ways: you cannot have a rule, then have different set of rules after in-year changes are made. There are a lot of pros and cons. Ian Storrie or Ellen Leaver might want to come in on that.
I am always happy to come in on the fiscal framework, cabinet secretary.
My key observation is that everything that the cabinet secretary has set out about engagement reflects the fiscal framework in action: it is not just a piece of paper. Similar to the Verity house agreement, it is about the relationship and the investment in time. Previously, budget engagement used to happen quite late in the fiscal cycle, but it now starts in April and May and carries on throughout the year.
I will reflect on a few of the issues that have been raised in the discussion. Mr Stewart mentioned the just transition and climate change, which we would be looking to build into the budget engagement process to try to understand their implications and to develop shared evidence on them. Mr Griffin mentioned the Granton project and other fiscal flexibilities.
We are looking to do that kind of work through the fiscal framework, which has been exemplified in the decisions that were set out in this year’s budget. Putting the fiscal framework on a piece of paper should not really change the relationship. As the cabinet secretary said, we are hoping to codify it towards the end of next month, alongside the local government settlement.
The rules-based framework is a nice academic exercise, as the cabinet secretary said, but it is hugely complicated. Approximately 20 per cent of the discussion in the meeting has been about employer national insurance contributions. If a rules-based framework had been operating this year and the rule had been set on 4 December when the budget was fixed, we would not have known the answer to that challenge—notwithstanding the uncertainty about the quantum and the decision making. It is not likely that we will know the answer to that challenge until the UK Government publishes its main estimates. How would we accommodate that in a rule? It is incredibly complicated: we could end up revisiting a rule every couple of months, which would undermine the principle of simplicity and usability.
The other factor that we have experienced this year—we have been running this in our heads, in relation to a rules-based framework—is the timetable for setting the Scottish Fiscal Commission forecasts. There is an agreement with the Scottish Fiscal Commission about the four phases of tax setting. Ministers do not really know their ultimate budget until a week or two before the budget. Again, how are ministers meant to plan for that certainty, and how would we apply the rule when we do not know the quantum that is available until days before the final decision?
Some of the complexities have been established jointly with local government, although we might have slightly different perspectives on deliverability. Those discussions are on-going, but they do not really contribute to the fiscal framework. The fiscal framework is very much about the relationship. If you look at the Verity house agreement, you will see that the fiscal framework was about meaningful early budget engagement, simplification and consolidation. Earlier, the cabinet secretary mentioned the £1.5 billion that has been baselined since the Verity house agreement was signed.
The framework was also about multiyear certainty. We have touched today on the fact that that relies on the UK budget. The rules-based framework does not deliver on any of the original principles. Therefore, we think that the fiscal framework can stand in isolation. I hope that we have evidenced that this year, and I think that that is reflected in the pleasant comments in the Scottish Parliament information centre briefing around the change in tone in COSLA’s response to the budget. I think that there are enough demonstrations of the fiscal framework in action for us to get it published next month.
It strikes me that the idea of a rules-based framework is, as you said, about striving for simplicity, but that what we really need is perhaps what you have been doing, which is about on-going relationships and discussion over the long term, which is actually more effective. It sounds as though there are potentially so many changes, shifts and fluctuations that being engaged and having a relationship with COSLA will be the best thing.
Yes. Ian Storrie articulated that very well. It is about the way that we are doing business already. It is about the relationship rather than a thing. I have seen many COSLA responses to budgets over the years, and, although this response is not without challenge to us, it is probably one of the most constructive responses. It recognises what we have delivered in the budget while setting out some additional asks. That is, perhaps, a reflection of the earlier and more meaningful budget engagement, which is part of the framework.
While we are talking about frameworks, could we have an update on the monitoring and accountability framework?
I am happy to do that. The monitoring and accountability work continues. We worked jointly throughout 2024, and we had some good and constructive workshops with a number of officials across local government and the Scottish Government. There was a short pause in the work in the autumn last year, as we focused our attention on the pre-budget stages. From a resourcing perspective, we had to focus our time on that.
However, we are now moving into the next phase to complete that work and we hope, in the spring, to bring forward to ministers and leaders a prototype that can be agreed then stood up in transparent published form. It will be an iterative process as we learn from the better understanding that the monitoring and accountability framework creates.
That sounds great. Again, at the moment, it is difficult to understand what is going to be happening—it is difficult to conceive of those eventualities abstractly.
Alexander Stewart has a very important question.
Cabinet secretary, we are aware of the Scottish local authorities remuneration committee’s recommendations, and there have been some discussions and updates. The last time that the committee was given an indication of the situation it was told that the Scottish Government had accepted the pay and boundary changes and that it was planning to lay regulations early this year to bring those changes into effect. It would be useful to have an update to confirm the position on that and the timing.
First of all, as I said when I last spoke to the committee, the SLARC recommendations were important, although I recognise that when it comes to encouraging people into local government they are one part of the picture and not the whole picture.
The uplift in the general revenue grant for 2025-26 will ensure that implementing the recommendations is affordable within the local government settlement. Ring fencing the funding would have sat at odds with the premise that COSLA and local government do not want ring fencing: they are very much against ring fencing. That is why it is within the settlement.
Regulations will be laid shortly—later this week, on 23 January—that will implement the changes related to pay and banding that were recommended by SLARC. The changes will take effect from 1 April. Other recommendations relate to expenses and the introduction of severance payments. Those recommendations sit better with local government, but my officials are engaging with COSLA on them, because there are questions about how they would be implemented in a fair way. There are differing views within local government on that, so we need to work through it.
The first set of regulations will be laid this week, and we will make further regulations to implement any agreed changes as and when they are required—but not before the next planned local government elections.
Thank you for bringing us some good news. I will bring in Meghan Gallacher again, with questions about housing.
In last year’s budget, a fund was made available to support individuals to leave abusive relationships. That was rolled out in five council areas: Glasgow, South Lanarkshire, North Lanarkshire, Edinburgh and Fife. I did not hear anything about an extension, or indeed, a full roll-out of that pilot in this year’s budget. Given the importance of the topic, could you give us an update on that?
It is a very important topic, and I am keen to support it. I will come back to the committee with details, because I want to make sure that I give you accurate information, which I do not have in front of me.
That would be helpful. My final question relates to the financial memorandum of the Housing (Scotland) Bill. Given the commentary on and concerns raised around the financial memorandum, particularly in relation to homelessness prevention, are you confident that the money that has been earmarked for that roll-out, which is just under £8 million, will be sufficient to install the prevention element if the bill passes, or might that number need to be revised?
I certainly hope that that amount of money will be sufficient, given that it builds on other investments that have been made in the area. We will keep it under review with local government to make sure that any issues that emerge around the funding are picked up very quickly. I do not foresee any particular issues.
It is an important point, cabinet secretary, given the financial pressures that local government is facing, but I appreciate your response.
That concludes our questions. I thank everyone for managing time very well. I also thank the cabinet secretary and her officials for the evidence this morning. It has been very helpful to get that detail and those updates. I will now briefly suspend business to allow for a changeover of witnesses.
10:13 Meeting suspended.Air adhart
Retrofitting of Housing for Net Zero