Chamber and committees

Pre-budget scrutiny 2022-23

Letter from Deputy First Minister and Cabinet Secretary for Covid Recovery, 21 December 2021

Dear Ariane

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

I am writing to provide a response to the points set out in your letter of 26 October concerning the 2022-23 Scottish Budget. As you noted, the issues raised relate to a number of portfolios, and therefore I have worked with both the Cabinet Secretary for Finance and the Economy and the Cabinet Secretary for Social Justice, Housing and Local Government in compiling this reply.

Before responding to the specific matters raised in your letter, it is important to reflect that this Budget has been one of the most challenging. As we continue to respond to the impact of Covid, is it vitally important that we focus our efforts on our key challenges of tackling child poverty, climate change and economic recovery. With those challenges, and that focus, in mind the highlights of the budget from the committee’s perspective include: 

• Allocating £831 million towards the delivery of 110,000 affordable homes by 2032, of which at least 70% will be available for social rent and 10% will be in our remote, rural and island communities, an increase of £174 million on our previous commitment;  
• Allocating more than £80 million in Discretionary Housing Payments for housing support and to fully mitigate the UK Government’s bedroom tax; 
• Making a further £10 million available for our Ending Homelessness Together Fund as part of our investment of £100 million transformation funding between 2018-19 and 2025-26;
• A fair and affordable Local Government Settlement of over £12.5 billion and a number of fiscal flexibilities including providing Councils with full flexibility on council tax rate setting and a commitment to collaborate on a fiscal framework for local government early in 2022. 

Role of Local Government in the pandemic and leading the recovery from the pandemic (paragraphs 6 -9 of your letter) 

The Scottish Government absolutely endorses the Committee’s recognition of the dedication and enormous efforts of all key workers across Scotland, including those in local government and the third sectors, who rose and continue to rise to the challenge of responding to the pandemic. As the Cabinet Secretary for Finance and the Economy said, in her earlier evidence to the Committee, we would not have been able to get through the pandemic without local government and its employees. 

Our Covid Recovery Strategy, published on 5 October 2021, sets out an ambitious vision and plan for Scotland’s recovery from the pandemic that is focused on bringing about a fairer future for all. We have worked closely with Local Government to agree the shared vision and outcomes of Covid Recovery and underpinned this with principles about how we will work together. Our joint approach recognises the critical roles of the Scottish Government and Local Government in leading this national and shared endeavour and we will build on this partnership to rebuild public services and support good, green jobs and fair work; financial security for low income households; and the wellbeing of Children and Young People. 

Funding and resourcing of local government (paragraphs 10 - 18 of your letter) 

Decisions on local government budget allocations are subject to discussions with COSLA, the outcome of which for 2022-23 was incorporated in the Scottish Budget on 9 December.  
 
The outcome has resulted in a 2022-23 Local Government Settlement of over £12.5 billion which is both fair and affordable, under the most challenging of circumstances.  Including enhanced funding for Free School Meals, this represents a cash increase of £917.9 million or 7.9% which is the equivalent of a real terms increase of 5.1%. 

The Settlement includes significant additional funding for joint preventative priorities such as an additional £200 million for Health and Social Care, £68 million for child bridging payments and £94 million to facilitate the expansion of Free School Meals. 

This settlement for 2022-23 means a continuation of the position that local government funding has been largely protected over the last ten years and it is right that recent increases, for example in the current 2021-22 year, are acknowledged in SPICe’s research.  In reaching a decision on the 2022-23 local government settlement the Scottish Government was aware that COSLA, in their Budget briefing document “Live Well Locally”, believed that they required over £1 billion of additional revenue funding just “to survive”. It may be of interest to the committee that since the start of the pandemic, in aggregate the amount of money held in local authority reserves has increased by around £300 million. Local government has been treated very fairly, with councils’ revenue funding having increased in cash terms by £1.3 billion or 12.1 per cent between 2013-14 and 2021-22. 

In paragraphs 15 to 17 of your letter, you highlight evidence heard by the Committee in relation to local authority planning services. Although local government has been largely protected from the very difficult financial circumstances we have experienced over the past ten years, we recognise that local authority planning departments have felt the effects of the continuing pressure on public spending as a whole, with reductions in budgets and ultimately staff numbers. However, the overall resourcing of the planning service is a matter for Local Authorities and it is for each of them to decide how to resource the planning service as part of their budgeting.   

In Scotland we have a plan-led system and through planning reform significant changes have been made to development planning, a number of which will enable resources to be re-directed to focus on key objectives.  For example, changes to the National Planning Framework can result in local development plan resources being focused on enhancing community engagement and producing place-based plans instead of re-writing thematic policies.  New statutory requirements relating to housing figures will also mean significant resource, debate and scrutiny is had nationally at an early stage, enabling Local Authorities to focus on updated information as they prepare their plans.   

Planning fees have an important role in helping to ensure that applicants rather than the tax payer cover the cost of determining applications.  Reviewing the planning performance and fee regime was identified as a key action in our work programme published in September 2019 with a consultation undertaken between December 2019 and February 2020. Implementation of the new fee regime was postponed during the Covid pandemic, however, that work has recommenced with a view to laying new fee regulations early in the New Year which will come into effect in April 2022. The proposed measures will increase fees by between 25 and 50 per cent in some cases, moving fees closer to covering authorities’ costs in determining the applications and providing substantial additional income to authorities. 
 
Despite the very challenging financial climate we remain committed to delivering our package of improvements to Scotland’s Planning system and have increased investment in digitally transforming the service, improving efficiency and accessibility and ensuring more people can make a positive impact through new digital tools and technologies 

Multi-year funding (paragraphs 19 - 23 of your letter) 

In your letter, you rightly highlight the benefits of multi-year local government finance settlements and we are committed to providing Local Authorities with as much certainty as we can to help their local long term financial plans. In this respect, the UK Government’s spending review for the next three years enables us to embark on our own spending review to provide the certainty we all aspire to. The Cabinet Secretary for Finance and the Economy has provided more detail to Parliament on the process and timeline for our Resource Spending Review, including publishing a consultation framework for our Resource Spending Review alongside the Budget on 9 December. 

Ring-fencing (paragraphs 24 - 28 of your letter) 

We discussed ring-fencing of local government finance at the evidence session of the Committee on 2 November and I followed this up in my letter to you of 19 November. However, I think those points do bear re-iteration. In 2007-08, 25 per cent of the local government budget had been ring fenced and 75 per cent was not. This 25 per cent proportion that was ring fenced corresponded to around £2.7 billion, which was reduced to around £0.9 billion in 2008-09. This proportion further diminished to around £200 million in 2013-14 with the transfer of police and fire services. The introduction of the Pupil Equity Fund (£120 million) and the expansion of Early Learning and Childcare (£566.7 million) mean the total ring fenced funding in 2021-22 amounts to £925 million or less than 8 per cent of the total 2021-22 local government finance settlement.  That is to say, Local Authorities have complete autonomy to allocate over 92 per cent - £10.7 billion - of the funding we provide in 2021-22, plus all locally raised income.  This trend will continue next year as specific ring-fenced grants will only account for 7 per cent of the 2022-23 total local government finance settlement. 

National Care Service (paragraphs 29 -34 of your letter)

Our ambition is for a National Care Service that will put people at the heart of the new arrangements so their care and support is holistic and enables them to have the life they want to lead. The priority moving forward has to be ensuring national minimum standards, improving consistency, and raising the quality of services across the country. Variation in quality and access to community health and social care has been raised as a concern by those in receipt of support and care and their families. The pandemic shone a spotlight on these issues and regardless of the systems in place people made clear that they saw the Scottish Government as accountable for failings and variations. That is not unreasonable, given the large amounts of public funding for social care and its importance to people’s lives. 

The National Care Service consultation closed in November and it would be wrong to pre-empt the analysis of the responses. However, in the consultation we were clear that there will continue to be strong local accountability with the proposal being for new Community Health and Social Care Boards at a local level. The consultation signalled the start of a process to consider how Scotland’s social care provision can better serve people and in being ambitious for people there may be a need for system re-design. The Scottish Government is using the time until the consultation analysis is available to work with partners and citizens to establish the processes that will best support collaborative working for future phases of the National Care service programme. 

We welcome the fact that there will be a number of parliamentary committees that have an interest in this work over the coming years. The success of change at this scale will depend on robust and objective scrutiny from us all. 

Fiscal Framework (paragraphs 35 - 40 of your letter) 

Work on a fiscal framework to support future funding settlements for local government was necessarily delayed at the onset of the pandemic. However, the Scottish Government and COSLA are committed to work together to develop such a framework and Scottish Government and COSLA officials have now recommenced discussions. More substantive work will be taken forward in the first part of 2022, with the development of a fiscal framework also having a direct relevance to the Scottish Government’s Resource Spending Review.  
  
As the Cabinet Secretary for Finance and the Economy set out in her letter to you of 8 December 2021, a fiscal framework cannot be imposed by the Scottish Government, and as COSLA and the Scottish Government take this work forward, it will be important for local government to bring forward proposals that can then be explored in partnership. The development of a fiscal framework is also an important part of the ongoing work on the Local Governance Review, which considers how powers, responsibilities and resources are shared across national and local spheres of government, and with communities. 

Community wealth building (paragraphs 41 - 46 of your letter) 

I welcome the Committee’s view on the potential of the Community Wealth Building (CWB) model to be a driver for economic recovery from the pandemic. The five pillar CWB model provides a practical opportunity to assist local and regional economic development that can create more fair work opportunities; help local businesses grow; enable third sector growth and expand community ownership of assets. Procurement practice has been one of the key issues examined by the five pilot areas in Clackmannanshire, Eilean Siar, Glasgow City Region, South of Scotland and Tay Cities/ Fife, along with the other four CWB pillars of inclusive ownership; land and property; workforce; and investment finance. As we look towards development and introduction of legislation later in the session, lessons learned from the pilots and internationally will inform our proposals. 

Regarding lessons learned, at the current time we are listening to our partners and stakeholders who have been taking forward CWB work on the ground. It is from these conversations that we will assemble our legislative proposition. Advancement of the CWB model will not rely only on legislation. In order to embed this model, and with it a broader embrace of a common journey towards an economy focused on wellbeing, we intend to engage further with our partners in local government and beyond to discuss the changes in operational practice and deployment of resource required to make the rapid progress that our communities need. 

Levelling-up (paragraphs 47 - 53 of your letter) 

In addressing the Committee’s observations, it should be noted that only the UK Shared Prosperity Fund (UKSPF) is considered a replacement to the EU Structural Funds following EU-Exit. As such  the wider Levelling Up agenda including the Levelling Up Fund should be considered as separate and additional funding streams.  

The high-level financial profile provided for the UKSPF within the recent Autumn Budget and Spending Review provided little new information regarding on its governance and administration. In addition, it remains unclear whether programmes such as the European Territorial Cooperation or LEADER will be included in its coverage.  whether Programmes such as LEADER will be included in its coverage. 

This continued lack of clarity only furthers the frustration and uncertainty among regional partners and Scottish takeholders, adding to questions regarding whether this funding will deliver benefit to regions and communities across Scotland. Despite regular ministerial and official engagement with the UK Government pressing for clarity and assurances on the Scottish Government’s role in the development and governance of the UKSPF, no further information has been shared on what this will comprise.  

In addition, the UKG’s Levelling Up Fund as part of its wider Levelling Up Agenda bypasses devolution and it sets council areas against each other in a competition for resources that is both unhelpful, clunky and entirely unnecessary. With the initial award provided to Scotland in Round 1 of the Levelling Up Fund totalling £171 m, this does not come close to replacing funds lost in the years of constraint on public spending.  

Scottish Ministers have made it clear that Local Authorities are free to make bids to the Levelling Up Fund. However, at a strategic level Scottish Ministers set the priorities and criteria to underpin the transport investment decision-making process through the National Transport Strategy (NTS) and Strategic Transport Projects Review (STPR2). We would expect any bids to the Levelling Up Fund to align with these strategic priorities. Unlike initiatives such as the Levelling Up Fund which have been imposed by the UK Government without any form of public consultation, the NTS and STPR2 have been developed after extensive consultation with stakeholders. 

Our stewardship of this funding would allow us to deploy the funding in a manner that supports the ambitions of our stakeholders. As it stands, only 8 out of 32 Local Authorities in Scotland have benefitted from the initial round of the Levelling Up Fund, with distant and poorly informed UK Government departments making decisions about how this money is allocated across Scotland’s Local Authorities. 

Affordable housing programme (paragraphs 54 - 59 of your letter)

Turning to the Committee’s observations on our affordable housing building programme, we have now committed to invest £3.618 billion in affordable housing in this Parliamentary term, to deliver more social and affordable homes, continuing to ensure the right homes in the right places. This represents an increase of £174 million on previously published commitments and takes the allocation in 2022-23 to £831 million. 

We continue to operate a flexible grant subsidy system. When determining the level of grant funding that they need to apply for in order to deliver affordable housing projects, councils and Registered Social Landlords (RSLs) must be comfortable with the level of borrowing that they plan to take on as well as being satisfied that tenants’ rents remain affordable.

With regards to existing construction contracts, it is for contracting authorities to refer to the relevant terms and conditions of individual contracts, evaluate any requests from contractors for relief or waiver of time and/or financial consequences and take legal advice as need be.

In considering alternative financing models for housing, we recognise the important role private investment plays in the delivery of affordable housing provision, and in recent years, we have stepped up our efforts to attract private investment into housing provision.

We will continue to pursue innovative approaches to delivering the non-social element of the programme, including Low Cost Initiative for First Time Buyers (LIFT) and mid-market rent. 

As well as the contribution the private sector makes to the delivery of our affordable homes through direct construction, we also recognise the contribution that they make through developer contributions. In July this year, we published research on the value, incidence and impact of developer contributions which demonstrates the important linkages that exist across the housing tenures. This research highlighted that in 2019-20 an estimated £310 million was provided through affordable housing contributions (accounting for 63% of all planning contributions).

As part of Housing to 2040 we intend to continue to work with private sector investors and partners whose business models match our ambition to improve affordability across Scotland.

Social Housing Net Zero Heat Fund (paragraphs 54 - 59 of your letter) 

The Scottish Government are committed to a just transition to net zero. This includes helping those least able to pay and who are vulnerable to increasing costs, such as social housing tenants. We are working with the sector and encourage them to take full advantage of all funding available to retrofit their housing stock.  

This support includes the Social Housing Net Zero Heat Fund. The fund, which reopened to applications in August 2021, is making at least £30 million available during this financial year to social landlords to install zero emission heating and energy efficiency upgrades to help improve the most inefficient and expensive social homes to the highest possible standard. This forms part of our £200 million package of support over the next five years. Next year we will look to increase the budget allocated to support heat & energy efficiency retrofit for social landlords and will confirm allocations in due course.   

The Scottish Government offers social landlords additional financial assistance through other delivery programmes, which can be used in tandem with grant funding, such as the District Heating Loan Fund and the Home Energy Efficiency Programme Area Based Schemes, which can further protect social tenants from upgrade costs.  Social landlords who wish to develop heat networks as a route to reducing bills and emissions will also be eligible for support under the successor to the Low Carbon Infrastructure Transition Programme which will be launched in the new year.  

We recognise that this is the first step on our journey to net zero and are working with social landlords and housing associations to build upon progress they have already made to achieve our 2045 targets.  A key part of this work will be working together to understand the technical solutions needed to reduce emissions from our social homes as well as how this can be funded and financed in a way that is fair and just, both for tenants and the sector. 

In conclusion, I hope this letter provides you with a sufficiently detailed response to the points you raise. 

JOHN SWINNEY