Official Report 1106KB pdf
The next item of business is a debate on motion S6M-16489, in the name of Ivan McKee, on the Local Government Finance (Scotland) Order 2025. I invite members who wish to participate to press their request-to-speak button, and I call Ivan McKee to speak to and move the motion.
14:58
The motion on the Local Government Finance (Scotland) Order 2025 seeks Parliament’s approval for the guaranteed allocations of revenue funding to individual local authorities for 2025-26. It also seeks agreement on the allocation of additional funding for 2024-25 that has been identified since the Local Government Finance (Scotland) Order 2024 was approved on 28 February last year.
We cannot, of course, ignore the challenging circumstances in which we have had to agree the Scottish budget this year. The Scottish Government’s block grant funding for 2025-26 represents a 1 per cent real-terms increase for resource funding following the welcome reset of budgets in 2024-25. That first step to address 14 years of United Kingdom Government austerity measures is welcome. However, the challenges that our public services face can be addressed only by longer-term investment plans and commitments.
In response to the UK Government’s changes to employer national insurance contributions, the Cabinet Secretary for Finance and Local Government announced that the Scottish Government will provide an additional £144 million for local government, which is equivalent to a 5 per cent national increase in council tax.
However, the UK Government must fully fund the cost of the increase to Scotland’s public sector and not the much lower Barnett share of the funding that is provided in England. With our partners in the Convention of Scottish Local Authorities, ministers will continue to press the UK Government to fund the additional costs in full, and I would welcome support from across Parliament in that respect.
The 2025-26 budget that Parliament passed earlier in the week is a budget that delivers for the people of Scotland. It invests in our public services, lifts children out of poverty, supports jobs and the economy and responds to the climate emergency. The budget will deliver record funding of more than £15 billion to councils in 2025-26; we are providing revenue funding of more than £14.2 billion and almost £800 million of support for capital expenditure. The 2025-26 local government finance settlement provides an additional 8 per cent, which is a real-terms increase of 5.5 per cent compared with 2024-25.
The outcome of the Scottish budget provides demonstrable evidence of our actions to deliver a fiscal framework between the Scottish Government and local government. More frequent and meaningful budget engagement has been fundamental in the decisions that underpin the budget, including the real-terms protection that is applied to general revenue grants. The budget also baselined a further £525 million of funding, following the £1 billion of funding that was baselined across health, education, justice, net zero and social justice in 2024-25.
We hope to publish a version of the fiscal framework in the coming weeks and we continue to work with COSLA to develop the assurance and accountability framework that is critical to further substantial baselining of funding.
The presentation of figures in the Scottish budget comparing the autumn budget revision or the spring budget revision with the budget was requested by the Finance and Public Administration Committee. However, the presentation of the local government settlement has been consistent in recent years, and table 4.12 of the budget confirms that, by the conclusion of the 2025-26 spring budget revision, the local government settlement will be more than £1 billion larger than it will be at the conclusion of the 2024-25 SBR.
It is important to note that the total funding package is already finalised, following the passage of the Budget (Scotland) (No 4) Bill. Today’s motion simply seeks Parliament’s approval for the distribution of that approved funding total to individual local authorities.
The order seeks approval for the distribution and payment of £13.9 billion of the revenue total of £14.2 billion, with the balance mainly made up of specific grant funding, which is administered separately. That £13.9 billion is the combination of general revenue grant of more than £10.8 billion and the distributable amount of non-domestic rates income, which has been set at £3.1 billion.
How is the 85 per cent floor calculated now? Does it include council tax? Does it exclude the biggest beneficiaries of the revenue system? Changing the formula in previous years has caused significant disadvantage to areas such as Aberdeen, Aberdeenshire and Edinburgh. Is that still the case?
I recognise the member’s specific local interest in how that calculation is done. Of course, it is COSLA that does the work to assess how to distribute that funding. If the member wants anything more specific on that, I would be happy to write to him.
Will you take a further intervention?
Sure.
Through the chair, Mr Rennie.
The 85 per cent floor is specified in the Scottish public finance manual, which is produced by the Scottish Government, so it is Government policy.
That work is done with COSLA. However, if the member wants to address specifics, I am happy to pick those up separately with him.
There remains a further £155 million of revenue funding that will be notified to local authorities once the distribution has been discussed and agreed with COSLA. That, alongside the £144 million for employer national insurance contributions, will be included for approval in the 2026 order. Specific revenue funding, amounting to more than £271 million, is paid directly by the relevant policy areas under separate legislation. The 2025 order also seeks approval for more than £618 million of changes to funding allocations for 2024-25. The full list of changes can be found in the report to the 2025 order.
The Government recognises the financial challenges that local authorities across Scotland—and indeed, the whole public sector—are facing. The fiscal constraints that we share emphasise the need to focus urgently on improving the delivery of public services, designed around the needs and interests of the people and communities of Scotland. We must also continue to press the UK Government for additional funding for our shared priorities and pressures, including full funding for the changes in employer national insurance contributions.
The Budget (Scotland) (No 4) Bill, which Parliament passed on Tuesday, ensured that total funding from the Scottish Government to local government next year will increase in cash terms and real terms. The order confirms the distribution to individual councils, and the proposals reflect the crucial role that local authorities and their employees continue to play in our communities.
I move,
That the Parliament agrees that the Local Government Finance (Scotland) Order 2025 [draft] be approved.
15:05
I am pleased to speak on behalf of the Scottish Conservatives in the debate on this year’s local government finance order. The motion before us today is necessary in order to allocate funding to each of Scotland’s 32 councils. The Scottish Conservatives will not oppose the motion.
However, it is important that this parliamentary time is used to highlight the current state of local government finances and the fact that councils are experiencing pressures from several different directions. A recent report from the Accounts Commission made for concerning reading. More than a third of councils made unplanned use of their reserves in 2023-24 to manage budget pressures, and more than half of councils do not have in place a long-term financial plan.
Councils are also facing pressure from the increase in employer national insurance contributions as a result of the UK Government’s tax grab. We welcome the additional £144 million of funding to address that, which was announced by the Cabinet Secretary for Finance and Local Government earlier this month. However, COSLA has warned that that still leaves a gap of £96 million, which councils will have to find from their own budgets. Discussions with the UK Government on that issue continue, and the Scottish Government should stand ready to pass on any additional funding that the UK Government at Westminster makes available.
More generally, it is clear from engagement with local government that many councils have difficult decisions to make. In many cases, those will involve reducing or cutting important local services. I trust that, if the minister has engaged with councils throughout the budget process, he will be fully aware of all that.
As the weeks roll by, councils will finalise and set their budgets for the coming year. Some of them have agreed council tax increases that are higher than 10 per cent. In my region, there will be an increase of 9 per cent in Stirling and of 9.5 per cent in Perth and Kinross; the increase is as much as 13 per cent in Clackmannanshire.
Does the member agree that it is profoundly ridiculous to have a council tax system whereby most people are paying the wrong rate and that, regardless of what system any of us might wish to replace it with, the first step is revaluation, so that we have the data with which we can make the decision?
I agree with the member that revaluation is the first step in that direction. I hope that that can be looked at.
I referred to the gaps in funding. The Scottish Government claims that the budget should help councils. In reality, the lack of flexibility means that council tax is the only lever left for councils to use to deal with that. It is disappointing to see many councils using that lever, but taxpayers can understand the concerns that councils have, given what they need to do. Councils have spent a decade in this situation.
On that issue, SNP ministers would do well to listen to the Scottish Parliament information centre—our internal research centre—which said:
“the Scottish Government could find itself being blamed just as much as the councils themselves”
for the tax hikes. That SPICe report talks about how local government funding has fallen as a percentage of Scottish Government spending since 2016. In other words, council funding has not kept pace with total Government spend. Although the Government claims to value local government and the important contributions that it makes to communities, and it claims to stand up for that, in reality, its actions do not speak to those claims.
An improved long-term relationship needs to develop and evolve between central and local government in Scotland. The Verity house agreement brought them together to take steps to build a relationship. Although there has been some progress, such as on a small reduction in ring-fenced funding, many councils are still concerned that the agreement will have few benefits for them in the long term.
The agreement was supposed to support “shared priorities”. We want there to be “shared priorities”, “mutual trust” and “Improved engagement”. In reality, none of that has really happened. A huge amount of information is still required and there is still no trust between national and local government in Scotland. That must be looked at as a priority.
More than 18 months on from that agreement, there is still a huge amount to be done to fix that relationship. It is clear that local government cannot continue being treated as such a low priority by this SNP Government. Councils are making difficult decisions to get their budgets over the line and many of them are running out of flexibility within those budgets to manage that process. If Scotland continues with the review, it is important that there is a deal for local government. I hope that the new relationship will acknowledge just how important our councils are to communities in Scotland. They want to be treated with the respect that they deserve. They have a huge amount of work to do in supporting our communities, constituencies and regions, but that can be done only if there is a relationship between the Scottish Government and councils.
15:10
The Local Government Finance (Scotland) Order 2025 is a step in the right direction, but we should look more closely at the claim that it represents a success for the Government. It provides a modest, real-terms increase in the budget for local authorities, but that increase must be taken in context. The 2024-25 council tax freeze alone resulted in a shortfall of £417 million, according to COSLA, and that does not include shortfalls caused by unfunded freezes in previous years. COSLA has also estimated a £392 million projected budget gap for Scottish local authorities in 2025-26, rising to a cumulative gap of £780 million by 2026-27.
Within those figures, the funding gap that is most striking and alarming is the one in health and social care partnerships, which has increased by 187 per cent since 2022-23. Local government has also been given just £777 million of capital to support £55 billion-worth of assets. There are clearly gaping holes in our public estate, which will persist under the settlement.
All that is no one’s fault but the SNP Government’s. Its decisions in successive years have stripped local authorities of their financial resources, but the Government keeps using spin and sleight of hand to try to convince Scotland that others have caused the problems. The truth is that the SNP has been given a record funding agreement by the UK Government, with £5 billion more for this financial year but, because of their choices, that money—
Will the member take an intervention?
Yes, I will.
The member said that there is £5 billion for this financial year. Will he clarify, for the record, that it absolutely is not, but that it is spread over two years, that it includes revenue and capital and that the real-terms increase between this year and next is only 1 per cent?
The UK Government has provided the Scottish Government with more than £5 billion extra. Only this SNP Government could complain about an extra £5 billion and somehow portray that as being negative. We often hear in this chamber about voting positions: the SNP voted against that £5 billion increase for the budget of this Parliament and Government, but we never hear anything about that.
I welcome the record funding settlement from the UK Government, but it is impossible to fully reverse the impact of years of SNP mismanagement, billions of pounds in cuts and years of stripping back of council finances.
There is an absolute abundance of evidence to show that local services have suffered hugely in those 18 years. The services that are provided now are practically unrecognisable when compared with those that were provided in 2007. Swimming pools and community spaces such as the Beach leisure centre in Aberdeen or Perth leisure pool, which were used by thousands of people a decade ago, are now closed or threatened with closure. More than 20 public libraries are threatened with closure because of significant funding pressures, with the worst-affected areas covering much of rural Scotland.
Does the member agree with me and with Alexander Stewart that it is farcical that most people are paying the wrong rate of council tax and that, whatever we agree to do next, revaluation must be the first step in that process in order to give us the data set that is required to make decisions?
It is absolutely ridiculous that we have a valuation system that was set up when I was in primary 1. I am not sure whether Ross Greer had even been born when that valuation exercise was undertaken. The Local Government, Housing and Planning Committee is looking at a revaluation exercise being a first step in reform of the council tax system, and I think that there is broad consensus across the political spectrum on that.
We are seeing councils across the country putting up council tax. It is a hugely unpopular tax, but councillors are making decisions to increase it because the alternative is absolutely unpalatable. The cuts that they would need to make to services would go beyond what they are willing to consider, so they are making unpopular decisions on council tax to cover for those cuts. However, there is a real risk in the fact that, because of successive years of SNP cuts, councils are now making impossible choices and increasing council tax to try to prevent their residents from having to pay more money for worse services as a result of Government choices.
15:15
The Scottish Greens set out two red lines at the start of the budget process. One was about climate and nature spend and the other was a real-terms increase in local government funding and an end to the council tax freeze. I am pleased that we were able to achieve both. However, as this afternoon’s debate has made clear, none of us thinks that that is enough. None of us believes that local government is sufficiently resourced, and a process of annual haggling in this Parliament over a block grant that is allocated to local government is never going to solve that problem. It puts Scotland well outside the European mainstream that our local government can raise directly only a very small fraction of its overall finances. In most European countries, certainly in western and central Europe, local government raises the majority of its budget directly.
We have made incremental progress in recent years. The visitor levy is an obvious example for local authorities such as the one whose area we are in now. The City of Edinburgh Council estimates that it will raise more than £50 million a year from its levy, and Highland Council will be another major beneficiary. We have given councils the power to double council tax on second and holiday homes, which both raises revenue and acts as a direct lever in relation to the housing crisis, in particular in areas such as Arran, which I represent. Today, the Scottish Government launched the consultation on the cruise ship levy, which my colleague Lorna Slater announced when the Greens were in government. That will be particularly valuable to areas such as Inverclyde, in my region, which will, with the best will in the world, never benefit significantly from the existing visitor levy.
All that progress is welcome, but it is no substitute for a genuine, full replacement of the council tax. I spend a lot of time talking about that, as do other members. I note that we do not talk enough about non-domestic rates as the other key lever of local taxation, but that is because they are not really local. They are nominally local, but they are also set from here. That brings me to the point that what we have at the moment is 32 regional service delivery bodies, and not genuinely local government. It is not local, which is a separate issue from the finances, and its ability to govern is massively restrained, in significant part because of its lack of financial powers.
As I mentioned in my interventions, revaluation is a key first step. It seems that we all agree that that is necessary, so the question becomes why we have been unable to complete a revaluation exercise in the 26-year history of this Parliament. I believe that Wales has completed three in that time. There is clearly a need to make progress, and there is an appetite for it both in this Parliament and among our colleagues in local government. I hope that we do not get to the end of the current session of Parliament having failed to at least begin a process of revaluation. It is absurd to have a system of tax that is based on valuations from 1991, which has resulted in most people paying the wrong rate. There are probably roughly equal numbers of people paying too much and people paying too little, and the system is certainly broken.
We can debate the reliefs that will be necessary in a new system, what formulas it should be based on and the transitional arrangements that will inevitably have to be brought into place, either for a few years or for a longer time, but we need to have an accurate data set first. There is no point in progressing with a replacement to the council tax if it is based on the 1991 valuations as well. The Scottish Greens want the replacement to eventually move into the space of a land value tax as well as property taxation, but it is critical that we do not micromanage that from Parliament.
Those matters are of huge significance to our constituents, because although it sounds abstract and is very technical, in practice we are talking about how we fund our schools, social care services, bin collections, libraries, roads and pavements, leisure centres, libraries and so much more. I do not want us to get to the end of the parliamentary session once again wringing our hands about our lack of progress on one of the areas that most significantly affects our constituents.
15:20
I love Ross Greer’s eternal optimism about the reform of local government finance. He and I have sat through numerous working groups and consultations where absolutely nothing has happened but there has been lots of talk. I hope that one day I will share his optimism and that we will get a true reform of the system, because it is outdated—there is no doubt about that.
The minister knows that local governments have, for many years, been starved of necessary funding. He will see that in his constituency casework and in his local community. Local governments have been retreating to their statutory responsibilities. The spend-to-save element and preventative measures are increasingly put to the side as they try to meet their legal obligations, but even then they struggle to do so. We see that in relation to additional support needs, looked-after children and care-experienced children and in many other areas.
We also see it on our streets. Look at the state of Glasgow. My son is now a student in Glasgow and I see the state of Glasgow’s streets. I see the closure of libraries across the country and leisure facilities that are in desperate need of investment, with many closing, including in Perth. There are a number of different problems. The minister sees all of them.
The issue that I will raise is the age-old problem of the disparity in funding between one local authority and the next. Some councils, such as Aberdeen City Council, Aberdeenshire Council and City of Edinburgh Council, have struggled for years to even reach the 85 per cent threshold that the Government promised years ago, back in 2012. When John Swinney was finance secretary, he and I had repeated discussions about that, and he went through various contortions to explain to me that the 85 per cent floor was being met when it was not. In fact, the formula was changed to include council tax and then the councils that received the most were chopped, so of course, the 85 per cent floor was possible after all of that. However, the effect is that Aberdeenshire, Aberdeen, Edinburgh and some other councils are being short-changed by the formula. I urge the finance secretary to use his charm and skill to persuade those in the Government and in COSLA to change the formula so that we have fairness in the system.
Does Mr Rennie recognise that the problem that he set out regarding Aberdeen, Edinburgh and Aberdeenshire has been exacerbated by the fact that we have not had a revaluation since 1992?
I think that it was 1991, but yes—absolutely. The system has been exacerbated by that issue; there is no doubt about that.
I hope that the minister takes that into account and seeks to change the system. I have seen the effect in Aberdeen, Aberdeenshire and in Edinburgh, where local government has struggled to even keep up with other local authorities.
In saying all that, we will support the order today because we managed to negotiate a budget that secured some significant investment into local authorities, including social care support through the national health service in Orkney and Shetland and employer national insurance compensation, which will help. We also need to get money to local authorities because they need it. Even if it is not sufficient, they need it. We will support the order today, but it is a qualified support. I hope that the minister takes into account the long-term funding issues and the disparity between some local authorities and others.
15:23
The 2025 local government finance order that is before us today seeks parliamentary approval for the guaranteed payment of £13.9 billion in revenue support to be paid to Scotland’s 32 local authorities.
Next year, the Scottish Government will provide local authorities with a total funding package that is worth more than £15 billion, delivering an increase of more than £1 billion—or 8 per cent—which is a real-terms increase of 5.5 per cent, despite the challenging circumstances that I outlined in my opening statement.
In addition, almost £867 million of further Scottish Government support is provided outwith the local government finance settlement. That includes the funding that is paid to local authorities for the attainment Scotland fund, the schools for the future programme, area-based schemes, regeneration programmes and city deals. That brings the Scottish Government’s total investment in local authorities to almost £16 billion.
We have listened to the requests of COSLA and others, and we acknowledge that a council’s decision on tax provides important financial and administrative accountability to its local electorate. As well as accounting for local needs, we expect councils to consider the impact of council tax increases on local people and their household finances.
Along with COSLA, we have announced a joint programme of engagement to build consensus on reforms to make council tax fairer. Because there are differing and competing views on what that reform should look like, we will engage transparently, through our partnership approach, to build a consensus on a modernised, fairer local taxation system that can support the local services that communities across Scotland expect and deserve.
The settlement also provides continued fiscal certainty through our policy of guaranteeing the combined general revenue grant plus non-domestic rates funding that is set out in the order. That means that any loss of non-domestic rates income will be compensated for by increased general revenue grant, which, in effect, underwrites that critically important revenue stream.
Bearing in mind that the overall quantum was confirmed when the Budget (Scotland) (No 4) Bill was passed by Parliament, Opposition members should note that failure to approve the order would result in Scotland’s local authorities and, as a consequence, all our local communities, being deprived of more than £618 million of additional funding in this financial year and more than £1 billion of additional Scottish Government investment next year.
I encourage Parliament to unanimously support the local government finance order before us today.
That concludes that item of business. There will be a brief pause before we move on to the next item of business, to allow front-bench members to change places.
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