Chamber and committees

Pre-budget scrutiny 2022-23 - 26 October 2021

Letter from the Convener to the Deputy First Minister - 26 October 2021

---

Dear John

Local Government, Housing and Planning Committee: Pre-budget scrutiny 2022-23

1. I am writing to you with the Committee’s views on the 2022-23 Scottish Government budget in relation to local government, housing and planning. The matters in this letter are of relevance to your portfolio and those of the Cabinet Secretary for Finance and the Economy and the Cabinet Secretary for Social Justice, Housing Local Government.

2. In the normal course of events, the purpose of pre-budget scrutiny is for committees to reflect on a range of financial matters that they have considered throughout the current financial year and to provide views and make recommendations to the Scottish Government, for it to take into account as it prepares the draft budget.

3. Of course, this year our opportunity to undertake meaningful pre-budget scrutiny has been limited. We look forward to working constructively with you to make sure the committee can engage effectively with the budget process in future years.

4. In the short time available to us this year, however, we have sought both written and oral evidence on the key issues within our remit and have
identified some pressing matters, which we urge the Scottish Government to take into account in preparing its draft budget.

5. In particular, this letter focuses on the role of local government in leading recovery from the pandemic. However, the letter also notes concerns highlighted to us about the financial viability of the affordable housing programme and the Social Housing Net Zero Heat Fund.

Role of Local Government in the pandemic and leading the recovery from the pandemic

6. In its pre-budget scrutiny last year our predecessor Committee recognised the critical role that local government had in making sure communities were able to access vital services throughout the pandemic.

7. Again, this year we would like to highlight the critical role that local government continues to play in supporting communities through the ongoing effects of Covid-19. We would like to recognise the dedication and hard work of council staff and the community and third sector workers they have collaborated with to deliver essential services. In so doing, we note the ongoing pay negotiations between COSLA and the trade unions through the Scottish Joint Council.

8. In recognising that service, we would argue that for there to be meaningful and transformative recovery from the pandemic, local government needs to take a leading role in that process. The Cabinet Secretary for Finance and the Economy and many others have told us that simply returning to the status quo is not satisfactory and that a recovery from the pandemic must involve tackling the inequalities that have been exacerbated by the pandemic. We wholeheartedly agree with this view and are clear that these aims can only be achieved with the full involvement of local government.

9. Local government needs to have the finances, workforce and tools to deliver that transformative recovery and the Committee’s focus in this letter is on highlighting to you what it believes needs to be in place for local government to be capable of playing that role.

Funding and resourcing of local government

10. The intention for any local government funding settlement, at its most basic, is to allow local government to deliver core services. In the current circumstances leading the economic recovery from the pandemic is also a crucial part of the work of local government and therefore an important aspect of local government funding arrangements.

11. The Cabinet Secretary for Finance and the Economy suggested to the Committee that local government funding has been largely protected over the last ten years, but also noted that it will be very challenging in this year’s budget to meet all of the funding needs.

12. The Accounts Commission contended, however, that for a “significant period” local authorities have had reductions in funding.

13. That view is supported by research from SPICe. It notes that total resource allocation from the Scottish Government to local government has reduced by 2.1% in real terms since 2013-14. It should be noted that most of this reduction took place in 2016-17 and 2017-18 and the last two budget allocations have seen small real-terms increases. In comparison over the same period, the health resource budget has increased by almost 16% in real terms.

14. We have heard from a number of witnesses about the extent to which local government is unable to meet the demands placed upon it within existing funding. Kim Fellows of the Local Government Information Unit highlighted the extent to which local government is unable to meet the demands of what she described as basic “liveability services” such as housing repairs. Sarah Gadsen of the Improvement Service also noted the ever-increasing demands on local government resulting from increased levels of poverty and contended that funding to local authorities is not keeping pace with those demands.

15. One local authority service, the funding of which provoked particular concern was council planning departments. There was unanimity amongst all those the Committee heard from that planning departments do not have sufficient funding and resources to meet the demands placed upon them.

16. The Royal Town Planning Institute highlighted that nearly a third of planning department staff have been cut since 2009 and that planning authorities’ budgets have diminished in real terms by 42% since 2009. It also noted that there are 91 new and unfunded duties in the Planning (Scotland) Act.

17. This is something that we will pursue in the context of NPF4, but it appears at the moment that planning departments are struggling to function effectively and will face very significant challenges in delivering on the ambitions of NPF4 without more funding and resources.

18. More generally, we recognise that there are finite resources available to the Scottish Government and difficult choices will need to be made as to where funding should be directed. Notwithstanding that, if local government is to lead recovery from the pandemic and tackle the inequalities exacerbated by the pandemic, then the Scottish Government will need to ensure that local government sufficiently resourced.

Multi-year funding

19. For local government to play this role, not only does it need to be sufficiently resourced, but it also needs more long-term certainty about resources.

20. We heard COSLA explain how important multi-year funding settlements from the Scottish Government are to local authorities. Not only does the absence of multi-year funding frustrate the ambitions of local authorities in preventing
them from developing long-terms plans, but it also impacts on their partners in that without certainty in their own funding, local authorities are unable to make long-term commitments to their partners.

21. We note the Scottish Government’s view that it has not been in a position to make multi-year commitments to local authorities given the uncertainty about its own budget.

22. However, with the announcement from the UK Government of its intention to set-out three-year spending plans it would appear to the Committee that the Scottish Government could also be in a position to make longer term commitments. This would enable local authorities, working with their partners, to make the kind of long-term plans that could help tackle inequalities and make transformative societal changes.

23. The Committee would welcome an assurance from the Scottish Government that it will be setting out multi-year funding plans as well as an indication of how that will impact on the funding to local authorities.

Ring-fencing

24. Witnesses raised concerns with us about the extent of ring-fencing. COSLA suggested to the Committee that ring-fencing constrains local authorities from working flexibly and developing local and community partnerships in the way they would want to.

25. We note the Cabinet Secretary for Finance and the Economy’s contention that ring-fencing has been substantially reduced over the last 14 years.

26. We also note that the bulk of funding provided to local authorities during the pandemic was not ring-fenced to allow local authorities to act flexibly to meet the greatest needs in their areas.

27. We acknowledge there will always be some funds that it is appropriate to ring-fence, but we also recognise the good work that local authorities were able to do during the pandemic with that level of flexibility afforded to them.

28. The Committee asks that the Scottish Government reflect on the positive outcomes arising from giving local authorities the ability to use funds flexibly, particularly the COVID consequentials, and invites the Scottish Government to take that into account as it prepares its draft budget.

National Care Service

29. We will be taking a keen interest in the forthcoming Bill making provision for a National Care Service.

30. Very serious concerns have been expressed to us, particularly by COSLA, about the impact of taking care services out of the auspices of local authorities and the resultant reduction in funding to local authorities.

31. The Cabinet Secretary for Finance and the Economy recognised that localism needs to be one of the central building blocks of the National Care Service, but also argued that the most important factor should be how to deliver an improvement in care rather than on the process for delivering that care.

32. We note the concerns expressed by witnesses about the lack of consultation on this issue to date and highlight the evidence from Kim Fellows of the Local Government Information Unit, which invited reflection on the experience of the dialogue that led to the centralisation of police and fire services and integrated joint boards.

33. While we would agree with the Cabinet Secretary for Finance and the Economy that the outcome we all should be seeking is an improvement in care services across Scotland, we would also encourage the Scottish Government to give careful consideration to ensuring that this is not delivered in a way that harms local democracy and impacts on the capacity of local authorities to lead recovery from the pandemic.

34. In reflecting on the impact of a National Care Service on local democracy we also ask what consideration has been given to how a national service of this kind would interact with the provisions of the European Charter of Local Self-Government (Incorporation) (Scotland) Bill. We would also welcome an update on the Scottish Government’s plans in relation to that Bill given the Supreme Court’s ruling.

Fiscal Framework

35. Another issue we have taken a keen interest in, as we considered the role of local government in recovery from the pandemic, is the funding framework for local government. The Committee sought to understand what a functioning fiscal framework between local government and national government would look like.

36. CIPFA argued that there needs to be a “rules-based approach to the level of Local Government funding”. While COSLA called for greater fiscal empowerment for local authorities, arguing that without it local authorities will not be in a position to deliver the services in the way they want to.

37. The Cabinet Secretary for Finance and the Economy stressed to us that for any framework to work it must be based on suggestions from local government rather than being something imposed by national government. She noted that matters such as greater fiscal empowerment would be considered in the context of the local governance review.

38. There was also a recognition that moves towards more participatory budgeting will be critical. That said, the Committee noted the challenges of moving towards participatory democracy in a representative democracy structure.

39. Whatever that framework is to look like there was concern from witnesses about the time taken to resolve this issue. Elma Murray, Chair of the Accounts Commission, noted that discussions about a fiscal framework have been ongoing for a long time and more must be done to reach a collective agreement on resolving this issue.

40. We will be pursuing this issue in the context of our consideration of the local governance review. There appears to be agreement that for local authorities to be able to act flexibly, and deliver better outcomes for their communities, they need to have greater financial autonomy and certainty of funding. We would also wish to highlight the importance of participatory budgeting in this context, while noting the challenges. The Scottish Government committed to developing a fiscal framework in the last parliamentary session. The Committee asks the Scottish Government to progress the development of a fiscal framework with greater urgency and would welcome further detail on the Scottish Government intends to do this.

Community wealth building

41. We note the Scottish Government’s intention to introduce legislation on community wealth building this session.

42. The principles of community wealth building are to create a people-centred approach to local economic development, which redirects wealth back into the local economy, and places control and benefits into the hands of local people. These are principles that we support.

43. We would suggest that this can be a driver for economic recovery from the pandemic.

44. We noted the evidence from Angus Hardie of the Scottish Community Alliance, amongst others, that for this to be effective there needs to be cultural change in procurement practices and more done to encourage the social economy.

45. It is our understanding that there have been five community wealth building pilot schemes run. We also note that an effective community wealth building scheme has been run in Preston and that there are other international examples.

46. The Committee would be keen to hear from the Scottish Government as to what lessons have been learned from these experiences and what legislative and non-legislative changes it believes are required to facilitate effective community wealth building schemes in Scotland.

Levelling-up

47. We note that various funds have been established under the umbrella of the UK Government’s levelling up agenda. These in many ways replace the EU Structural Funds the UK will no longer have access to.

48. In correspondence with SPICe, COSLA officials confirmed they had undertaken a scoping exercise to understand the levels of engagement with the UK Government’s Levelling Up Fund and Community Renewal Fund. They found that 14 bids had been made from Scottish local authorities to the Levelling Up Fund Round 1, and 96 bids to the Community Renewal Fund.

49. We heard concerns from the Cabinet Secretary for Finance and the Economy about the lack of certainty of funding that this bidding process provides to local authorities.

50. We also heard concerns from the Cabinet Secretary about the impact these funds could have on the Scottish Government’s budget.

51. Those same concerns were also presented to us by COSLA. COSLA suggested there is a real risk that the bidding process may mean that funds do not actually reach the areas of greatest need.

52. COSLA also expressed its disappointment about not being involved in conversations about the design and implementation of the fund.

53. We note these concerns and would welcome any further information you can share with the Committee on the impact these funds may have on local authority funding.

Affordable housing programme

54. We welcome the ambition of the Scottish Government’s affordable house building programme.

55. We have, however, been presented with concerns about the extent to which this programme is financially viable.

56. Tony Cain, giving evidence to the Committee on behalf of the Association of Local Authority Chief Housing Officers (ALACHO), stressed that the budget for delivering this programme was not sufficient, particularly given the ever-increasing costs with house building. He expressed particular concern that the costs of house building would be passed onto tenants and as consequence this programme could have the unintended effect of increasing housing costs.

57. Nicola Barclay giving evidence on behalf of Homes for Scotland, also highlighted serious concerns about the financial viability of this programme from a private sector perspective. She indicated that building firms were “walking away from deals” to build houses because what they were being paid
to deliver those projects was no longer enough to meet the costs of materials and still get back what they have invested.

58. That said, we note the commitment in Housing to 2040 to pursue alternative financing models for housing and recognise that these could offer a means to deliver on the affordable housing programme.

59. The concerns presented to the Committee about the financial viability of the affordable housing programme are alarming. Nonetheless, the Committee recognises that alternative financing models could make the delivery of the programme a more realistic prospect. We will be pursuing this issue in the coming months. We invite the Scottish Government to take the concerns presented to the Committee into account when preparing its draft budget and also ask for further information on the Scottish Government’s approach to alternative financing models in order to meet the targets of this ambitious programme.

Social Housing Net Zero Heat Fund

60. We note that the Scottish Government is making £200 million available over the next 5 years to support social landlords across Scotland to install zero emissions heating systems and energy efficiency measures across their existing stock. It should be noted that figure was £100 million over 5 years when the Committee originally took evidence, so this additional funding is to be welcomed.

61. At the same time, we were again presented with concerns about the sufficiency of this budget. The Scottish Federation of Housing Associations argued that this fund needs to be significantly increased.

62. Tony Cain of ALACHO also indicated that as with the affordable housing programme the funds available were not sufficient. He suggested that the costs of retrofitting local authority housing stock to meet net zero requirements alone would be around £5 billion. He again raised concerns that in the absence of sufficient funds, the costs of installing zero emissions heating systems and energy efficiency measures in existing stock will fall on tenants and that this was not in keeping with the ideas of a just transition to net zero.

63. We ask that the Scottish Government give careful consideration to these concerns when preparing its draft budget. We also note that this is not something that is going to be resolved in the next 5 years and ask how this fits within the Scottish Government’s longer-term ambitions as set out in the updated climate change plan for 2018 – 2032.

64. In conclusion, the Committee looks forward to receiving a detailed response to the points raised in this letter and to continuing our dialogue on developing the local government, housing and planning budgets for 2022-23.

Yours sincerely
Ariane Burgess MSP
Convener, Local Government, Housing and Planning Committee