Local Government and Communities Committee

Meeting date: Wednesday, February 17, 2021

Official Report 667KB pdf

---

Budget Scrutiny 2021-22

Agenda item 4 is evidence from the Scottish Government on the financial settlement for local government, the third sector and housing, as set out in the Scottish Government’s budget for 2021-22.

I welcome to the meeting Aileen Campbell, Cabinet Secretary for Communities and Local Government, and Kate Forbes, Cabinet Secretary for Finance. They are accompanied by Scottish Government officials, who are: Caroline Dicks, investment manager, more homes division; Shirley Laing, director for housing and social justice; Graham Owenson, team leader, local government finance, local taxation policy and business rates; and Ian Storrie, head of non-domestic rates policy. Thank you all for being here. For information, we have allocated about 70 minutes for this session.

I have some brief technical information. There is a pre-arranged questioning order, and I will call each member in turn to ask their questions, for up to nine minutes. It would help broadcasting staff if members could indicate who on the panel their questions are addressed to. We might have some time for supplementary questions at the end.

As there are a lot of people on the panel, I ask members to ask short, succinct questions, and I ask the panel to answer in the same way. I invite the Cabinet Secretary for Communities and Local Government to make a short opening statement.

Thank you for inviting me to the committee. I am pleased to be here alongside my colleague the Cabinet Secretary for Finance and to be supported by my officials Shirley Laing and Caroline Dicks.

There can be no doubt that this has been a challenging year. Our spending plans have been, and will continue to be, crucial in ensuring that we can support people and communities in the face of the social and economic challenges that are presented by Covid-19.

The work of the social renewal advisory board, and its call-to-action report, point towards the actions and changes that are required to help a fairer Scotland to emerge from the pandemic. With the budget, I am investing in actions that are designed to tackle deep-seated poverty and inequality, to support our communities and third sector, and to ensure that we have that fairer Scotland.

We are almost doubling our funding for tackling child poverty to more than £23 million, to deliver on our commitment to spend £50 million over the four years of the tackling child poverty delivery plan. That is in addition to the resources that were announced in the social security portfolio for the first full year of the Scottish child payment.

We continue to alleviate the impact of UK Government welfare cuts, and my portfolio will be making £83.1 million available in 2021-22 for discretionary housing payments. We remain committed to mitigating the bedroom tax in full, and the budget will enable us to do that. As announced by the Cabinet Secretary for Finance yesterday, we will invest an additional £100 million in 2021-22 to help low-income households in the year ahead. More details of that investment will follow in due course, after discussion with COSLA and local authorities.

I know that the committee has raised views on support for adaptations. Despite a challenging budgetary environment, I am pleased that we have again protected the funding that is available to assist registered social landlords in delivering adaptations for older and disabled tenants, and that we have increased the budget from £10 million to £11 million for 2021-22.

Everyone should be entitled to a safe warm home, and that has never been more important than over this past year. Thanks to targeted funding and collective action by national and local government and the third sector, the number of people rough sleeping in Scotland has reduced dramatically during the pandemic. That has strengthened our resolve to end homelessness for good. As we enter year 4 of a five-year £50 million spending programme, the 2021-22 budget of more than £12 million will enable us to build on tremendous progress and to deliver on the actions in “Ending Homelessness Together: Updated action plan, October 2020”.

With the budget, we are making available £190 million for fuel poverty and energy efficiency measures, contributing to a just transition and to our net zero ambitions. In addition, we remain absolutely committed to delivering more social and affordable housing.

High-quality affordable homes in good neighbourhoods lead to reduced poverty and inequality, better health outcomes and improved educational attainment. That is why we have now allocated a further £120 million for affordable homes in 2021-22, which brings the affordable housing supply programme for next year to £832 million. The five-year housing budget is now more than £3.5 billion. That includes more than £3.44 billion for affordable homes, which meets the housing sector’s call for £3.4 billion of funding to allow social landlords to deliver homes to the required building and energy efficiency standards while keeping rents affordable.

However, it is not just about the homes that we live in; we want a fairer Scotland in which there are vibrant communities. Regeneration funding is increasing by £84.1 million, with £131.6 million for projects to support community-led regeneration, town centres and 20-minute neighbourhoods, in which people can meet their needs within a 20-minute walk from their home.

Our third sector has stepped up to play a crucial role in our response to the pandemic. Our budget recognises that, with more than £26 million of investment in local and national third sector infrastructure to support the capacity and growth of social enterprises and to ensure that the third sector can help people and communities to recover from the impact of the pandemic.

I hope that that gives you a summary of some of the main priorities for my portfolio. I thank the committee for its pre-budget scrutiny, which covered a range of issues, and I look forward to taking your questions.

Thank you. I invite the Cabinet Secretary for Finance to make a brief opening statement.

Thank you again, convener, for letting me speak this morning. It is good to be joined by Aileen Campbell to discuss these matters.

I said this in my earlier opening remarks, but I want to say again that I have enormously appreciated the efforts and work of local authorities right across Scotland. Their continued support during these times has been absolutely essential in getting support to businesses, individuals and families. They have been a close partner in our decision making, and I meet regularly with Councillor Gail Macgregor to discuss those matters.

In coming to our decision to announce the Scottish budget on 28 January, before the outcome of the UK budget was known, we listened carefully to the representations that COSLA made on behalf of local government about the damaging impact of any further delay on the delivery of public services and the practical challenges that such a delay would pose for the setting of budgets and collection of council tax. It was a similar situation last year, but this year has additional layers of uncertainty.

The delay to the UK budget means that we do not know the total budget that is available to Scotland, which is precisely why I had to update the budget just a matter of weeks after the publication of the budget bill, because additional funding was made available.

We have had to make assumptions about consequentials, use provisional economic forecasts and take decisions on devolved tax policy without knowledge of future UK tax policies. That situation is not of our choosing and creates unnecessary challenges for us, and perhaps even more for local government. Despite those challenges, the budget builds on the objectives that we share with local government partners on how to build a fairer, stronger and greener economy and how to continue to respond to Covid and emerge from the pandemic.

For next year, we have delivered a funding package for local government of £11.6 billion and provided an additional £335.6 million for vital day-to-day services, which is an increase of 3.1 per cent. The package builds on the pre-Covid local government finance settlement, which provided an increase in local government day-to-day spending of £589.4 million, or 5.8 per cent when compared with the previous year.

The settlement also allows councils to join us in financially supporting households that will undoubtedly be struggling because of the pandemic, with additional funding to councils that choose to freeze council tax to protect families who are struggling. That additional funding is equivalent to £90 million for councils or a 3 per cent rise. With inflation at 0.5 per cent, that should more than fully compensate local authorities that choose to freeze council tax.

Including the additional £275 million that I mentioned yesterday and the £200 million for the lost income scheme, Scotland’s councils will receive £931.1 million in direct Covid support during 2020-21 through the local government finance settlement, with a further £259 million confirmed for next year. That funding is not ring fenced, but it is non-recurring, which is an important point when it comes to considering how it can be used. Taken together with the additional fiscal flexibilities that we discussed in the previous agenda item, the total value of the Covid-19 support package for councils is £1.8 billion over this year and the next.

In addition to those extra resources for councils, we have continued to provide them with funding certainty through our non-domestic rates policies. Including the enhanced retail, hospitality and leisure relief that I confirmed yesterday, the budget delivers an unprecedented reduction in the poundage and £1 billion-worth of relief. Those decisions will continue to protect businesses during Covid-19 and, unlike in England, we guarantee all NDR income for councils. We will see the value of that guarantee next year in particular.

I know that there will be questions, so I will come to a close. We will continue to support the work of local government and to work collaboratively with it. I do not diminish the financial challenges that we all face, but we will do all that we can through flexibilities or funding to support the work that councils do on the front line of the Covid response.

We move to questions from members. I ask both cabinet secretaries to state clearly if an official is being brought in to answer a question.

I will begin. Are you satisfied that the announcements that were made yesterday will deal with some of the issues that COSLA raised in evidence about the £205 million to award workers a 1 per cent pay rise next year and unprotected budgets such as those for leisure and culture? How much will the announcements that you made yesterday help local authorities to get through this difficult period?

09:30  

I will answer that in two parts, on pay and the funding package. With regard to pay, I am of course hugely grateful for the heroic efforts of all key workers across Scotland, many of whom are in local government. Although I value and fully recognise their contribution, pay for local government employees will be negotiated between the unions and COSLA; we are not part of that process. I meet regularly with the unions, but they and I accept—as, I am sure, does the committee—that the Scottish Government is not part of that process.

With regard to the funding, the local government settlement provides an increase in day-to-day funding for revenue services of £335.6 million. I invite the committee to consider the small difference between recurring funding—which is baked in and is part and parcel of the settlement—and separate funding that is specifically for Covid pressures. For example, in the earlier evidence session, Sarah Boyack asked me about loss of income and Covid pressures. We have already provided £200 million—plus £49 million—as part of our efforts to deal with loss of income and Covid pressures and, yesterday, I announced an additional £275 million for the current year to deal with Covid pressures. That should deal with Covid pressures and put local authorities in a stronger position going into next year’s budget.

Next year’s budget has a further £259 million which, again, is not ring fenced, so local authorities can use it for the pressures that they identify. However, it is non-recurring funding, which reflects the way that we get funding. All the additional funding for this year is non-recurring, so we cannot assume that, next year, the additional £9 billion will carry forward. Therefore, the plans that we make for that funding have to reflect that it could be a one-off, which is passed on to local government.

That is a long-winded way of saying that, as part of the settlement, there is an increase in day-to-day funding of about £335.6 million and, alongside that, there is non-recurring funding to deal with Covid pressures. Obviously, it is for local government to give a response to that but, from my reading of the pressures that local government is facing, it is a fair budget, with regard to the increase to core revenue as well as the substantial additional funds to deal with Covid pressures.

Both cabinet secretaries will agree that local authority services are absolutely central to helping Scotland achieve its healthy and active national outcome. COSLA complained that there has been a real-terms cut in the Scottish Government revenue allocation to local authorities since 2013-14, while health board allocations have risen by more than 15 per cent. Does that demonstrate a preventative approach to spending? If you agree that there is an issue, how do you see it being resolved?

Again, that is probably a question for me. It goes back to the commitment that the Scottish Government has made—for which other parties often hold us to account—to pass on all health consequential funding from the UK Government. That has provided a degree of protection to the health budget but, alongside and despite that, we have continued to provide local government with a fair settlement.

I am not saying that coming through a decade of austerity has not been hard, but passing on that consequential funding to health has required us to take challenging decisions elsewhere and, through that time, we have prioritised and protected local government budgets. During the current parliamentary session, from 2016, local government has enjoyed a cash increase in its overall budget settlement of more than £1.3 billion, and last year’s pre-Covid settlement of £11.4 billion provided an increase in local government day-to-day spending for local revenue services of £589.4 million or 5.8 per cent. That increase in day-to-day funding is carried forward into next year, with a 3.1 per cent increase.

I do not, in any way, underestimate the challenges that the public sector in Scotland has faced under a decade of austerity, but it should be noted that Scotland’s local authorities have had a cash-terms revenue budget increase of 3.6 per cent during that period, despite a decade of UK Government austerity. English local authorities have faced a cash-terms revenue budget reduction of 14.7 per cent during the same period, which is equivalent to a real-terms reduction of 22.8 per cent.

It has been challenging but, with an ever-decreasing budget during the past decade, we have sought to protect local government while passing on the health consequentials.

Thank you—

Convener—

I was just about to bring you in, cabinet secretary. Do you think that integration joint boards are the first step towards a preventative approach to spending? I hope that the Government will be able to take more steps toward it.

I tried to interject, because I thought that you were going to move on, and I want to speak about joint working.

The question that you posed presumes that local government and health spend do not work together, but I point to IJBs as a place where there is collaboration. The other place that I would point to, in a policy sense, is Public Health Scotland. That body is jointly sponsored by the Government and COSLA to enable us to think, in preventative mode, about how to improve the health of the nation.

The other thing I will point to—this is off the top of my head, so Kate Forbes might want to correct me—is that there is significant investment in active travel in the budget, which enables us to think about how we increase activity, and that helps improve health and wellbeing. I think that around £100 million has been invested.

My plea to the committee is that you should not see health, wellbeing and activity levels primarily through the lens of a single portfolio; you should consider the whole piece of work that Kate Forbes presented to the Parliament a few weeks ago. I ask the committee to recognise that we are endeavouring to embed some of the good partnership working that we have seen in the past 10 months to recognise the benefits of partnership and acting preventively, and to support that approach. Mechanisms and structures are in place through IJBs and Public Health Scotland to enable that to have a bit more momentum.

I want to follow up on the Cabinet Secretary for Finance’s point about a decade of austerity. One of the impacts of that was the huge pressures that she referred to. I ask the cabinet secretary to focus on the issue of unprotected budgets. We get pressure from local government, which tells us that, although core services are not funded sufficiently, there are also issues with unprotected budgets for critical issues such as economic development, employability services and leisure and culture services, which have seen huge pressure during the past year. If we want to move to Covid recovery, how should those services be funded when they have had a decade of cuts and underfunding, and local government is struggling to provide investment in core services?

I will tell you the way that we should not do it and then the way that we should. I am often pressed to ensure that as much of the budget as possible is de-ring fenced. I whole-heartedly support that, because decisions on council budgets are largely for councils to make. Next year, ring fencing will amount to only £925 million, which is less than 8 per cent. That is largely due to pupil equity funding and the expansion of early learning and childcare. I strongly believe that our approach needs to allow local authorities the financial freedom to operate independently, manage their budgets and allocate the total financial resources available to them on the basis of local need.

In the earlier part of the meeting, I spoke about financial flexibilities. This year, what has come through loud and clear is that local authorities have used that independence and freedom to build their budgets in different ways. Whether it is the difference in the dependency on income replacement, or the different make-up when it comes to ALEOS, there is a wide variety of structures and set-ups for local authorities, which demonstrates that they are using their freedom and operating independently to manage their budgets and allocate the total financial resources that are available to them on the basis of local need.

On the specifics of your question, to ensure that we deal with the current crisis, it is important for us to help local government as much as we can to deal with the Covid pressures so that those are not eating into core settlements. The need to recover quickly and efficiently is why we have been so concerned about loss of income. If we can help to cushion local authorities against that loss of income, so that there is no detriment to their core services, they can continue to take such decisions as they go forward. We need to work with them to maximise the available resources, allocate additional funding and reprioritise existing funding to ensure that they are cushioned against the Covid pressures. It is difficult to cushion anybody against Covid pressures right now, such is the magnitude of the impact.

To build on the measures dealing with loss of income, it is about ensuring that, each year, local authorities have a settlement that deals with the pressures. This year, there has been a big focus on the additional funding that has come to the Scottish Government of more than £9 billion, but I repeat that that is not recurring funding, so it cannot, for example, be used for pay settlements or for on-going tax commitments. It has to be used for Covid pressure. Alongside that, the Scottish Government’s core budget has not increased to the tune of £9 billion. We have to work with local government to ensure that it has sufficient day-to-day funding. On that, I go back to the increase of 3.1 per, or £335.6 million, compared with last year’s settlement.

My question was about non-core funding and how local government addresses issues such as employability and economic development. Those are important issues for when we come out of the pandemic, although I would argue that they were important beforehand. There have been cuts and staff reductions in such services, because they are non-core services, yet that is where our inequalities issues are arising.

The convener asked about health and social care partnerships and integration joint boards. The feedback from councils is that they have not had the care funding that they need, and that is where all the pressures are that have led to calls for there to be national service standards for care.

The first half of your response did not really answer my question about how local government will be supported to build out of the pandemic. There is more money for town centre investment. How much of that will go to local government? How can local government have the staff to make the most of those investments, given the cuts that local authorities have had to make over the past decade?

When it comes to funding other policy areas, such as employability, a lot of that goes through local government, as does a lot of the funding for social care. Employability funding may not be captured in core settlements, but a lot of it goes through local government. I agree that that is where inequalities are tackled but, to go back to my statement yesterday, the vast majority of the funding for welfare, housing, employability and town centres goes through local government. You will not see it in the budget figures, but most of it goes through local government.

My point is that the staff to deliver those services have been cut over the past few years.

You have just reminded me that I asked you yesterday about the funding of next year’s council tax freeze. Many colleagues are concerned that, by funding only one year and not providing the core funding for future council tax freezes, you will leave councils potentially having to double the rate rise next year. Will you commit to a long-term freeze?

I have said this already, and I am not going to change it: I do not work on future years’ budgets while we are in the throws of next year’s budget. Clearly, however, I have heard the concerns that have been raised and, when we come to next year’s budget, we will take them on board—not least because it is only a matter of months before the local government elections.

09:45  

Could I get a brief comment from the Cabinet Secretary for Communities and Local Government about the issue of inequalities and the capacity of local authorities to respond, given that the preventive health approach often means that they have to put extra resource into IJBs and health and social care partnerships to fund core care services?

I refer back to some of the points that Kate Forbes has made about the money and the resource that have been provided for the key areas that need attention if we are to tackle inequalities, which is largely routed through local authorities.

Employability is a key area in my portfolio through which we help to tackle poverty. We work in partnership with local authorities on our tackling child poverty delivery plan, ensuring that parents with particular needs in accessing employment are supported. We continue to work with local authorities on those key areas, because they are shared areas: they involve shared aspirations to create the fairer Scotland that we all want, regardless of whether we are a councillor or an MSP and regardless of political party, and we work jointly to deliver them.

If there are capacity issues, we will of course work with local authorities to address them. Indeed, we worked with them on the social renewal advisory board: local authorities were a key partner as we worked out what things we needed to do to avoid reverting back to the normal approach that had failed so many people in the past. What, instead, are the key actions that we need to take jointly? What are the changes that we need to make, regardless of how uncomfortable they might be for either party, as we try to ensure that we have the capacity and the appropriate support in place in the right areas?

We want and endeavour to act preventively. We support local government through funding and through that joint work. The social renewal advisory board points the way for delivering on that. That is the key test. The advisory board set out calls for actions to deliver on tackling inequality. We now need to make that happen in practice. That will require local government and national Government to work not only together, but with the health service, wider public life and the third sector. The commitment in the social renewal advisory board sets that out, and we need to respond effectively to that.

That might require us to rethink and rejig things, which would require a level of maturity in political debate. Some of that might be difficult, so we need to work collectively over the next session. A challenge for all the MSPs in the new session will be how members across the Parliament can focus on and support what are the right things to do in order to make progress. Again, we work in partnership with local government to do that, and we have provided substantial funding to enable that to happen.

My question is for the Cabinet Secretary for Finance. There has been some criticism about the way in which the Scottish Government has managed the funding process. You have identified a number of small pots of different funding—I think that there are 30 in all—and local councils have had to deal with additional administration, reporting and monitoring in relation to that.

There has been some discussion about what happened in the United Kingdom when larger tranches of money were made available. You made a specific decision to ensure that smaller pots were used. Why was that the case? What are the implications of that?

That goes back to my answer to one of Alexander Stewart’s colleagues, Murdo Fraser, during the budget statement yesterday. Over the past year, the funding that has been made available to the Scottish Government has come in tranches and, with each tranche, we are told that that is all the funding that is available until the end of the financial year. Therefore, we have to budget within that pot and we work with local government to determine how much of that we can give to it. We go through all the motions only to receive another tranche of money from the UK Government a few months later.

Our commitment is to pass on as much as possible to local government, but the UK Government’s approach makes it very bitty. Yesterday, I talked about the funding coming in dribs and drabs, which I do not think the Scottish Tories liked very much. However, it is true that, when funding comes to us in tranches, passing that on to business, local government and the health service is done in pots, because we believe that to be the only money that is available to us until the end of the financial year.

It is a far from ideal situation but, due to the fast pace of change that is also facing us all, it has been necessary to allocate a number of additional funding pots as priorities have changed and the pandemic has unfolded. However, I agree with Alexander Stewart that that is not the ideal way to do it, and I refer him to my choice yesterday to distribute a much bigger tranche of £275 million, which is not ring fenced but has been allocated in full to local government for it to determine how to spend.

Also, I have started next year’s local government budget with an additional £259 million. That has been agreed with COSLA, and local authorities will have complete autonomy to allocate their agreed share, based on local needs and priorities. That is where I want to get to—giving much bigger tranches of money, with no conditions attached, for local government use as it sees fit.

The money that is being distributed is to support and assist individuals and organisations to ensure that they can thrive and survive. However, there is no doubt that—we have already seen this; many of us receive daily messages from individuals and organisations telling us that this is the case—it is difficult for them to manoeuvre through the restrictions and fit the criteria of some of the funds. Many people fall between a rock and a hard place. We have a real difficulty in ensuring that the right funding gets to the right people at the right time, to make sure that they can support and facilitate their business or organisation to thrive and survive. That has been and continues to be a problem for many individuals and organisations.

I assume that you are talking about business support. If we did not take a sectoral approach and there was just a blanket approach—which, incidentally, is what happens south of the border; the strategic framework business fund is the only one with a blanket approach—it would be simple and straightforward to operate, but a lot of businesses would fall through the cracks, because they differ hugely.

Yesterday, for example, we launched the mobile and home-based close contact services fund—which is one of 30 sectoral schemes—for driving instructors and beauticians. They do not have premises and they do not look like a big manufacturing company, so the only way that we will reach them is by having bespoke schemes.

This Government is committed to trying extremely hard with the powers and funding that we have not to leave anybody behind, not to exclude people and not to stick our heads in the sand, as the Chancellor of the Exchequer would, when it comes to those who are not getting funding. However, our approach of smaller schemes to help people means that the picture is far more complex. I think that it is worth the effort and funding to help those who have been excluded and left behind, but I will not pretend that it is not complex or confusing.

Local government has done a tremendous job in opening the schemes in January; there have been 30 new schemes since Christmas to help those who have been left behind, from outdoor tour operators and the marine sector to the newly self-employed. They have all been left behind, because they were not captured by the self-employment income support scheme or by furlough. We have tried to help them, but it makes the picture complex.

I agree—local government has done a tremendous job in managing the situation and supporting individuals and organisations.

In her opening statement, the Cabinet Secretary for Communities and Local Government talked about the funding for social enterprise projects. It is another sector that is struggling to obtain the funding that it needs. Many of them are hanging on by their fingernails, waiting to know when that will happen. Once again, many who thought that they might fit some of the criteria have found that they do not, and they have had to source funding from other places to ensure that they can continue.

We have had conversations with Kate Forbes and colleagues across the Government to ensure that it is understood that social enterprises contribute to most portfolio areas. Therefore, it is important that we recognise their specific needs, and we have endeavoured to do that.

Very early in the pandemic, we put support in place to help social enterprises and the wider third sector to cope with its impact. We have worked to ensure that the funding streams that subsequently came online during the calendar year were available to support social enterprises. Moreover, we have ensured that the infrastructure around social enterprise has been supported so that social enterprises across the country can be directed and given good advice. We will continue to look at what more we can do to protect and support the third sector and social enterprises in dealing with the effects of the Covid pandemic over the next financial year.

We have put finance in place. We were the first to work with social enterprises in Scotland to develop a fund-and-support scheme. Early in the pandemic, the funding streams that came online were flexible in order to support social enterprises. If there is a requirement to do more, we will work with social enterprises to enable that to happen. The support for the infrastructure around social enterprises is important, because it can provide good in-kind support and the right guidance.

The lack of housing in Edinburgh is a major issue. Edinburgh’s population has risen by 13 per cent over the past 10 years. Although the number of completions last year for affordable homes was excellent at 1,300, the budget for 2021-22 will cut the housing budget, despite the additional funds announced yesterday. Given the pressures in Edinburgh, can the Cabinet Secretary for Finance give the committee some background to how she arrived at the decision to cut the housing budget?

I have been clear in the Finance and Constitution Committee and I can be clear here today that housing is a priority. The UK Government spending review last November is the main source of information for our budget. The UK Government might revise some of the figures in its budget, but we are going on the best available evidence, which is the spending review. It substantially cut our capital—by 5 per cent—and the vast majority of that was due to the cut in financial transactions of about 67 per cent.

Financial transactions have powered a lot of our building work and our work more generally on affordable homes. Therefore, with the financial transactions budget, in essence, decimated, we have tried to use it for our two top priorities, which are the Scottish National Investment Bank and affordable homes. We have not met the full request for affordable homes, but we have used as much of those financial transactions as possible, alongside capital, to meet the commitment on affordable homes. As I have said in the past, if more funding is made available in the form of capital or financial transactions, funding housing would be my top priority.

We received some additional funding, and you can see the truth of what I promised: with that additional capital funding, we prioritised affordable homes, which is why there is an increase of £120 million in capital in yesterday’s budget announcement. If that figure is again revised in the UK Government’s budget on 3 March, I will revisit the housing budget. However, for now, we have used all the resources that we can to protect the affordable housing budget not just because of the importance that it has to Gordon MacDonald’s constituents, but because it is an important way of revitalising the economy.

10:00  

Housing sits in my portfolio, too, and we are grateful for having such thorough engagement with Kate Forbes and her team on the importance of housing. There is recognition across the whole of Government of the impact and reach of housing beyond my portfolio. Kate Forbes mentioned the positive impact that housing and housing investment has on the economy.

Previous questions in this evidence session have asked what we are doing around creating healthy and active communities. Again, I point to housing as a contributor to that agenda. Good housing enables people to have an enhanced sense of wellbeing, and houses are currently places for working in and for children to do home learning in and feel safe and warm. It is important that we continue to invest in housing. That is why I referred in my opening remarks to the welcome announcement of further resource from Kate Forbes yesterday, which enables me to point out that the five-year new housing budget is now more than £3.5 billion. That is a sign of the importance of housing, particularly affordable housing, to this Government, which enables us to achieve many of the ambitions in our national performance framework.

I also point out that, because of the huge importance that we attach to housing, we are currently working on our policy document on housing to 2040, which will set out a longer-term strategy on housing over 20 years, to provide the certainty and clarity that the sector has told us that it requires. It also signals our long-term commitment to housing because of the wider policy impact and reach that it has.

It is also important to recognise that we have made that investment in housing despite, as Kate Forbes pointed out, the cuts to financial transactions and the uncertainty around the consequentials. We have endeavoured to work hard to protect housing because of its importance to the wellbeing of Scotland.

The other issue is around population shifts, which is another key area. We need to think through how we support communities that have seen population decline. There is also the issue, which Gordon MacDonald pointed to, of particular population pressures in the east of the country. Again, the housing to 2040 policy will look to tackle some of that, or at least point towards how we might tackle it.

The other aspect of housing, of course, is the existing housing stock. The budget document states:

“We will also act on the recommendations of the Parliamentary working Group for Tenement Maintenance, to help owners to work together to invest in their buildings, keep them in good condition, and make them safer and greener.”

Can you provide more detail on how the recommendations of the working group will be progressed in the next financial year?

Again, I point to the housing to 2040 document, because there has been a recognition that the delivery of affordable housing cannot always just be about new build. It also has to be about ensuring that there is improvement of existing stock alongside—this will become apparent—the fact that town centres will be able to house more people if we use money creatively to enable people to live in them. We also have commitments on the 20-minute neighbourhood and town centre living.

On Gordon MacDonald’s point about tenemental properties, we will endeavour to capture that in the housing to 2040 framework strategy and approach, which we will publish shortly. As I said earlier, that will enable us to point towards the clarity and certainty that the sector needs to do what is necessary and not focus solely on the delivery of new build. We need to recognise that it is important to improve existing stock not just because it is the right thing to do, but because we have stretching demands placed on us around zero carbon and energy efficiency targets. However, we need to recognise that tenemental properties pose some challenges in that regard, so the issue will require careful handling.

For my final question, I go back to Kate Forbes. Last week, we talked about councils’ usable reserves, which an Audit Scotland report suggests are between £2 billion and £2.5 billion. They have grown substantially in recent years. Has any analysis been done of the level of reserves that councils are using to keep services going? Do you take into account reserves when deciding the local government budget allocation?

The answer to your second question is no. I expect local authorities to use their resources as efficiently as possible and deliver services effectively to ensure that all of us as taxpayers and in our communities get the best value.

Decisions on the level and the use of reserves are rightly for councils to take. It is their responsibility to take prudent and sustainable decisions. How that is done is a matter for local authorities, which are responsible for managing their day-to-day business and are ultimately answerable to their electorate.

The reserves reflect decisions that local authorities took in prior years about their spending plans. They are not taken into consideration when the local government budget allocation is decided.

I have a quick follow-up question for Aileen Campbell. You said that the housing to 2040 strategy will be published shortly. Will that be before or after dissolution?

I intend to publish the document before dissolution. I acknowledge that we hoped to publish something earlier, but I am sure that everyone appreciates that, because of the pandemic, housing officials have experienced challenges in ensuring that we have in place the right support in housing policy. That has taken priority, but we are working to publish the document before dissolution.

The Cabinet Secretary for Finance mentioned in her opening remarks that she regards local government as a close partner. Each budget is each budget, but the budgets fit into a pattern. Between 2013-14 and now, the Scottish Government’s revenue has increased by 3.1 per cent and local government’s revenue has decreased by 2.4 per cent. The gap between the two has grown. Is that intentional? Are you concerned about that? Do you intend to do something about it?

I refer Andy Wightman to my answer to Sarah Boyack. I assume that not all parties agree with the commitment to pass on to the health budget all health consequentials, but some do. Health consequentials have been a big driver of our budget. Once they are passed on to health, the Scottish Government does not have the increase that Andy Wightman referred to. We have protected local government budgets from the remainder once health consequentials have been passed on to health.

I do not think anybody would dispute that there has been a decade of austerity. We can put the Scottish Government protecting local authorities’ budgets alongside what has happened elsewhere in the country, where English local authorities’ budgets have reduced in the same period by 14.7 per cent, which is equivalent to a real-terms reduction of 22.8 per cent.

In straight-up maths, we have protected the local government budget with the budget that we have, plus passing on health consequentials. That is the straightforward answer to the question.

My next question is for Aileen Campbell, but maybe Kate Forbes could come in as well.

Following on from that answer about passing on consequentials for health, this June it will be 10 years since the Christie commission published its landmark report, which contained important recommendations on preventative spending. I understand that, in a pandemic, the health budget needs to be protected, but what progress is the Government making in this budget to advance the notion of preventative spending, which has potentially big implications for how much we spend on health?

Thank you. That question is useful and it touches on some of the other themes that have emerged this morning.

In my portfolio, we have sought to change the narrative on housing so that, rather than being seen simply as bricks and mortar, it is seen as something that has much wider impact and reach. For instance, I also have policy responsibility for child poverty. The Joseph Rowntree Foundation pointed to the specific and tangible benefit that has been felt and experienced as a result of our endeavour on child poverty; because of our investment in good and secure social housing, child poverty has declined. We are investing heavily in housing because we recognise that it has an impact on child poverty levels but it also has an impact on our public health and wellbeing.

If housing is safe, secure and warm, it enhances wellbeing, because people are more likely to want to contribute, so they become active and healthy. In my time in this post, I have seen many examples of the positive things that happen and the benefit that we get if we have good housing, good engagement and good tenant participation, and how that impacts positively on people’s wellbeing.

We also continue to support the work on community planning partnerships and we have taken forward work on the local governance review to ensure that there is partnership working. Fairly recently, we published the social renewal advisory board report, which set out 20 positive actions and recognised that progress had been made since the Christie publication 10 years ago. It also pointed to further work that we need to do, using the change and significant shift in context that the pandemic has created, in the space around prevention, collaboration and partnership working.

In the space that you have asked me about, community wealth building is another area that will see real benefit. We have supported more directly the Ayrshire growth deal through investment in community wealth building, to take the work that North Ayrshire Council has been at the vanguard of and ensure that the approach benefits the whole of Ayrshire, including South and East Ayrshire. We had the commitment in the programme for government to support community wealth building in other local authority areas as well. Again, that tries to shift the balance of our economy to a less extractive economic model, in order to give communities more ownership of and agency over economic development in their communities. That also looks at what we can do with the resources that we have; it is about getting in about procurement and making sure that it does not become an extractive form of investment but enables the community to feel a sense of benefit from the resources that are invested.

We can point directly to a few areas in that agenda that are about ensuring that we meet the aspirations that we set out in our national performance framework.

I have two brief points about preventative spend. We need to get better at monitoring and demonstrating. The examples that Aileen Campbell has used are all brilliant, and it is important to demonstrate the knock-on impact and preventative benefits of choosing to invest in areas that are not obviously health related but which have a preventative impact on the health service.

I often have good discussions with committees about preventative spend. This committee has often challenged me on that, but it can be difficult. Let me give an extreme example. We might talk about shifting funding away from acute services to parks, which would be an obvious example of an area where there is value in spending funds for preventative reasons, but any debate about that in Parliament would not work out in that way, because we are analysed, scrutinised and held accountable for funding increasing consistently in every line.

10:15  

Parliament should have a careful debate about preventative spend, and we must all become more mature in our discussions on that subject. If we truly believe in preventative spend, we must be willing to free up funding in some areas and shift it to others. The political debate is nowhere near that. If we want to move to a more careful analysis and scrutiny of preventative spend, we must be willing to do that.

That is the theme of the social renewal advisory board’s report, which recognises that we cannot pile more on more without some recognition that change must come from somewhere. We do not always have the space for open and candid discussion. I hope that those who serve in the next Parliament will open up that discussion.

I have two questions for the Cabinet Secretary for Communities and Local Government and then two for the Cabinet Secretary for Finance.

The Cabinet Secretary for Communities and Local Government has just made it clear that she will soon be released from the pressures of that job. I wonder whether I could tempt her—

To go home?

—to think more generally about the housing budget. If we consider all the different aspects of that, including housing benefit and the huge amount of money that we spend on expensive temporary accommodation, we spend between about £3 billion and £5 billion a year on housing. Does the cabinet secretary think that we should look at that in the round? We churn money round the system for rent payments, but it never touches the people who pay rent. Does she think there is a better way to organise that so that we achieve the things she spoke about, such as alleviating child poverty and providing a warm, dry, safe, appropriate home for everyone?

We will set out some of that thinking in our document about housing to 2040. We posed those questions during the consultation on that. We set out the total that is spent, in the broadest sense, on housing and we asked what people would do with that money if they had it to spend and were working from a blank sheet of paper. That suggested that there might be other and better ways to use the funding for maximum impact.

Some of the levers and tools are not in our gift, so we must do what we can with what we have. The document “Housing to 2040: a conversation” will, because it will take a long-term and strategic approach, enable some of those discussions, ideas and policy approaches to develop so that those changes can start to happen.

You are right. One of the frustrating aspects of my portfolio is discretionary housing payments, as a lot of that money is spent on fully mitigating the bedroom tax. Do we want to use our resources to mitigate actions that we disagree with and that were taken by another Government? I think not.

The housing to 2040 document will work out how we can take a whole-systems approach to improve the way in which we deliver housing and to ensure that people get the housing that they deserve, in the place where they want to live.

You are right that there are better ways to spend the housing budget, but we do not have all the levers. We could make better use of what we do have, so that we deliver more for people and communities in Scotland.

I thank the cabinet secretary for that answer and congratulate her on getting the additional money for affordable housing from the Cabinet Secretary for Finance. A specific point that concerns me is whether the affordable housing targets and aims of the Government are undermined when local authorities, which can oblige developers to include a certain proportion of affordable housing in a new housing development, opt for a cash payment or something else in lieu of the absolutely vital affordable housing. I am aware of developments made up exclusively of houses costing half a million pounds. They do not help the situation at all or create mixed communities. Is the cabinet secretary worried about that? Can anything be done about it?

Without giving too much away, one of the themes of the housing to 2040 approach is to enable much more mixed communities and ensure that communities are vibrant and thriving. That requires us to not let communities stagnate in the way that you described.

However, we would not be where we are, with the level of housing that we have achieved over the time that we have been in Government, had it not been for the co-operation of local government. It has played a full, active and constructive role in the significant improvements in housing stock across the country. We will continue to work with local government to see what more we can do to eke out extra support, finances and whatever it takes to ensure that we can continue to build and create the communities that we want people to live in. The housing to 2040 approach will set some of that out.

I would not want to detract from the good and positive role that local government has played in creating our current housing stock over the time that we have been in Government.

I wonder whether it is possible for the Cabinet Secretary for Finance to zoom out a bit, since we are on a Zoom call. We are all trying to work out whether what local government is getting is fair. The committee is obviously concerned about that. On the one hand, the question is whether it fair compared to the funding that the Government is giving to other things. You have pointed out how we have passed on health consequentials. Some of the nonsense from Opposition parties is debunked when we realise that they have not lodged any amendments to budgets, as far as I can remember, in the 14 years that I have been in Parliament. That suggests that there is a fair degree of consensus about how the budget is distributed around the Scottish Government’s responsibilities.

The other side is comparison with budgets for local government in England, for example. We had evidence from COSLA last week that compared Scottish funding unfavourably with England. The Cabinet Secretary for Finance just said that we have a 3 per cent plus increase in funding for local government in Scotland, whereas down south it has gone down by 14.7 per cent. It struck me as odd that COSLA could draw an unfavourable comparison, albeit in relation to Covid funding, because the reality seems to be very much in the other direction. We regularly hear about English councils going bust. COSLA seemed unable to answer the question about the comparison between funding for local government in Scotland and in England, so will the finance secretary say a bit about that?

I think that it was last year when I answered questions from the committee after it had taken evidence from COSLA in which it had said that, unlike English local authorities, which had been decimated—that is a synonym, rather than a direct quote—local government in Scotland had not been. Therefore, COSLA must be referencing this year’s funding for 2020-21, and not the funding for any years prior to that, because the figures speak for themselves.

Andy Wightman quoted figures for 2013 to 2020 from a Scottish Parliament information centre report showing that, in that period, English local authorities faced a cash-terms revenue budget reduction of 14.7 per cent, which is equivalent to a real-terms reduction of 22.8 per cent. In this session of Parliament, local government in Scotland has seen a cash increase to its overall budget settlement of more than £1.3 billion. Therefore, I absolutely refute any notion that English local authorities have been treated more favourably in that time period. Under a decade of austerity, they have been treated anything but favourably in England, while here we have tried to use our budget to protect local government budgets, as far as possible.

In the approach that we have taken to next year’s budget there are three sources of funding. The primary source of funding is core settlements, where there is a 3.1 per cent increase. There are two other sources of funding over and above that. First, there is replacement of lost income. As I have said already, there is £200 million, plus £49 million and £275 million to help deal with the lack of income. The third source is de-ring-fenced funding of £259 million for local government to use as it sees fit to deal with Covid pressures next year. I have separated out the sources of that funding for the benefit of the committee, but collectively, it is all cash funding. No one can look at that package of funding and not conclude that we have delivered a fair settlement to local government in this year’s budget.

In my job, everyone can tell me that they want more money. I am not disputing that there will be calls for additional income for a host of different things However, the overall package for local government next year represents a fair settlement. We have had to build this budget on partial information, so it is not unthinkable to assume that after 3 March, when we have more information about our own budget, I will be returning to Parliament to update it on budget changes again.

That leads in nicely to my last question, if I may ask one final question, convener.

You must be very brief. The response will also need to be brief.

On that last point, cabinet secretary, you mentioned receiving funding in dribs and drabs and that you might have to come back to Parliament again. Is not the whole system in danger of being discredited, given the additional tranches being announced and the fact that local government is asking for more certainty by having three-year budgets? We have moved so far away from the devolution ideal of having some certainty around budgets. Does the announcement of dribs and drabs and new tranches of money not make the fiscal framework system untenable in its current form?

Absolutely. It is not just the Scottish Government complaining—the approach does a disservice to taxpayers, local government and households that rely on that funding and need certainty. We are going to be in a position where our budget is confirmed on 3 March, a mere week before local government has to set its council tax rates. Even if one ignores the concerns of the Scottish Government, waiting until the UK Government announces its budget in order to set our budget would be impossible for local government, which is why we are going ahead with our budget. However, we can only go ahead on the basis of partial information.

That is why I will keep going back to Parliament with updates. I am not doing that because I did not know how I wanted to spend the money in the first place—I did. However, I can only spend what I am given because I cannot overspend my budget. I agree that the fiscal framework has been found wanting in the pandemic.

Good morning, cabinet secretaries. I have two questions for Kate Forbes and one quick one for Aileen Campbell.

My first question is for Kate Forbes. You have given the money to local government to freeze council tax for this financial year. I know that you do not like to do budgets looking ahead, but what conversations will you have with COSLA in respect of keeping the differential the same so that there does not have to be a massive hike in council tax in the next financial year?

I have extensive conversations with COSLA. In advance of any budget, I will have many conversations with COSLA. I meet regularly with Gail Macgregor, with whom I have a constructive and productive relationship. We will replicate that next year—subject to the election and whoever is in my post.

In order for local authorities to plan ahead and for people in Scotland to make their own personal financial decisions, when would you see that decision being made? Will it be towards the end of this calendar year or will there be an earlier indication?

It will be part of next year’s budget. I am not being pressed right now on any other tax—you are not pressing me to determine what income tax rates will be in next year’s budget while we have yet to pass this year’s budget. I do not think that anyone expects me to set next year’s council tax before we have got through this year’s council tax.

10:30  

Okay. We have talked a lot about revenue this morning. There has been no increase in the capital budgets for local authorities. I am interested in your thinking around that, particularly as we come out of the crisis and need to look at capital budgets and builds. Why is there no increase in capital budgets for local authorities?

When we adjust for one-off funding provided in 2020-21, support to local government for capital investment through the settlement has increased by about £10 million—for flood defences. Other support for capital investment for local government outwith the settlement has increased by £44.5 million. The overall increase in support for local government capital is £54.5 million.

Capital is an area that is really challenging for us at the moment. I have a strong suspicion that the UK Government will revisit capital on 3 March. It has said that it wants to build and invest in infrastructure, but the figures in the spending review did not back that up. The UK Government may well revisit that and if so, I will revisit the capital element.

My final question is for Aileen Campbell. Earlier this morning, you touched on the issue raised by Gordon MacDonald, which is that the areas that he and I represent have populations that are growing, yet the amount of money that has come in is not as much, in comparison, as that for councils that have seen a decrease in population, which are perhaps getting proportionately more. What conversations is the Scottish Government having with COSLA to rectify that in future years?

Is that question largely around the distribution formula? If so, that is kept under constant review and is agreed with COSLA on behalf of local authorities. In relation to what you describe, the Scottish Government is always open to suggestions for improving the formula, although that must come through COSLA in the first instance. If COSLA and councils want to engage with us on whether we need to look at how council budgets are reflected in population terms, that is something that would have to come via COSLA.

On some of the issues that Gordon MacDonald raised, we are looking at population challenges in the context of housing to 2040. My colleague Fiona Hyslop is more directly responsible for issues around population and the challenges that we face as a country as a whole. She is responsible for policy in that area and is continually developing our response to some of those challenges. There are other local authorities that are facing declining populations and, more generally, an ageing population is a challenge for Scotland, too.

I accept that engagement has to come from COSLA, but would the Scottish Government recognise that the current formula discriminates against councils that have a growing population, such as Midlothian, Edinburgh and East Lothian?

That is something that is kept under constant review by COSLA and the Scottish Government. It is agreed by COSLA on behalf of all local authorities. If there is an unhappiness around that, it should be articulated via local authorities and through COSLA in order for the Scottish Government to try to work with them to respond to any challenges that are presented. That is the dynamic in the arrangement.

Could I come in on that briefly, convener? I just want to emphasise two points.

Yes, of course.

The distribution formula uses the most up-to-date population estimates. That is important. I do not dismiss the argument, but every local authority can tell me why it feels uniquely discriminated against by the funding formula. As Aileen Campbell said, if we were to revise the formula—there is an openness to doing that—that would need to come from COSLA.

Thank you. I will leave it there.

That completes our questions. I thank both cabinet secretaries and their officials for attending today’s meeting and providing much needed additional information in advance of debates on the budget bill.

10:35 Meeting suspended.  

10:42 On resuming—