Local Government and Communities Committee

Meeting date: Wednesday, February 17, 2021

Official Report 667KB pdf

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Subordinate Legislation

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Local Authority (Capital Finance and Accounting) (Scotland) (Coronavirus) Amendment Regulations 2021 [Draft]

Under item 2, the committee will take evidence on the draft Local Authority (Capital Finance and Accounting) (Scotland) (Coronavirus) Amendment Regulations 2021. I welcome from the Scottish Government Kate Forbes, Cabinet Secretary for Finance; Hazel Black, head of local authority accounting; and Colin Brown, senior principal legal officer.

The regulations are laid under the affirmative procedure, which means that the Parliament must approve them before the provisions can come into force. Following the evidence session, the committee will be invited to consider the motion to approve the instrument.

I remind everyone that Scottish Government officials can speak under this item but not in the debate that follows.

I invite the cabinet secretary to make a short opening statement.

I am sure that we can all agree that local authorities have played a crucial role in supporting local communities throughout the pandemic. Providing that support has meant that they have incurred additional costs, which, coupled with lost income from closures, means that councils are under significant financial pressure. I will go into detail on that under the next agenda item.

During the past year, I constantly pressed the United Kingdom Government for additional funding to address our own budget pressures and those of local government. The UK Government was slow to respond, making it uncertain whether the additional funding would be sufficient to allow local government to meet those additional funding pressures without cutting vital services or raising council tax.

In the absence of that certainty and clarity, the Scottish Government worked closely with the Convention of Scottish Local Authorities to identify other ways for local government to address the funding pressure. The amendment being sought in the regulations will allow a local authority to reduce the amount of any of the statutory repayments it is due to make to the statutory loans fund in either the financial year 2020-21 or 2021-22, but not both.

Reducing the amount of any of the statutory repayments due to be repaid in either the most recent financial year or the next one will reduce the expenditure of a local authority in that financial year, thus creating additional financial capacity to meet Covid-19 costs.

Under normal circumstances, ministers would not support that. Requiring the repayments to be made in the financial year that they are due is prudent financial management. It ensures that current and future taxpayers are charged for their share of the capital expenditure costs of assets being used to deliver services. These are not normal circumstances and it seems right to allow flexibility. However, I have made it clear to local government that that flexibility should only be used as necessary to address funding pressures arising from the pandemic.

The regulations also include a provision to replace the existing repayment provisions with a new one, which is repayments in accordance with proper accounting practices. That change is to allow future harmonisation between accounting standards and statutory arrangements.

Separately, the regulations also change the audit completion deadline for the local government 2020-21 annual accounts, as requested by Audit Scotland to address the knock-on effects from a delay in auditing the 2019-20 accounts.

I have gone on longer than I would normally, but it is quite a complex instrument. In summary, the regulations provide a financial flexibility that local authorities asked for, and which I hope that they will welcome. I am happy to answer the committee’s questions.

We now move to questions from members. Members should type R in the chat box if they have a question, and I will call people by name. Please allow a second for the microphone to be switched on before speaking. Cabinet secretary, please state clearly if an official is being brought in to answer a question.

I thank the cabinet secretary for her remarks. This is a complicated instrument containing some complicated policy areas for the committee to cover. Can the cabinet secretary clarify that the provisions in the instrument are one-off adjustments and that there is no plan to continue any of these adjustments into future financial years?

That is right. I will ask Hazel Black to come in, as the fount of all technical knowledge, but, yes, that is my reading of it.

Yes, that is correct: it is a temporary arrangement. The local authority can make that adjustment for only that one financial year, and there is no plan to do that again.

I want to clarify by when the funds that have not been paid in any one additional year have to be paid. Is there a timeframe for the repayments?

Again, I will ask Hazel Black to come in, as that is a technical question.

The regulations set out that a local authority must make the repayment within the next 20 years, at the maximum. In most cases, each individual loan can be spread over the remaining life of each of the individual loans fund advances. Where that advance exceeds 20 years, it is limited to 20 years, so it must be repaid within that period.

On flexibility and forward planning, we might come to this later, but I guess that one of the drivers behind the instrument is loss of income. Have you done any work with COSLA on reasonable estimates for the upcoming financial year, given our current circumstances?

We have started that conversation. Given that it took evidence from COSLA, the committee will know that we spent a considerable part of last year trying to get returns from every local authority to understand the impact of loss of income, and we have that for the first few quarters. Looking forward, we will ask for that information from local government again, but it is fair to say that loss of income is difficult to quantify right now. For example, if we move out of lockdown more slowly, that will have an impact on arm’s-length external organisations, community halls and how busy town centres are, which will affect income from parking charges. It is therefore difficult for local government to forecast loss of income for the upcoming year, but we have a relatively good handle on loss of income last year.

As members will have seen in my announcement on 16 February, we have allocated, in three instalments, additional funding for loss of income last year. Where local government is unable to use that money last year, as it were, it can carry it forward in reserves. However, that funding is specifically for loss of income last year.

It is clear that future financial pressures are building up now.

The measures will be extremely welcome for local government, especially the completion delay for accounts, because local government can get concerned about submitting those on time. Given what she said in response to Sarah Boyack’s question, does the cabinet secretary have a feel for how many local authorities are likely to take up the opportunity? Will take-up be uneven or will it happen right across the board?

The instrument is part of a number of different flexibilities. We designed it that way so that each local authority could make use of flexibilities as and when they needed to. The same applies to the flexibility for loss of income funding. For example, we know that four local authorities do not have ALEOs, so how they experience the loss of income is very different. [Interruption.] I deeply apologise. My home landline never goes off, but it has just started ringing. I do not know whether you can hear that.

However, it is for local authorities to decide when to make use of the flexibilities. We estimate that the flexibility given by the instrument could be valued at £541 million because that was the figure for repayments made in 2018-19. The estimated value of this flexibility is likely to be of a similar value, but there are other flexibilities that local authorities might want to make use of as well as the flexibility for loss of income funding. The provision is therefore very much designed as a package or toolbox, as it were, for local authorities to use any or all of the tools, as they see fit, to deal with their own challenges.

You indicated that the flexibility is welcome and that councils and COSLA will feel secure about it because it will give them opportunities. You talked about a package or toolkit that will bring possibilities. What is your estimation of the facilities that will be required by certain councils? Do you have a scale of the extent to which you expect certain councils to be involved in the process compared to others? You indicated that some councils do not have ALEOs, so they will not be in such dire need, but others will be in a different and precarious condition.

That is right. I should put on the record that I do not see flexibilities as a substitute for cash. However, going back to my opening remarks, we worked with COSLA to design the flexibilities. We also had to work with the UK Government on them and receive support for proceeding with them. They were designed when the UK Government told us that the figure of about £4 billion was due to last us for the full year. There was no additional funding available for anything, never mind local government. The flexibilities are designed to relieve some of the pressure. They were very much proposed by COSLA, then we took those proposals and worked with COSLA and UK Government officials to see what we could do. Not all the flexibilities that we took to the UK Government were agreed to, but the package that we have is designed to offer support.

Since then, we have been able to go much further on issues such as loss of income. However, at this point in time, we still do not have any confirmation from the UK Government about what the consequential funding will be from loss of income—that figure has not been confirmed. We therefore said that we will increase the initial £90 million to £200 million off our own back; then, yesterday, I added £275 million on top of that. That is us doing it off our own back with the funding that we have.

Each local authority will face different challenges, some local authorities have more ALEOs than others and some are more dependent on income than others. For example, last year, when we granted local authorities flexibility over early learning and childcare funding so that they could use it for other things, some were more advanced with early learning and childcare than others, so that was more of a resource for some local authorities than it was for others. It is not for me to dictate to local authorities what use they make of the flexibilities. However, I hope that the broader the package, the more that there will be something for everyone.

We move on to item 3, which is formal consideration of motion S5M-24096, calling for the committee to recommend approval of the draft Local Authority (Capital Finance and Accounting) (Scotland) (Coronavirus) Amendment Regulations 2021. I invite the cabinet secretary to move the motion.

Motion moved,

That the Local Government and Communities Committee recommends that the Local Authority (Capital Finance and Accounting) (Scotland)(Coronavirus) Amendment Regulations 2021 [draft] be approved.—[Kate Forbes]

Motion agreed to.

The committee will report on the instrument in due course. I invite the committee to delegate authority to me as convener to approve a draft of the report for publication. Is that agreed?

Members indicated agreement.

I thank the cabinet secretary and officials for taking part in the meeting. I will now suspend briefly to allow a witness changeover.

09:16 Meeting suspended.  

09:18 On resuming—