Local Government and Communities Committee

Meeting date: Wednesday, December 20, 2017

Official Report 705KB pdf

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Draft Budget Scrutiny 2018-19

Agenda item 2 is scrutiny of the Scottish Government’s draft budget for 2018-19. I welcome Derek Mackay, the Cabinet Secretary for Finance and the Constitution, and Kevin Stewart, the Minister for Local Government and Housing. They are accompanied by four officials from the Scottish Government: Bill Stitt, team leader, revenue and capital; Marianne Barker, non-domestic rates group secretary; Brad Gilbert, head of the financial innovation unit; and Angus Macleod, head of the tackling fuel poverty unit. I hope that I gave all those titles accurately. Thank you for coming to aid our scrutiny of the draft budget.

I invite opening statements from the cabinet secretary and the minister.

I welcome this opportunity to discuss the Government’s spending priorities with the committee and to hear members’ views. As I made clear to the Parliament, the 2018-19 budget is being delivered under the most challenging of circumstances. It is because of that that the Government is proposing to use the powers of the Parliament to build a fairer Scotland, invest in our public services and support business to develop and thrive.

Local authorities are our key partners in delivering the vital services that the people of Scotland expect and deserve, which is why I have treated local government very fairly by delivering a total settlement of more than £10.5 billion. Within that total, I have been able to protect the resource budget in cash terms and increase the capital budget in real terms, which will result in a total increase in local authority core funding of £94 million.

The Scottish Government is proposing to use its tax-raising powers. If councils increase their council tax by 3 per cent, they will raise an additional £77 million, and will also secure a real-terms increase in spending on local government services again next year.

On non-domestic rates, I believe that we now offer the most attractive rates package in the United Kingdom. The number 1 budget ask of business was to cap the inflationary rise in the poundage at the consumer prices index rather than the retail prices index, and in my draft budget I propose to deliver that policy. I also propose a package of reliefs worth an estimated £720 million next year, including the small business bonus, which we have agreed to review, as recommended by the Barclay review of business rates. The draft budget also includes a number of Scotland-only measures to cement Scotland as the best place to do business; that includes nursery relief and the creation of a growth accelerator.

I hand over to Kevin Stewart.

Despite tough public expenditure conditions driven by Westminster, we have secured further significant investment for housing, including our ambitious affordable housing supply and energy efficiency programmes. Our draft budget for 2018-19 shows our commitment to delivering on those, with an increase to the more homes budget and maintenance of the fuel poverty and energy efficiency budget at its current level.

I will address each of those elements in turn, starting with how we are increasing the capital spending on housing supply. The budget document notes that the total spend on more homes will be increased by 24 per cent to £723 million. All of the £523 million capital funding for more homes will be directly invested in the affordable housing supply programme, chiefly for social housing. Together with the £92 million funding for transfer of management of development funding, which sits in the local government budget line, the total capital investment will be £615 million. That is a £144 million increase on the equivalent figure for 2017-18, and it will enable councils and housing associations to increase the momentum that is needed to accelerate the pace of delivery.

We have allocated £141 million of financial transactions to the affordable housing programme, which means that the total budget for affordable housing in 2018-19 will be £756 million. That is the most powerful way to invest in housing supply for a fairer Scotland.

On improving energy efficiency, our focus continues to be on reducing overall energy costs for Scottish consumers by improving energy efficiency in homes where we can. Next year, we will again allocate £114 million to tackle that and improve the energy efficiency of our homes. That investment demonstrates our long-term commitment to addressing the challenges of climate change and the inequality of fuel poverty in our society. We will deliver on that through our existing and developing fuel poverty programme, which offers a package of support to help those who are struggling to pay their energy bills and keep themselves warm.

Finally, I turn to the important matter of our on-going work to tackle homelessness. The homelessness and rough sleeping action group has already identified the immediate actions needed to tackle rough sleeping this winter, which we are implementing right now. By late spring 2018, the group will be providing recommended longer-term actions to end rough sleeping, transform the use of temporary accommodation and move to end homelessness.

In our programme for government, we committed £50 million to the ending homelessness together fund over the next five years, with the first £10 million set out in the draft budget statement. I look forward to the further recommendations of the action group early next year and to taking forward a lasting change and improvement to ensure that everyone has a safe and stable home.

Overall, therefore, despite the tough public expenditure conditions, we will still provide significant investment and meet our commitments to build more affordable homes, improve energy efficiency and end homelessness.

Thank you for those opening statements. It is only fair that we record our thanks for the additional transparency and information on the budget. Last year, the committee asked for more information when the Scottish Government budget was published so that we could read over clearly between headline figures in the draft budget and various local government funding streams. It is reasonable to say that that information has been provided and that it will help the committee’s scrutiny. It will certainly have helped the Scottish Parliament information centre to prepare support for this morning’s evidence session, which is welcome.

Of course, getting more numbers and getting them more quickly does not mean that there is a change to the annual—or perennial—debate about whether local government has sufficient funding. How would the ministers respond to criticism from local authorities and others that there is still not enough money in the pot to fund local government services? We will perhaps drill down to some of the numbers shortly.

I would say that it is a fair settlement, bearing in mind that we have had a real-terms reduction in our resource funding and that we have many priorities in the Scottish Government. We have worked with our local government partners, but it is true to say that they forecast a much worse settlement and a need to prepare for far less resource than the draft budget proposes. I believe that the settlement that we have outlined is fair.

I have had negotiations with the Convention of Scottish Local Authorities, which represents all local authorities—I welcome the fact that it again represents 32 out of 32 local authorities—and it has described that on-going engagement as positive and constructive. From outlining the proposed settlement to COSLA, I know that it recognises that the settlement is better than it expected. I believe that the settlement gives local authorities sufficient resources to enable them to deliver quality public services, but of course they have their own fiscal lever in the council tax; they can increase the council tax by up to 3 per cent, which would generate £77 million. If they used that lever, it would take their overall resources into a real-terms increase. I look forward to further engagement with local authorities.

COSLA has given us supplementary evidence, following publication of the draft budget. One of the things that COSLA has done is to predicate inflation running at 3 per cent and apply a 3 per cent deflator. However, I understand that the Scottish Government has a deflator of 1.56 per cent, which makes quite a big difference in whether the additional £77 million that could be raised by council tax brings local authorities into a real-terms increase or a real-terms cut. Why is there such a difference in those figures? Why would the Scottish Government figure be accurate?

Perhaps Bill Stitt can cover the inflationary analysis. There are different ways of measuring inflation. We believe that our measure is appropriate with regard to the services that local authorities provide.

We use the gross domestic product deflators approved by Her Majesty’s Treasury. They obviously take different things into account, but they more clearly reflect what is happening in Government rather than the outside world.

09:45  

Okay. Do you want to elaborate on that?

We can provide more information on the factors that lie behind the inflation statistics that are used, if you want us to do so.

Okay.

One of the benefits of having additional information at an early stage is that when the Government and COSLA, for example, put their position, they talk about what they would apply a deflator to. For example, in its latest briefing for this committee, COSLA appears to apply a deflator to the budget line, “Overall Scottish Government Funding for Local Government”, in table 10.20, which includes, for example, £121.9 million for city deals, Clyde Gateway, the home efficiency programme and the regeneration capital grant fund—there is a lot of capital funding in that table, to which COSLA would apply a deflator. Does the Scottish Government take the view that all aspects of spend should be viewed in that way? Should some aspects have a deflator applied to them, but not others?

Bill Stitt can cover the specific issue.

Some funds are arrived at by way of a deal to local government. City deals are a good example. There is a negotiation between the UK Government, the Scottish Government and local authorities—other partners might be involved in city deals. The figure that we arrive at is, in essence, a deal. With city deals, as with other elements, the potential or capital expenditure is the cost of providing the deal, and an inflationary increase might not be relevant. The budget line for city deals is roughly doubled. The reason for that is that more deals have been signed up to. It would not be appropriate to measure everything with the same stick.

The real-terms increase that the cabinet secretary mentioned is on the local government settlement itself. In response to the committee’s request, in table 10.20 we listed all the other local government money, which is not part of the core settlement. None of those capital or revenue items has been included in our calculation of a real-terms increase in the local government settlement.

Okay. That is helpful, because COSLA appears to be taking a different approach.

In its briefing, COSLA also talks about commitments in the Scottish Government budget, which I know that we all welcome, including commitments on the expansion of early learning and childcare from 600 hours to 1,140 hours. COSLA has costed a number of the commitments that the Scottish Government wants local government to deliver and talks about

“£66m for health and social care (not ring-fenced)”

and

“£24m for additional 1% for teachers pay”.

COSLA does not say where the figures come from, but the total amount is £153 million, which it presents as an additional burden on local authorities—although we might expect local authorities to be delivering and making progress on such services anyway. Have there been discussions between the Scottish Government and COSLA on what will require additional funding, what funding it would be appropriate to ring fence and what local authorities should just get on and do?

That is a fair question, which reflects some of the complexities of the local government settlement. Many of our priorities and services are joint—they are partnership priorities. Childcare, for example, is delivered largely by local authorities, who are key partners. Health and social care integration is, by definition, a partnership approach.

In the budget negotiations that I have with COSLA, COSLA is interested in the quantum—that is, the total resource that it will have—and it is interested in a range of pressures, particularly those that it regards as being Government inspired. All that leads to negotiations. Let us take the teachers’ pay settlement: local authorities sought extra Government support so that they would be able to deliver that.

The overall 2018-19 settlement that I have described is essentially flat cash for resource and an increase in capital, recognising that there are a lot of areas in which there is partnership work with local authorities. Housing is absolutely critical and local authorities are a key partner in that, as they are in city deals.

Within resource—the figures that the convener mentioned—are areas on which we have engaged with local authorities. For example, I specifically asked local authorities what figure would assist them with the pressures of health and social care integration. The sum that has been allocated to that within the settlement reflects local authorities’ ask of the Scottish Government, as do the sums for support for teachers’ pay and expansion of early learning and childcare. Those key elements of asks from local government to recognise the pressures on them are built into the settlement.

What local government was really concerned about was that, if they were going to have an overall reduction in the quantum—and as I said, many councils were forecasting a 3 per cent reduction, which is about £300 million or more—and they were going to be dealing with extra pressures on top of that, it was going leave them in a more vulnerable position. That is why, through the negotiations with COSLA, we have made sure that there is resource within the settlement to support local authorities to deal with those pressures.

Okay. I am going to read out the COSLA position, because I want to make sure that I capture it correctly.

“COSLA’s view is that there is a £153m revenue reduction to the core 2018/19 settlement. To calculate this we have simply taken the SG’s flat cash position and highlighted the new burdens that have been confirmed would be fully funded for local government. Our view is that it if these items are funded then there is a reduction to the core settlement.”

That is where COSLA gets the £153 million figure. Is the Scottish Government’s position that that is wrong? What is your view of that?

That is its interpretation. I say again that in areas such as childcare, Parliament will be legislating to increase provision and we want to make sure that local authorities are resourced to do that. Some of the investment in childcare will go into expanding and improving nurseries to enhance their capacity in order to get to the 1,140 hours’ provision. My point about interpretation is that that is real money—real cash—and it will sustain what local government has. I know that these are challenging times for public services and that local authorities are feeling pressures, but those are areas of negotiation, where the Scottish Government was asked to recognise the partnership approach and put that sum in.

If local authorities, for the purpose of their briefings or wanting to improve their quantum—which I understand—want to describe it as not being core money, that is up to them. What I am saying is that it is real cash that is being invested in partnership priorities. We have discussed the figures with local authorities and now, of course, I will write to the 32 authorities and ask for their agreement to deliver on commitments and ask them whether they accept the settlement. They will say that it is not core money, whereas I say that it is for partnership priorities—which you have touched on, convener—which are primarily around early learning, childcare and health and social care integration.

I have a final question before we move on to colleagues, who will develop the discussion further. You mentioned that local authorities were preparing for a very different settlement. What settlement do you think that local authorities were preparing for and what has changed?

Obviously, I engage with directors of finance. I have met a number of council leaders over the course of the past few months and I regularly meet COSLA leadership teams. Their assumption, which was perhaps informed by others, was that they should expect about a 3 per cent reduction—a £300 million cash reduction—in the settlement. It would have been £300 million less than the figure that they have now received in the settlement, because flat cash is essentially a 0 per cent reduction.

Local authorities were forecasting and preparing for that, and many councils published options for saving with that in mind. There was a range of possibilities, as there always is with forecasting and assumptions. The possible reductions ranged from 2 per cent to as low—or as high, depending on your point of view—as 5 per cent, which would have been £500 million. Commentators took the view that the Government would not use its tax powers and was investing in manifesto commitments, which led them to arrive at that reduction figure. That is not the figure that I am proposing in the settlement, which is far more positive than any local authority in the country was predicting.

I do not dismiss the idea that it is challenging for people who deliver public services. There is, of course, increasing expectation and demand on those services. They will face further challenges because of on-going austerity and welfare reform, for example.

In that context, the settlement is fair and it is not unreasonable for the Government to earmark and ring fence resources for something that is a priority. One good example of that, which is challenged by people who do not believe in ring fencing, is the pupil equity fund of £120 million. The evidence is that it is being spent directly on measures that will help to tackle the attainment gap. It has also ensured that hundreds more teachers have been employed which, we hope, will make a difference to outcomes and attainment.

That is an example of how ring fencing, although it might not sit comfortably with all of us in principle, works in many regards.

It is interesting that you mentioned ring fencing. If I recall rightly, cabinet secretary, COSLA and Unison came to the committee and lamented ring fencing. When we asked them whether they agree with ring fencing they said that they do not, but when we asked them specifically whether they would take money away from the pupil equity fund, they made no comment. There is an interesting dynamic between what is and is not appropriate to ring fence, to which the committee might return.

Thank you, cabinet secretary and minister, for joining us.

I will explore the matter slightly further. It is not just COSLA that is concerned: the Scottish Trades Union Congress briefing says:

“The Scottish Government may have received a real terms cut from Westminster, but it still received a cash terms increase of £188 million. Local Government, however, can expect worse treatment from the Scottish Government as their cash terms budget is frozen.”

The STUC is also expressing concerns about real-terms cuts to local government. Have you responded to its concerns yet?

As Elaine Smith would expect, over the past couple of months I have met a number of stakeholders, including the STUC, which raised a number of matters with me, and not just to do with local government. Trade unions are concerned about a range of issues, not the least of which is public sector pay policy. They also engaged constructively in the tax debate.

A key feature this year was to ensure that we went from a real-terms reduction in resource to being able to invest in real-terms growth. That related principally to the national health service. There is demand and a need for that, and there is no doubt that the NHS is a precious service. So, too, are local authority services, but local authorities can raise the council tax, which would increase their income and their resources.

We have to make choices and set our priorities, which we have done fairly in the budget while ensuring that there is economic growth so that we can have future revenues to continue to invest in our public services. The STUC raised a number of matters: pay policy overall, investment in our public services, tax and local government. However, the Government and, therefore, Parliament have to make choices.

Local government will campaign for more resources: it always has and always will. I did that when I was a council leader. It is to be expected. However, in the context of the reductions that we face, local government has been treated fairly.

Of course choices have to be made. In its briefing, the STUC goes on to make a point about the Scottish Government’s revenue-raising powers and the choices that can be made. However, to look at local government and the NHS specifically, many of the services that local government provides are interconnected with the NHS; many of them would take pressure off the NHS if they were fully funded and properly provided. We have to acknowledge that.

The cabinet secretary talked about pay policy, which has been raised with the committee. From looking at the COSLA submission, it seems that one of the issues in the dispute that you are having about whether there is a reduction to the core budget is the teachers’ pay settlement. Unison Scotland points out that teachers are directly employed by local councils and, therefore, negotiate their pay through COSLA. However, it feels that there is some confusion about why the Scottish Government cannot apply the approach that it is taking on teachers’ pay in order to ensure adequate pay funding for all public sector workers. I appreciate that the Scottish Government has lifted the pay cap for some workers in the public sector, but the point that Unison Scotland would make is that it does not apply to many low-paid workers in local government.

10:00  

I want to correct one thing that Elaine Smith has said. Teachers’ pay is not dealt with only through COSLA: there is a very specific tripartite arrangement with the Scottish Government. It is fair that, when the Government engages in such an arrangement, it thinks about the overall resource that local government has for teachers’ pay, as their employer, so the Scottish Government should engage constructively in the negotiations.

Do you see that as the key difference between the teachers’ situation and the situation of other local government workers?

There is a clear difference in that the Scottish Government is part of the tripartite negotiating arrangements on pay for teachers. To be able to secure a satisfactory deal with the workforce, local government asked for more resource, and it got that. Because the Government is part of the negotiations, the teachers’ pay deal is different from the deals for other categories of council staff, in which the Government does not have a say over pay policy. Many would argue that it should not have a say outwith teachers’ pay because of the very specific nature of the tripartite arrangements and framework.

I set out an overall pay policy that covers all areas that are within the Government’s control. There are elements of which Elaine Smith will be very aware around health workers, for whom there is an independent pay review that might return with a different proposition to my policy. I have said that we will at least match that.

All that contextualises what local government might do with a pay award. Frankly, local government has said to me that I should be mindful of what I do on pay because it will create issues of consistency for local government. It is for local authorities to decide where they set pay increases and how they take account of any changes to their modelling.

COSLA may say one thing through briefings, as it has done. I have not seen much detail yet, but I have heard at least one council leader—from memory, a co-leader of Fife Council—say publicly that the settlement will allow that council to match Government pay policy. That is just one leader’s view. Given that the settlement is better than anticipated and that local councils would have faced pressure for a pay uplift, they are in a reasonable place.

You obviously make the point that it raises aspirations among other public sector workers if promises are made to one sector and others feel that they might miss out. I appreciate that you have put your point about that on the record.

I make the point that it is not for me to instruct local authorities where to set a pay settlement. When that has happened in the past, there have been industrial disputes. Government does not ordinarily give a view on what a pay settlement should be.

The context is that the Government has recognised the cost of inflation on household budgets. We also want to sustain and protect public sector workers. Our pay policy, as our tax policy is, is progressive. There will be no compulsory redundancies and there is support for people who are on lower pay. Those are key features of the policy that are not, I imagine, alien concepts to local government, although I appreciate that councils now have to negotiate with their workforces. I argue that they can do so with a better settlement than they had been expecting—one that is fair and one that gives them further flexibility.

Another element of the deal—on which I am happy to share the correspondence, although the matter is still live with COSLA—is the increased flexibility within the settlement that local government was looking for. I make the point that it is arguable that local government has a bit more room for manoeuvre than it has had in previous years.

I want to move on. I promise the Minister for Local Government and Housing that we will get on to housing at some point. It might take a wee bit of time, but we will get there.

Delivery of health and social care has been identified as one of the biggest issues facing local authorities. Has the Scottish Government done any evaluation or assessment of the ability of integration joint boards to maintain services under the pressures and constraints that they face because of cuts?

There are actually increased resources for health and social care; there is not a reduction. To be fair to local authorities, I say that they have invested more, as has the Scottish Government. An element of the £66 million settlement from the Scottish Government to local authorities is for investment in health and social care, which is roughly what local government asked me for. That is where the negotiations got to and that was the sum that they felt would address the pressures.

The further clinical demand aspects would be for the Cabinet Secretary for Health and Sport to answer on. From the finance negotiations that I have had with local government, I know that there are increasing pressures.

As Elaine Smith pointed out, more infrastructure at community level is good and helpful for acute services. Integration has generally been a good thing, with resources following the patient rather than the bureaucracy. All that is good, but my allocation within the proposed settlement would meet what I was ultimately asked for by local authorities. There is increasing demand on the service, which is why there is increasing support and flexibility.

The partnership working has certainly been a huge advantage for local government and social care, and you rightly identify that there will be pressures and burdens on the service, but at the end of the day there is still an opportunity for development. The money that you have allocated might cover the current situation, but as we progress, given the ageing population and all the other aspects in the process, there will still be a massive problem. Do you agree?

I certainly agree that the changing demography is a challenge, and that increasing pressure and expectations are challenges. I have reflected on the fact that we want care workers to be properly supported financially, which is why delivery of the living wage was so important. You are right that further transformation has to be delivered in the health service and in social care, which is why we are taking the twin-track approach of investment and transformation. Closer joint working between healthcare and social care is valuable and important. That is the right direction of travel, and extra resources have been allocated for that.

I entirely appreciate Alexander Stewart’s point that further resources may well be required in the future. I would just like to offer him, as he is a Conservative, a gentle reminder that if I had followed the Tories’ tax plans I would be looking for £501 million of cuts from across the public sector, and not at growth in the budget, which is essentially what most parts of the public service will receive.

You talk about a fair deal. In my region of Mid Scotland and Fife, NHS Tayside and NHS Fife are seeing a cut of £23 million and Perth and Kinross Council is getting the most severe cut, of £5.4 million. How do you reckon that that is a fair deal?

To what numbers are you referring, exactly?

Information has come out in the press today. My local authority, Perth and Kinross Council, is saying that it will get, under the settlement, a cut of 2.3 per cent, or £5.4 million. As I said, the Tayside and Fife health boards are looking at a £23 million reduction on day-to-day services.

Are those numbers that you recognise, cabinet secretary?

I do not recognise those numbers. We have made much progress in respect of transparency and simplicity—although that is a bit of a contradiction in terms for local government finance—and we have been able to give more information than before. In respect of a cash freeze for resource, and a real terms increase in capital, we have circulated figures to local authorities, but I do not recognise the numbers that Mr Stewart has given. It may well be that local authorities are presenting what they believe to be their pressures overall, but we have a significant sum that is still to be allocated.

You will be familiar with the annual occurrence of portfolios transferring sums to local authorities, once they are in a position to determine how that sum is to be distributed. Sometimes that is done through engagement with COSLA. When that total resource is distributed, local authorities will have a reflection of that overall cash freeze in terms of resource and an increase in capital.

I should also say that local authorities specifically asked me for as much convergence as possible in the distribution of resources so that no council gets disproportionately more or less. That convergence tries to ensure fairness for each local authority within the overall settlement.

I do not recognise the numbers, so I will re-provide to the committee, council by council, the settlement figures that we propose. We must also remember that there is a further sum to be distributed to local authorities, which will counter the figures that Mr Stewart has told me he read in the press.

The SPICe summary that we have received recognises that total revenue has fallen by 0.2 per cent and refers to the figure of £157.3 million. That figure is there as a total revenue reduction.

That goes back to the very first point that was made by the convener. I have described the partnership priorities with local government around teachers’ pay, investment in social care and the expansion of early learning and childcare. All that is real cash and resource going to local authorities as part of the settlement. If you discount all that, you will arrive at a different figure, but I include it because it is real cash that is going to local authorities. It is as simple as that.

I want to mop up Alexander Stewart’s question. You mentioned other moneys that are to be added to individual local authority settlements, and there is also a budget line for integration joint boards. The global amount to be transferred is clear, but the amount for each individual local authority is not. Are local authorities flying blind in relation to how much money will eventually be transferred? Can you give examples of portfolios from which you anticipate money coming? That would be very helpful to the committee.

The total figure is about £10.5 billion and the sum that is yet to be distributed is about £200 million. Bill Stitt can give the committee more detail on that. That will give you the sense that local authorities have a great deal of certainty.

The reason why we put the budget circular out last week was to consult local authorities, which may come back to us about anomalies, inaccuracies, misunderstandings and so on. It is not a settled figure, so the circular gives us an opportunity to consult local authorities and then return with a local government finance order, as Parliament expects. If Parliament does not agree to the finance order, the money will not be issued.

Bill Stitt can give the committee an example of a portfolio that distributes.

It is all within the £10.5 billion total. We distribute as much as has been agreed with COSLA on the needs-based formula. An example of sums that are not yet agreed or distributed is the early years expansion, which is only just coming to the fore. A meeting has been set up for early January to agree the distribution of the early years expansion, which will be included in the local government finance order. Similarly, with discretionary housing payments, COSLA wanted a review of the distribution mechanism, which should be agreed at the same meeting. We need to look at the criminal justice social work grant, which was ring fenced as part of the overall settlement. As usual, the teacher induction scheme funding will not be distributed until the end of the year, because we need to find out how many teachers have been inducted.

I will go back to the point that Alexander Stewart made about Perth and Kinross Council. Like for like, the amount that is to be distributed in 2018-19 will be £27,000 lower than it was in the current year, but with the addition of the other sums that have been mentioned there is likely to be an increase, and not a reduction.

Table 10.13 of the draft budget, under “other sources of support”, shows a figure of £355 million for healthcare and social care integration, which may be transferred to integration joint boards. Do local authorities know what share of that they will get?

That money is for the health and social care integration joint boards: it is money that local government will not need to put into the boards.

I was asking whether local authorities know what each board is getting. Has there been a breakdown of that £355 million?

There has not, as far as I am aware, but health officials will be writing to the integration joint boards.

10:15  

That is helpful. Local authorities have, over the past couple of years, come to the committee to set out moneys that they have to spend, which sometimes includes integration joint board moneys, and sometimes does not. Alexander Stewart has questions about moneys that his local authority will receive: what is unclear is whether it includes IJB moneys, so we are trying to get a bit of clarity on that. That was quite helpful.

All the sums that I have just mentioned exclude that IJB money.

I will make one point, convener, because it will be helpful. Members may read in the press about reductions for their local authority, but the figure might be what the local authority assumed will be the amount. I have been hearing in the past few weeks assumptions from local authorities about reductions, and their planning assumptions, as opposed to what the settlement actually proposes for local government. There is a difference between what councils thought they might get, and have put in the public domain, and what we propose to supply.

Just to highlight that point, cabinet secretary, we have a frankly bizarre situation in Fife at the moment. You might have heard some of David Ross’s comments. He said last week that

“If we raise pay for some workers”

through proposed tax changes

“it will mean cutting other services and probably losing other jobs.”

However, yesterday, David Alexander—the SNP co-leader whom David Ross is in administration with—said that Fife Council would actually be fine. He said that, as in the case of childcare—as we have already highlighted this morning—the council would be creating jobs to fill those posts. There is a bit of a disconnect going on on the front line.

With regard to service redesign, do you have a view on councils charging for services that might previously have been free? For example, in Fife, the council has introduced parking charges on Sundays to offset budgetary pressures.

Jenny Gilruth has asked quite a controversial question. Again, it would not necessarily be appropriate for a minister to set out what local authorities should do with individual charging regimes. However, it is another fiscal lever that local authorities have, although it is not particularly substantial. Local authorities have council tax, but their main funding source is the revenue support grant. We would not normally express a view on individual charges made by individual local authorities; it is entirely up to them.

There have previously been suggestions that councils will need to strip back their services and just allow for the provision of front-line services. I know that Fife Council, under the previous Labour administration, took the decision to close 16 libraries, which are not a front-line service, but that decision impacted on the poorest and the most vulnerable people. Does the Government monitor how services are provided across the country in relation to how they are impacting upon the most vulnerable?

The Scottish Government has single outcome agreements—we have an agreement with local authorities on a partnership approach in relation to what we are trying to achieve and what the local outcomes should be. The main audit agencies look at the performance of local authorities on the outcomes, including how local authorities are using resources.

You have touched on leisure and culture. The local authority area that I live in—Renfrewshire—had huge cultural aspirations, which were dashed by not getting the city of culture bid. However, their culture plans are going on anyway, so they will still be investing in facilities and they will still be delivering events. I use that anecdote to make the point that although core services need to be delivered, councils can still choose to do what is important to them in their area.

Broadly speaking, there is a single outcome agreement between the Government and all community planning partners, but the audit agencies look at how local authorities are performing and how they are meeting their statutory indicators. At national level, we have Scotland performs, which looks at overall national performance, so there is a range of ways that the performance and delivery of councils is monitored.

I am a little bit confused, to be honest. Is it your position that no council will have to make any cuts?

That is for local authorities to determine. It is my position that local government has a fair settlement. As I say, it is far better than was forecast. I think that the negotiations with COSLA have gone well in that it has raised a number of asks and I have been able to support it in relation to those particular pressure points.

Will local authorities have to continue to make efficiencies? Yes, they will. They have an efficiency target of approximately 3 per cent every year and they write to me every year to confirm that they have been meeting their efficiency targets. I have recognised that these are challenging times for all our public services while expectations rise.

We as a Government are proposing to use our tax powers to ensure that we can adequately resource our public services. Local authorities also have that ability in relation to council tax. It is enhanced council tax too, because we have increased the multiplier for higher-value homes. I know that Mr Simpson will want to use some pejorative language, but I think that the settlement is fair. Will it require tough choices? Of course it will. We in Government have also had tough choices to make, but the settlement is in essence a good deal for local government.

It is not pejorative language to say that councils will have to make cuts, as you have just confirmed that they will.

I will move on to another subject. What advice has the Scottish Government been given regarding the potential anomaly in giving profit-making private nurseries a tax break—you mentioned that in your opening statement—when nurseries in independent schools, which are charities and which assist the Scottish Government and councils with the provision of additional places for three and four-year-olds, would be ineligible for the same tax break?

The recommendations stem, of course, from the Barclay review of non-domestic rates and how we can use them more effectively. The position on giving 100 per cent rates relief to nurseries supports the Government’s policy on expanding early learning and childcare, so it is a supportive policy and was a recommendation of the Barclay review that I was happy to accept. We have not distinguished between private and council-run nurseries in that respect.

If we want to improve the quality of nursery provision, we will have to invest in it. There has been direct investment in training, capacity, placements and infrastructure. However, the rates relief will support all nurseries. That was a clear recommendation of the Barclay review and we intend to see it through.

In relation to independent schools, the recommendation from Barclay was to remove rates relief from all independent schools. However, what I decided to do, following engagement and reflection, was to ensure that special independent schools and those of a very specialist nature continue to have rates relief. That position is distinct from that for mainstream independent schools, which is that they do not continue to enjoy rates relief. However, that does not change their charitable status. I have seen some press coverage that suggests that the proposal changes their charitable status, but we do not believe that it does. It has also been suggested that we cannot separate the two types of independent school in the way that I have described, but I believe that we can—there will be secondary legislation on that in due course. In addition, there is plenty of time for independent schools to prepare for the difference in terms of rates relief. However, we are proposing quicker implementation of the proposal for nurseries so that they can enjoy the rates relief earlier.

Okay. It sounds as though you perhaps did not take any advice relating to what my first question asked about. However, looking at the independent schools sector, can you tell me what analysis you did of the potential knock-on effect on the state sector of introducing non-domestic rates for the independent sector?

If I can probe a bit further, I thought that I gave quite a comprehensive answer on the difference between a nursery and an independent mainstream school, so I am totally—

Cabinet secretary, I apologise for stopping you there. Of course you must continue to answer that question and of course Mr Simpson wants to ask another supplementary question, which is fine. I am giving members a degree of latitude in their questions, but I remind them that, given that we are doing budget scrutiny, questions should be about how the draft budget would impact on the local government financial settlement and whether there would be knock-on consequences for services.

That is exactly what my question is about.

I have engaged with independent schools and looked at the evidence that was supplied to me when I got the Barclay recommendation to lift rates relief for independent schools.

Although I accepted a number of the Barclay recommendations very swiftly, I said that some required further reflection, engagement and consultation. The recommendation to lift rates relief for independent schools was one of those and I object to any suggestion that I did not engage on the subject. I have fully explored the information that was presented to me. There were also meetings with officials.

I have come to the view that, if we look at the total income for independent schools, the change in status for non-domestic rates should not have a disproportionate effect on their financial running. The information that I have seen suggests that there will not be a mass exodus from independent mainstream schools to state schools, therefore there should not be massive extra expenditure for those education authorities that might have more pupils.

I say that that rate change is the right thing to do as regards independent schools. It does not affect their charitable status, although it has been put to me that some such schools may well change their bursary support for those who might not otherwise be able to afford to go there. I think that all children deserve the best education, which is why we have put more resource into it. However, there will not be a disproportionate effect. The sums involved in non-domestic rates can be absorbed by such schools.

The reason why I ask the question is that fees could be increased, which could mean that some pupils leave that sector and go into the state sector. I spoke to the Scottish Council of Independent Schools, which said that up to one in 10 pupils might leave that sector. That could mean thousands of pupils going into the state sector, which would have an impact on council budgets. I merely ask whether you did any analysis around that.

Yes, of course. I say—for the third time—that I looked at the evidence that was presented to me by independent schools, and by their representative organisations, in direct meetings that I had and in meetings that we had with officials. I say again that if we look at the overall cost to an independent school, non-domestic rates should not have a disproportionate impact.

In terms of fees, there are other inflationary increases that independent schools have had and I do not recognise the figure of 10 per cent as being a likely shift from independent schools to state ones. I can also tell the committee that it has been put to me that many people would take a very dim view if independent schools were to become arguably more elitist because they had to pay non-domestic rates, which, incidentally, would put them in the same league as council schools.

I seek a few clarifications. We have had a briefing from SPICe. As the convener has said, we welcome the greater transparency in the numbers this year. Cabinet secretary, I take it that you broadly agree with the numbers from SPICe and that you have no issues with them?

I broadly agree with the numbers. It is a matter of interpretation as to whether you count what I allocate as cash in a settlement as part of the settlement or not. I argue that it is. I do not broadly object to the numbers, which are approximately in that area.

Another question arises from when we had the Accounts Commission in about the uprating in council tax and the uplift in the top bands. Last year, the money that that raised was given directly to the council within which it was collected. Will you clarify that, this year, it will be distributed through the normal formula?

The same approach as last year will apply, which is that every council will keep every penny in council tax that is raised in its area. The multiplier will stay in the pot for local authorities to use.

But the council tax receipts form part of the formula. Last year, the money raised by the uplift in the top four bands was ring fenced for the councils in which it was raised and it was not subject to the formula. I ask whether, this year, it will be.

Okay, that is about distribution, so I will ask Bill Stitt to come in on that.

Yes, we discussed that with COSLA at our joint settlement and distribution group. It was agreed that we would revert to the previous equalisation process.

Okay, that is helpful.

It was left separately in 2017-18, because of the question about how it was to be funded.

10:30  

That is very helpful, thank you.

There is a continuing debate about ring fencing. The cabinet secretary mentioned that there is some partnership working for which moneys are allocated from within resource, and there are other moneys that are outwith that—I think that most of us would accept that ring fencing, however we describe it, is appropriate in certain circumstances.

I have a meeting with the Cabinet Secretary for Education and Skills to ask about the legacy from 2008 of funds that were previously ring fenced. Specialist music schools are a good example; an issue arose when the City of Edinburgh Council wanted to close the City of Edinburgh Music School. Because the ring fencing has gone and the money falls into the general settlement, it is very unclear what the status of the money is and whether it is still intended for that purpose.

Do you have plans to review how some of the legacy ring-fenced funds, which were taken into the settlement in 2008, could be clarified, particularly in areas such as specialist schools that are still in existence? Some of the previously ring-fenced funds are no longer applicable.

I remember the period well, because I was a local authority leader at the time and I welcomed the direction of travel. The short answer is that I have no immediate plans to review legacy elements of the grant settlement, as you described them. That said, local authorities, through COSLA, negotiate with me every year and raise areas in relation to which they want more flexibility or have different asks. We still have that engagement every year. However, I have no immediate plans to review historical elements of the settlement.

I will move on. According to the Scottish Fiscal Commission, the overall impact of policy proposals in the draft budget for 2018-19 is an additional £28 million. The SFC reported that income tax policy would raise £164 million, but that sum is greatly reduced by the changes to the non-domestic rates regime, in particular the introduction of the business growth accelerator and the switch to CPI. What economic impact assessment has been made of the business growth accelerator? What economic impact is it likely to have?

The business growth accelerator was a recommendation from the Barclay review. Barclay recommended that we use our existing powers to try to stimulate growth in the business community.

We cannot say, “This amount of intervention equals this amount of economic growth”; there is not a figure for that. However, the evidence from business organisations was that it is difficult for businesses to invest in their property or premises without having a chance to raise some revenue. I think that that is why the panel made its recommendation. The view was that, if businesses had a bit of respite or a period of grace—it will be a year—following improvement work, expansion or whatever, they would be able to raise revenue .

Such an approach contrasts favourably with the approach south of the border, or anywhere else in the UK, for that matter. If a business improves its premises, there will not be an immediate buoyancy as a result. The view of business was that the approach would act as a stimulant to the economy and to those who want to invest in their property, by giving businesses a bit of support. Ultimately, it is thought that it will pay for itself, because of the extra investment that it will bring.

The Scottish Fiscal Commission said of the policies in the budget:

“Apart from the change to public sector pay policy, the Commission’s judgement is that these policies are not of a large enough magnitude to have a significant aggregate impact on the Scottish economy”.

I will leave that there.

What is the cost of the small business bonus scheme in terms of the revenue that is foregone?

I think that the forecast for next year is around £230 million. If I am incorrect, I will email you with the up-to-date figure.

I understand that you have accepted the Barclay review recommendation that you review the scheme. When will you do so, and how?

The timescale was set out in the implementation plan.

The review of the small business bonus will commence in the new year.

In a letter that you wrote to the Rural Economy and Connectivity Committee, you noted that new shooting and sporting properties are coming on to the valuation roll. There are 10,300 of them, with a total rateable value of around £16 million. However, according to an analysis that was published in response to a freedom of information request—it is freely available from the Scottish Assessors Association website in any event—10,174 of those properties are valued at less than £15,000 and a mere 72 are valued above £15,000. The idea of getting a £4 million to £6 million yield when 99.9 per cent of the properties are eligible for small business relief seems a bit strange, and people such as Mohammed bin Rashid Al Maktoum, the ruler of Dubai, will not be paying any tax at all because of the small business bonus scheme. Does that seem fair?

It is quite hard for me to talk about any individual. I do not know the gentleman, his tax affairs or any of the background. I am happy to look into the details to see how we are applying the small business bonus, if you think that it is unfair. I can double-check those numbers.

Small businesses may be able to benefit from the small business bonus scheme, but it applies only up to state aid limits and there are only so many properties that a proprietor can receive the small business bonus for. I am loth to give a view on any individual’s business affairs.

I can also clarify that the assessors still have a few thousand properties that we believe will go on to the valuation rolls. Also, if someone has a property with a rateable value under £15,000 but they have other properties as well, they might not be eligible for small business relief.

I am aware of that.

Whether they are is not always apparent from the valuation roll. I can also correct the small business bonus cost that I gave—£235 million is the forecast cost for next year.

That was not bad, Ms Barker—you were quite close.

That is helpful. I will leave it there, being conscious of time.

Before we take Mr Gibson for our final question on this area, as I am sure members are primed to ask lots of questions on housing, I will ask something that I meant to ask at the start that will help our budget scrutiny.

There is always much debate over the local government funding formula, in terms of what moneys go to which local authorities and in what quantities, and what methodologies are used to decide. As we know, everyone talks about changing the methodology and then says that it is too difficult and we will just leave it as it is.

Has the Scottish Government assessed how the ring fencing of various priorities may have influenced the overall direction of moneys? To take the bands multiplier as an example, I am delighted to hear that those moneys will now be redistributed in the normal way rather than being retained by local authorities. I think that that is the right thing to do. We have pupil equity funding moneys going directly to schools in line with a needs-based assessment that is based on entitlement to free school meals. Various moneys are now going to local authorities under slightly different distribution models. At some point will the Scottish Government think about taking a step back to take stock of whether that approach has made for a more progressive or targeted use of moneys, or what the balance is?

Your remarks about how complex distribution is were fair and accurate. Most folk do not want to bother with the complexity of a wholesale, systematic review of distribution and therefore do not want us to bother. I think that 32 out of 32 council leaders can come up with a formula that suits their council better.

Distribution is done through partnership with local government. There is a distribution assessment group through which we engage with local authorities on how to distribute new funds or how, if there is a proposal to change funds, we embark on that in a partnership fashion.

Sometimes, it is appropriate for funds to be specifically needs based; at other times, it might be proportionate and appropriate to determine shares through other mechanisms, such as population size.

After we put funds through the distribution formula, with all its various indicators, we arrive at a number that each local authority should get. Then I set what is called the floor, which in essence realigns the allocations and brings them closer to a point of convergence. Therefore, all that work and debate takes us to a point where we still ultimately have convergence around what a council may actually receive, which is a matter for the Scottish Government and not necessarily local government. That is why we engage, through the local government finance circular, on the local government settlement, as proposed last week.

There are no immediate plans to change the overall formula. I would engage positively if local authorities wanted me to do it, but I suppose that COSLA would have to approach me and say that it wants me to look at the formula again. The convener will be very familiar with this. Every time it has been tried, a lot of money is spent on a lot of consultants, and each council argues for the position that suits it best—rural versus urban, island versus mainland, east versus west, deprivation versus supersparsity—I could go on. I have no great desire to revisit the overall distribution formula.

Perhaps I did not articulate the question the way I meant to. I am suggesting that the variety of ring-fences and the use of different methodologies to give money to local authorities, separately from the way in which the revenue grant is distributed, may have had an impact on how moneys are directed to different parts of the country. That may be positive, because we should be progressive and redistributive, but will it be looked at in the round at any point?

I entirely get the point. We always look at the outcomes for individual local authorities when we allocate resources as well as the overall picture. Sometimes, moneys can be very specifically needs based or in a pot for a specific function. A good example is the housing money, which we will come on to. There is a substantial uplift to invest in housing, which is an area where there is a specific need. Local authorities should now get on and spend those resources with partners.

It will be in Mr Gibson’s hands whether we move on to housing at this point as part of his general questions.

There are a couple of areas that have not been covered, such as capital.

I should apologise to the minister over the scheduling of this session. We should probably have asked him to come an hour or so later. Apologies that we did not identify that opportunity.

Labour council group leaders tried to look at a new funding model three and a half years ago. Given that that would have cost North Ayrshire £5.1 million per year, it was understandably abandoned.

Although £235 million in revenue might have been lost in supporting the small business bonus scheme, the Federation of Small Businesses said, at the height of the recession, that one in six small businesses would have gone bust without the scheme. It keeps people in work and helps the revenue streams of the Scottish Government.

I agree. The Federation of Small Businesses has said that the scheme has been a lifeline to many small businesses and ensures that we have a competitive package of business rates relief. We have to give people reasons to live, work and invest in Scotland. One example is a Paisley cafe that I visited when it stopped paying business rates because of the bonus scheme. The saving was used to employ a new member of staff, and she was delighted to be working there. Many businesses use the scheme to employ staff or invest in their premises. It has been a lifeline during turbulent economic times.

You probably share my astonishment at the crocodile tears of the Conservative members on the committee about the cuts to local government. What is the reduction in local government funding in Scotland relative to the reduction in England, where the Conservative Party has been in power for the past decade?

From memory of an equivalence analysis for a previous question, the English reduction is about four or five times any real-terms reduction that Scottish local authorities have faced.

We spoke at the beginning about the HM Treasury deflator. How relevant is that deflator when we have different circumstances in Scotland? For example, the UK is not lifting the 1 per cent pay cap, but we have signalled clearly that we will.

Also, how will councils be able to deliver expectations on salary, given the disproportionate number of workers earning £30,000 or less and the fact that councils are also squeezed by the policy of no compulsory redundancies?

10:45  

I am happy for Bill Stitt to return to the deflator issue. However, from what I have seen and know of local authorities, they knew that there would be a degree of pressure on them to move on pay. What they do in negotiations with trade unions is a matter for them but, putting it in the context of councils making efficiency savings and having a better settlement than they expected, I think that they will be able to arrive at a fair settlement for their workforce. However, I do not set that.

I acknowledge that the Scottish Government’s lifting of the pay cap creates a culture of expectation about what local authorities may be able to do, but that is a matter for them. They certainly have far more room for manoeuvre in a pay award than they would have had if the settlement had been a £300 million reduction. Let us take another scenario: if I followed the Tories’ tax plans I would have to find £501 million from front-line public services. That is not what I am following and, therefore, the settlement for public services and local government is fair.

The deflator is used by HM Treasury and by Scottish Government central finance, so it seems strange for local government to use a different number. As part of the process of clarification, we use the same number so that everything can be looked at in the same light.

Even though that number does not reflect inflation, which is what we are actually dealing with.

According to HM Treasury, it does reflect inflation. That is why I am going to write to the convener with the explanation of why it is used.

To make a further helpful point, the Scottish Fiscal Commission is obviously strengthening its position and growing. Maybe, in the fullness of time, it will be able to provide more analysis on such matters. It builds up the forecast from Scottish economic circumstances, rather than using a top-down perspective of what might be coming from the UK level.

It is a while since inflation has been 1.65 per cent, but I will move on to capital because I know that the convener wants to move on to housing.

In the figures provided by SPICe, I notice that the real-terms change in the revenue settlement—which is thanks partly to the Tories’ £200 million cut in our resource—varies from a 0.1 per cent reduction in Midlothian to a 4 per cent reduction in Argyll and Bute, and the average is 1.8 per cent for Scotland. However, in capital, things are quite different. In my area of North Ayrshire—in which I am pleased to say we do not have any independent schools—the capital reduction is some 94.2 per cent, but in the Borders capital is increasing by 42 per cent. There seem to be colossal differences in next year’s capital allocation, whereas the revenue allocation is very steady. Why are there those huge variations across Scotland, particularly for North Ayrshire?

Those huge swings are to do with the flooding money. If a local authority does not spend its flooding allocation in one year, it will get it the next. We go out to each local authority each year to ask what has been spent and what the plans are for the following year, and we make adjustments. A figure of £42 million is guaranteed each year for the flooding programme and we have to move that around between the local authorities to ensure that they all have sufficient to carry their programmes forward. There are some slippages and some overestimations, and North Ayrshire has sufficient money at the moment without being giving any additional money from the flooding allocation in 2018-19.

As long as you bear in mind that the Garnock valley flood prevention programme will be coming forward for funding pretty soon.

You have made your point; I suspect that the cabinet secretary will not want to comment on that specific scheme.

That shameless bid for funding.

Absolutely. We will move on to housing. Does Mr Wightman want to open up on that?

Yes, by all means. There are important and welcome resources for housing. A week or two back, we looked at comments that the First Minister had made during the Scottish National Party conference, when he said that, if an authority did not use all its allocation, the Government would take back the balance and give it to one that could use it. We have ambitious housing targets, and I am concerned that statements like that send the wrong signal to local authorities, some of which may be facing challenges in assembling land and having to work over longer timescales. Can you give us an assurance that the plans that each local authority has to deliver housing can be realised and that there will not be any arbitrary clawing back of allocations?

I have made it clear from the start that, if local authorities do not use their resource, we will recirculate that resource. We have said all along to local authorities that they should build in slippage to ensure that they maximise the amount that is allocated to them in the resource planning assumption. I have to ensure the best use of the resource that is available to us over the session of Parliament, and certain local authorities have been somewhat slower than others in getting things off the ground. If they are unable to spend their resource, we will give it to local authorities that are further along the way.

As I have said to the committee previously, I am determined that our housing programme will benefit the whole of Scotland, including rural, urban, Highland, border and island areas. However, local authorities’ planning—we have guarantees over the next three years—must take account of the money that has been allocated to them and they must be able to do the work to spend that money. That should include slippage, in case some things do not go to plan.

We heard evidence from the Association of Local Authority Chief Housing Officers that there is a need to reconsider how the affordable housing investment programme works, particularly in more remote and rural communities and in relation to special needs housing. In the light of what you have just said about planning over the next three years, if other political parties were willing, would you be open to sending signals about longer-term funding commitments beyond this parliamentary session? Obviously, that would be a political commitment rather than one on paper. That would allow some authorities that want to plan using longer timescales and that have particular difficulties with access to land—for example, authorities in rural areas—to plan for delivery in four or five years’ time.

As Mr Wightman knows, the Government cannot make commitments beyond the end of this session of Parliament. Nevertheless, I am willing to talk to all parties about all issues, as members will know. If Mr Wightman and others want to talk to me about the future, I am more than willing to have those discussions.

On ALACHO’s comments about rural housing and special needs housing, we have put in place the £25 million rural housing fund and the £5 million island housing fund in recognition of the differences in those areas. As I have said to the committee and all stakeholders in relation to the affordable housing programme, there are points where we recognise that there need to be flexibilities, and folk should talk to my housing officials on the ground.

In certain places, the level of subsidy that is available is not going to make the inroads that are required. We recognise that. That is why additional subsidy has been allowed for the likes of the new houses at Ulva Ferry, off Mull, which won the SURF housing award the other week. The same applies to other rural and island housing in areas where we recognise that the general subsidy will not do the business.

My officials will continue to talk to folk about those flexibilities. ALACHO knows that, because it has heard me say it at the joint delivery group, of which it is a member.

On housing for disabled people, in “A Fairer Scotland for Disabled People—Our Delivery Plan to 2021”, we have made it clear that we will be flexible in our approach to housing delivery. As I have previously said to the committee—I will repeat it—if a project requires additional funding, we have the flexibility to consider that. I should also say that all the housing that is built for special purposes should fit in with the local authority’s housing needs and demands assessment of the requirements for its area.

Over the last period, I have made a number of visits throughout the country to look at housing that is wheelchair accessible and that has made a huge difference to people’s lives in places including Dundee, Inverness and Glasgow. We will not stymie the building of such housing by arguing about subsidy; we will talk about the flexibilities to make those homes a reality.

I have one final, brief question on housing. There is an increase in the financial transaction funding in the budget. What information can you provide about whether any of that will be used for housing?

I think that we will be able to provide more information on the building Scotland fund at the beginning of next year. I pass that question to the cabinet secretary, because it is his decision.

We must not lose sight of the capital that has been allocated to housing as traditional capital, as people understand it. It is a significant uplift for the resource planning assumptions, and it will help to deliver the 50,000 affordable homes. Financial transactions may assist where there have been help-to-buy schemes and, potentially, I am proposing to use some of the money to capitalise the Scottish national investment bank and the building Scotland fund. There may be other ways in which we can support housing growth by using financial transactions. However, the 50,000 affordable homes target is being met through traditional capital.

I repeat what I said in my opening statement: the affordable housing figure for this year is £756 million. That is part of the £1.754 billion of resource planning assumptions that have been given to local authorities over the past three years. As I said earlier, that gives them stability and security in planning over the piece in order that they can help us to meet our target.

Mr Stewart certainly did not lose his voice when he was asking for the money.

No, I certainly did not lose my voice at that point.

If the Government was to meet its manifesto commitments, housing was always going to be the big winner. A 22 per cent increase is pretty spectacular for any budget line—that is stating the obvious—but what we are scrutinising is the delivery, not the budget line.

One part of the housing budget that is still pretty minimal relates to adaptations. I have lost my notes, but I think that there is a £10 million flat cash settlement—

It is £10 million, convener.

Given the mammoth budget for the affordable housing investment programme and the health and social care integration funds sitting beside that, and given the stories that we have heard of backlogs of adaptations that need to be done, there must be a cleverer way of using the money. More than £10 million should be available within existing resources—if it is not, we must find more resources for adaptations.

What is the minister’s view on having a huge budget for meeting our joint housing ambitions but a £10 million flat cash settlement for adaptations?

The Public Bodies (Joint Working) (Scotland) Act 2014 delegated powers, responsibilities and budgets for adaptations to integration joint boards, and they have to produce a housing contribution statement as part of their strategic plans. Therefore, the £10 million that we have made available again this year for registered social landlords is above the moneys that should be provided by integration joint boards for the adaptations that people need.

11:00  

As the committee is probably aware, we set up an adaptations working group that looked at what was going on in a number of areas across the country. The recommendations from that working group have crossed my desk just recently, and I intend to meet my officials in the new year to see how we can ensure that they are acted on. That will include working with senior staff in health and social care partnerships on the preventative benefits of investing in a well-functioning and well-resourced adaptations service. Integration joint boards must recognise their responsibilities. Many are doing well in that regard, but others are not doing so well. Nevertheless, we are committed to implementing the recommendations of the adaptations working group and the evaluation of the adapting for change test sites that I spoke about earlier. As I have said, we have continued with the £10 million budget for RSLs over this year.

That is helpful. I want to check something. Last year, would it have been assumed that integration joint boards were also going to make a contribution to that budget line? If so, are figures available for what would have resulted if you had added to the £10 million the money that the 32 integration joint boards were expected to put in? What would the national spend on adaptations have been? I fully appreciate that those numbers might not be collected, but you will understand that the committee is keen to get hold of such information in order to see a trend or pattern and, more important, to know the outcomes from the spending of that money.

I do not have those numbers to hand, and I do not know how easy it would be to gather them from integration joint boards. Nevertheless, I will attempt to get them for you and will write to the committee. However, I reiterate that the Public Bodies (Joint Working) (Scotland) Act 2014 passed responsibility for that to integration joint boards. We have put in an amount of effort with the work of the adaptations working group and the adapting for change test sites. I am willing to share all that information with you, convener, and, as I have said, I intend to meet my officials at the beginning of the new year to look at how we can improve the work that is going on with integration joint boards.

That is very helpful, minister. I am aware that there is always a balance to be struck between getting the data to provide to our committee, so that it can scrutinise the spend, and the bureaucracy that is created by collecting the data. However, with £355 million in the draft budget going to integration joint boards, the committee is keen to track, over time, the crossover between the £10 million adaptations budget that comes direct from the Scottish Government and other funds from the Scottish Government that go to integration joint boards that are expected to be spent in the same area. I suspect that the first couple of years’ outturns might not illuminate very much but that, over time, we will get a sense of where things are going. Any information that you can provide in that area will be gratefully received.

I will do my best, convener.

Thank you. Graham Simpson has a question.

I am loth to ask Mr Stewart another question.

You did not hold back with me. [Laughter.]

I just want to clarify something. Earlier, Mr Gibson accused me and Alexander Stewart of shedding crocodile tears. I assure Mr Gibson—

I must ask you to ask the minister or cabinet secretary a question, Mr Simpson.

I will, but I must point out that our concern for the future of local government is real.

I am sure that, when you were making your point about private schools greeting about tax breaks being taken away from them, other members of the committee would have liked to use pejorative language. We did not; we said nothing, and we gave you the chance to ask the cabinet secretary several questions on the matter. Mr Gibson is being afforded the same privilege.

I must ask you to ask a question now.

I thought that you might be uncomfortable with that, convener.

I am uncomfortable with inconsistent chairing—my chairing has been consistent. Ask your question if you want to ask one.

The Scottish Government pledged to spend more than £0.5 billion pounds on energy efficiency over four years, or an average of £125 million a year. However, spending in the current year is £114 million, and that figure has been frozen in the draft budget. There seems to be a disconnect between the spending and the commitment. I wonder whether you can explain why you have not increased the amount.

Our aim is still to spend £0.5 billion pounds over the four-year period. Since 2009, I think—I am looking at my officials to see whether that is right—we have spent £1 billion on energy efficiency. As Mr Simpson will be aware from my answers to Mr Wightman last week, we will lay out more detail on all of this when we produce Scotland’s energy efficiency programme route map and as we move forward with the warm homes bill, which will be introduced this year.

We are on track to spend that £0.5 billion pounds, and, by the end of this parliamentary session, we will have spent £1 billion on energy efficiency since 2009.

I am not going to put Mr Stewart through any more agony, convener.

You are very kind.

Apparently, Mr Gibson does not have the same qualms, as he has put in a bid for a question. I ask other members to catch my eye if they wish to do the same—I know that the deputy convener has a couple of questions himself.

Thank you, convener. I think that Mr Stewart is paying the price of a nasty habit.

COSLA has said:

“we continue to have concerns around the difference in grant subsidy level available per unit to councils and RSLs. Overall, these levels currently stand at £57k per unit for councils and £70k per unit for RSLs.”

Given the huge increase in support for housing, is there now room to provide additional funding to local authorities to allow them to get more of their own council housing plans on track?

I do not intend to open up a whole can of worms around renegotiating subsidy levels, which, after much debate, were set at the beginning of 2016 and added £14,000 per unit to the subsidy. As the committee will be well aware, the reason for the differential is that local authorities can borrow at much cheaper rates than housing associations. If I were to open up that can of worms and try to renegotiate subsidy levels again—which I am not going to do—we would probably spend more time arguing about those subsidies instead of getting on with the job of delivering houses across Scotland.

As I have said to the committee, I am willing to be flexible on a number of issues, and my officials on the ground, who have the most conversations with local authorities and housing associations, are aware that I want that flexibility to be in place. We have already gone over such flexibilities, but they include some higher rates for island and very rural communities for wheelchair-accessible housing and housing with many more bedrooms than the average where need shows that that is necessary. Instead of opening up a can of worms and having a rammy about what the new rates should be, I would rather be flexible and have the constant discussion.

Thank you.

I, too, very much welcome the increase in the housing budget. However, in the past, we have struggled to spend the full amount of money. In 2015-16, there was a 16 per cent underspend of about £74 million. What processes and procedures are in place to ensure that as much as possible of the housing budget will be spent and that we try to avoid an underspend?

We will do everything possible to spend every penny. I do not recognise the figure that Mr Stewart cited. However, the vast bulk of what was deemed to be underspend in last year’s budget was actually receipts that we did not expect to get. I cannot remember off the top of my head the exact figure for those receipts. If the committee is interested, I will pass it on.

Thank you for your patient wait, minister. I have a practical question, which follows the line that was taken by the convener. When private companies build new houses, they seem to be able to build in the ability to adapt the stock easily and relatively cheaply. Adapting existing housing stock for adaptations might not be easily done. With all the welcome new building by councils and other parts of the public sector, do you know whether houses are being built to a standard that will allow them to be more easily adaptable?

The latest figure that I have for the affordable housing programme shows that 94 per cent of the houses that are being delivered are classed as houses for varying need—in other words, housing that could be readily adaptable.

Ms Smith mentioned the private sector. Building standards officials are particularly busy at this time, given the tragedy at Grenfell, for example, and all the other work that we have on. In the near future, at my request, they will look at building standards and the part that they can play in dealing with housing for varying needs in the private sector.

The committee can be absolutely assured that I will continue to monitor the situation closely. As far as I am concerned, 94 per cent is a good figure. However, I would like to drive that up further in order to meet our obligations in light of the demographic change that is taking place and the obligations that we spelled out in the disability action plan.

Ms Smith is quite correct to say that a number of houses are not easily adaptable. Over the past while, I have found from constituency cases that where there is a will, there is sometimes a way in getting that absolutely right. We need to ensure that common sense applies to a number of the things that are going on. Therefore, we will look at the adaptations working group recommendations and at the tests that we have done in parts of the country to ensure that we get the best practice that is going on in certain places applied across the board.

I have heard anecdotal examples of folk living in very similar accommodation, but in different places. In one place, the accommodation could be adapted easily, but in another place it was not quite so easy.

The minister knows that the committee has been taking a big interest recently in building standards.

We have spent a lot of time talking about the disability strand in relation to housing. Will you comment further on the other equality considerations that have been taken into account in developing the housing budget? For example, age covers not only older people, important though they are, but younger people. Can you give us some general comments on the equalities considerations in the housing section of the budget?

11:15  

The equality assessment of the budget is presented in the equality budget statement, which has been published alongside the Scottish draft budget every year since 2009 and takes a systematic approach to assessing policy proposals and their impact on various groups.

Another aspect beyond that is how local housing strategies are formulated. The housing needs and demand assessment flows into the local housing strategy, which then flows into the strategic housing investment programme, and all local authorities should be looking at the equalities impacts at the local housing strategy stage of the process.

As the committee is very well aware, I will be undertaking my now traditional Christmas thing of looking at the strategic housing investment plans over the course of the holidays; they were delivered to my desk last night.

He knows how to live, convener.

Indeed. I am going to have chocolate and strategic housing investment plans. Like last year, I will be going through those programmes with a fine-toothed comb and looking at exactly what has been taken into account with regard to disabled people’s needs.

According to the latest figures that I have seen—if my memory serves me well—12 per cent of new starts are housing for special needs. However, that figure is off the top of my head, and I will clarify it in writing for the committee.

Thank you. I am sure that the committee looks forward to hearing from you in due course about your deliberations over the festive break.

I want to ask the cabinet secretary a similar question about this year’s equality budget statement. As the minister pointed out, an equality impact assessment is produced every year for the draft budget. Do you have any comment on areas in which improvements have had to be made over the years with regard to the impact assessment?

Part of this is about the important engagement that I have in the build-up to the budget, and it is also about analysing our policies, the difference that they can make and the ways in which they are addressing equalities. Perhaps I can give you an example that goes beyond the equality budget statement. In determining our tax proposition, we had to think about what it meant for progressivity, inequality and, indeed, gender issues—after all, more women are lower paid than men. All of that features in the decisions that we have taken. Of course, income tax is such a big fiscal lever that it was right for us to look at the impacts on households and the categorisations within that to understand what impact our decisions would have.

That good practice stems from our approach to equalities budgeting and our looking at the difference that our investment will make, the intended and unintended consequences and so on. A range of things that we are doing from our good engagement with others and our analysis of our policies has got us to a place where Government and officials, for that matter, think about impacts in a more holistic way. That good practice and approach to investing expenditure are significant, as is our approach to raising revenue. This was absolutely a key plank of our thinking on income tax, which I use as a live and current example of our thinking with regard to the decisions that we have made.

Thank you.

As there are no more bids for questions, all I can do is thank the minister for persevering through the lurgy that is afflicting him.

I think that we both have it, but we have survived.

I should also say that nothing gets me in the Christmas mood more than knowing that you are reading 32 different strategic housing investment plans from local authorities. Thank you for getting us all in the festive spirit.

I thank the cabinet secretary, the minister and their wider team for their evidence. We will appreciate getting any additional information that you might want to provide, as it will help with our budget scrutiny and deliberations.

I suspend the meeting briefly before we move to the next agenda item.

11:20 Meeting suspended.  

11:24 On resuming—