Local Government and Communities Committee, 05 Dec 2007

Meeting date: Wednesday, December 5, 2007

Official Report 388KB pdf

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Budget Process 2008-09

For item 3, we welcome Councillor Pat Watters, the president of the Convention of Scottish Local Authorities; Rory Mair, the chief executive of COSLA; and Martin Booth, the head of finance of COSLA. They are with us this morning to give evidence on the budget. We have already taken some evidence on the budget from the Minister for Communities and Sport, Stewart Maxwell MSP. I invite our witnesses to make a small statement before we begin to ask questions.

You have clarified our purpose in attending the committee. We thought that we were here to discuss the budget but, because of the range of our responsibilities, committee members might have other questions. We will try to deal with them if any come up.

Thank you. We appreciate that.

Can you describe the process by which the concordat was arrived at and the extent to which individual local authorities were involved in the process, as opposed to there being a negotiation between COSLA office bearers and the Scottish Government?

I can certainly do that. Prior to the election, the leaders at the time decided that we needed a different approach to tackling the spending review. Given that a line-by-line approach on the pressures that we faced and the bids that we required would probably arrive at more than what the Scottish Government would receive by way of grant from the Treasury, we decided to take a different approach and seek to establish a proper capital and revenue base for local government. The leaders agreed to adopt that tactic.

After the election, we put that position to COSLA's new leadership, which agreed that we should proceed in that way. We then entered into discussions with the Cabinet Secretary for Finance and Sustainable Growth on how we might establish that. We kept the leaders updated through our monthly meeting of leaders of local government in Scotland. That is the process that we adopted to achieve agreement on the concordat.

Can we be given an update on how many of COSLA's member councils have, as of now, endorsed the agreement and the commitments that it contains? How many councils are still considering it? Indeed, have any of them rejected it? Of the 32 councils, which have agreed the concordat?

It is easier to say that no council has rejected it. When we reached the agreement, we took it to the next leaders meeting on the following Friday. That meeting accepted that the concordat was probably the best position that we could achieve in negotiations. The leaders have taken the agreement away for detailed consideration at local level. They will take into consideration the fact that the cabinet secretary will not announce the moneys available to individual local authorities until 13 December. After the authorities know their individual allocation from the cabinet secretary, they will look at the concordat and the agreements that it contains and come to a conclusion on it.

As matters stand, no council has endorsed the concordat; every council is waiting to see how much money it gets before it will make a judgment on whether it considers that its funding allocation will be sufficient to meet the commitments that are required of it. Is that a fair assessment of the situation?

I choose my words carefully. The concordat was accepted by all leaders without any objections.

Yes, but very few leaders in Scotland's councils have the luxury of a majority behind them on their council. Is acceptance of the agreement by all 32 of Scotland's councils essentially conditional on the assessment that they make of the allocation that the cabinet secretary will announce next week?

We need to recognise that this is quite different from any previous situation, when leaders would have had no choice at all. Previously, the first that leaders would have known about what money their councils would receive was when the announcement was made. Leaders have much more advance knowledge of the position than was the case before.

You are right that, until leaders know exactly what their council will receive, they will not be able to respond to the bit of the concordat that provides £70 million for the council tax freeze. Leaders have accepted the generality of the concordat—and the other things to which the presidential team signed up—as the best deal that could be negotiated. Indeed, our view was that, without that negotiation, the money would not have been on the table for leaders to reject or accept.

I accept that. So that everyone is no doubt about the matter, I want to clarify that there is no done deal until the money is on the table. Therefore, there is no agreement by Scotland's 32 councils that the council tax will be frozen next year.

That is absolutely right. I have made clear from day one that neither the cabinet secretary nor COSLA's presidential team—nor even the First Minister in his statement—can freeze the council tax. The only people who can take a decision to freeze the council tax are the 32 individual local authorities. That decision will be taken when councils decide on their budgets. I have made that very clear in every statement that I have made both to leaders and to the Government.

I also want to ask about a specific concern that the Parliament's Finance Committee raised about the implications of single status and the equal pay claims that might follow from that.

When the Finance Committee examined the subject nearly two years ago, it estimated that the cost of back payments as a result of the single status agreement was between £310 million and £560 million. What is the current quantification of councils' liabilities? Who still has issues to resolve? Have you quantified liabilities that might still be off balance sheet? To what extent does the overall settlement in the budget reflect what could still be a significant liability on councils?

The overall settlement does not reflect any outstanding liabilities that councils might have for equalities claims. The total for Scotland is difficult to assess, because each authority's situation is different. The agreement that authorities have been asked to implement is geared to an authority obtaining agreement with its local trade unions and configuring its job structure to meet its needs, so it is difficult to say what the outstanding balance is—it is different for each authority. Many authorities have made tremendous progress. Some have reached agreement with their trade unions, some have not and some are further behind. Many cases are going to industrial tribunals.

Is it fair to say that a big financial question mark still lies over the cost of those liabilities and the extent to which they are reflected in any agreement with the Scottish Government?

Yes.

The answer relates to what the president said about the different route that was taken to arrive at the spending review figure this time. In the past, we have tried to say line by line and issue by issue what the cost to local government would be. When we have done that, we have arrived at such a large figure that no Government of any persuasion would be able to fund it. We realised that that was quite an annoying way to approach the spending review, because Governments were being asked for an amount of money that they could never satisfy, so we were immediately into a dialogue in which we said, "We want this," the Government said, "We can't give you it," and we said, "Well, we can't perform."

This time, we said that we would cost the core of our budget and tell the Government—of whatever party, as we adopted the tactic before the election—what pressures were on us and that we could cope with those pressures only if the base settlement of the budget was reasonable. We had a range of figures from £10.8 billion to £11.5 billion and we have received £11.14 billion, so the overall settlement is very tight for us. The range of pressures from aspects such as the single status agreement, which was difficult to cost for exactly the reasons the president gave, and demographics, which have an impact on all our services, is difficult to cost. We told the Government that we would be able to cope if we got closer to £11.5 billion. The further we are from that figure, the more likely we are to hit a difficulty in the three years.

We have built into the concordat a review process so that, if we hit a difficulty, we will have a route back to the Government to say, "Okay—this has happened. What do we now jointly do about it?" That will be a different relationship from what happened in the past.

Mr Mair said that you are ahead of where you would have been, not in cash terms, but in having negotiations with the Scottish Government; that rather than just being told what money you will receive, you are involved in continuing negotiations, which is a new development.

COSLA's submission says:

"there is a firm commitment from both spheres of government to build a relationship of mutual respect and partnership … We were very determined to deliver a satisfactory outcome on a number of non-cash issues, many of which have been long held by COSLA as signals of respect, a commitment to local democracy and a more equal relationship."

Some of those non-cash outcomes have been achieved.

I am fascinated to know how you compare and contrast situations. What have you achieved with the concordat that you did not achieve in previous spending settlements with the Scottish Government in other guises? If mutual respect and partnership now exist between both spheres of government, what existed before?

Beforehand, we had an on-going relationship with the previous Executive. We had discussions with its representatives, just as we have discussions at present. With the concordat, there is a recognition that some of the things that we were holding on-going discussions about have now been granted to us—or, rather, the opportunity is there in the concordat. About £2.7 billion of funding to local government came with a specific aim. Ring fencing would probably have covered about 50 areas. Some were large tranches of money and some were very small, but we had to report on all of them individually.

Not every local authority is exactly the same as its neighbour. Saying that every local authority must do X might not be the best use of public resources. That is linked to the freeing up of resources, the granting of flexibility to local government on how it spends the money and the single outcome agreements under which individual authorities come to agreement with the Government on the outcomes for the money that has been put in. That is a different approach.

Three years ago, we were the only part of the public sector that was top-sliced for its efficiency savings. Now, we have a commitment from the Government that we can retain efficiency savings and use them to fulfil local priorities.

We will return to cost savings later. The committee is interested in the impact of the changes. There is a general political debate about local government money. You have used your words carefully, president. What is the difference between the best settlement that you can get—as you described it—and a record amount of money for local government? Are those things consistent with each other? I am using the words of the cabinet secretary.

As far as the idea of the best settlement that we can get is concerned, we believe that, in the circumstances of a tight settlement, the negotiations have allowed us to halt the downward spiral of our share of the public sector split in finances and we have slightly improved our situation. If you are asking whether the current settlement is the best that we could get, I would say—as the chief executive indicated—that we do not think that it is the best financial settlement, but in the circumstances of a tight settlement we believe that it is the best that we could have negotiated.

You should not take my question as criticism, councillor.

I do not.

There are SNP members who are saying, in relation to various issues all around the country, that the budget is a record amount of money.

If we discount the council tax subsidy of £70 million, do the sums that are available for spending represent an above-average or below-average settlement for local government?

It is an above-average settlement, but it is still very tight financially.

It is an above-average settlement.

But it depends on your definition of average. It is an above-inflation increase.

I am not the expert here. You can help me. I have been told that when we take the various factors out, the increase works out at something like 0.5 per cent—

Above inflation.

How does 0.5 per cent above inflation over the year compare with past settlements?

That is a lower percentage increase than previous settlements since devolution.

So it is a below-average settlement.

Compared with previous settlements.

Thank you. That is all. I call Bob Doris.

I did not realise that I was going to get back in at this point. I am interested to continue; I knew that you wanted to come back and talk about the concordat, convener, and then raise another point.

It is okay.

Councillor Watters, do you feel that the status of local government has been enhanced by the concordat? What are the vital non-cash issues? I am particularly interested in the withdrawal of ring fencing. Do you feel that that is an acknowledgement that local authorities know how to use their money to achieve national targets better than national Government does, and that there must be local flexibility for how that money is spent?

There are many points in your question. We see ourselves as part of the governance of Scotland; the concordat recognises that. I am elected not to do the Government's bidding but to do the bidding of my constituents. The allegiance of an elected member is to the constituents who have elected them. My first responsibility is not to Government, but to my constituents.

Both spheres of government must work in partnership to ensure that what we are doing delivers. Local authorities are elected to deliver services. If we do not have responsibility for all the resources that deliver those services, we are constrained in how we do our business. The freeing up of resources and greater flexibility add to the status of local government, which is made up of elected representatives. Local government is part of the governance of this country.

Can you remind me of the first part of your question?

I asked whether you think that local government's status has been enhanced. I also asked about local flexibility. There are national priorities. Rightly, you are elected with a local mandate. Do you think that local authorities know best, not just on service delivery but on meeting national priorities? Is local flexibility vital to that?

It is, and we need to consider the issue in partnership with Government. I have been the president of COSLA for more than six years, and throughout that period we have had a good working relationship with Government. We have had disputes and arguments with Government, and I dare say that we will have them in the future. Where policies impact on services that local government delivers, we should discuss how we manage those. Government has the absolute right to implement the policies that it thinks are proper for Scotland and its people, but when policies impact on local government, we should discuss how to deliver them and how to manage change. It is important that we are not just a consultee, but part of the governance of Scotland.

The concordat is unique compared with what has gone before, because it acknowledges that you are central to the governance of Scotland.

It has gone part of the way towards doing that. The whole business did not start in May. We were in discussion with the previous Minister for Finance and Public Service Reform about how to manage the situation that we are facing at present. As you have heard, the financial settlement is very tight. We entered that discussion because, during a tight financial settlement, we want to see how we can free up finance to deliver better in local communities. That is why we discussed how we organise not just local government, but the whole public sector in Scotland. The Government has taken on the discussion, and we are seeing some freeing up of resources and removal of the duplication that we believe exists in the public sector. We believe that we can take that agenda forward, in discussion with Government.

Is it not the case that you would not have signed up to the concordat if you did not think that it was for the benefit of the people of Scotland and of local government in Scotland?

As I said at the start, we think that the concordat is the best deal that we could get in the negotiations. As someone who has a long history in the trade union movement, I know that that is the point that one wants to reach. The thrust of my approach during the negotiations was to ensure that, when local authorities put their budgets on the table, they have options. I wanted to keep the maximum amount not only of finance but of flexibility on the table. The flexibility that we have secured in areas outwith the financial settlement means quite a bit to local government, as it allows us to manage our resources better. We were keen to get that flexibility; in some areas, we have been striving to get it for a number of years.

I think that I am the only member of the committee who was a councillor.

I remember it well, Kenny.

I understand the frustrations that councils often feel about the lack of flexibility and room to manoeuvre. The Parliament has been bombarded by every organisation under the sun, all of which believe that funding for their particular areas of interest should be ring fenced, even if funding for other areas is not. How important is it that local government has room to manoeuvre in order to reflect the wishes and concerns of the people in specific local government areas?

It is vital to recognise that with flexibility comes responsibility. I do not think that it is the easiest option for local government. As in anything that we do, such as negotiation with the trade unions, local authorities would rather be told what the deal is and to have no flexibility in how things are to be done. Flexibility provides opportunities for local government, but there is responsibility, too. We are not saying that councils can do what they like with all the money that is not ring fenced; we are saying that we are so far down the road in preparing budgets that we need to ensure that local authorities get the money in the way that they expected, so that their spending is not put askew. In that context, flexibility is vital to us.

I do not think that there has been an instance since 1999, or even before that, of the Government taking councils to task because they have not spent the money correctly. I do not think that there has been an instance of that, although there might have been one.

I have here a list of funds that were ring fenced. I have two issues with ring fencing: the first is about where the ring-fenced money goes and what it is to be used for; the second is about the method of controlling the money. Here, we have 50 different funds that make up only about 22 or 23 per cent of our overall budget, yet councils have to file 50 separate reports, as they must report on each ring-fenced fund separately. Also, it is much more difficult for a council to put those small dollops of money together with its main budget to make a real effort on some of the crucial issues that the ring-fenced money is supposed to address.

So, there are two separate issues regarding ring fencing. First, will the money be spent on the things that it was ring fenced for? Secondly, does the process of ring fencing lead to efficient government? When we are asked to make 2 per cent savings or whatever, we need maximum flexibility in the budget to be as efficient as possible. Requiring a council to file 50 reports on 25 per cent of its budget, but only one best-value review of the remainder, is not a sensible way in which to organise things. We wanted ring fencing gone for reasons of how we could use the money. It would be good governance to get rid of ring fencing.

We are very close to the start of the new financial year and, as Pat Watters said, if we stopped spending money in the areas where it was spent previously, there would be huge volatility in local government budgets. Therefore, the benefit for us in the short term is not that councils can start to spend the money on different things; it is that councils will be able to combine the previously ring-fenced money with the rest of their budgets in more innovative and efficient ways to provide an even better service for the client groups that we feel are most vulnerable.

Absolutely. I fully agree with that.

Professor David Bell, a budget adviser to the Finance Committee, has stated:

"Local government seems to have received quite generous treatment in the spending review as a result of the agreement between COSLA and the Scottish Government."

Indeed, I understand that the real-terms share will be 4.9 per cent over three years, compared with 4.6 per cent overall. Do you think that the settlement is generous, or just reasonable? Do you agree with Professor Bell, or are you concerned that local authorities still have serious funding constraints?

We always knew that this was going to be a tight financial settlement, hence the discussions that we had with the previous Executive. Part of the reason why we are having discussions about other areas is the fact that it is a tight financial settlement. Has the Government considered our share? Yes, it has. Our share of the public sector purse was going down, but that has been halted and our share has increased very slightly. I ask Rory Mair, our chief executive, to comment.

As I said, we had a range of between £10.8 billion and £11.5 billion. The upper figure would have been ideal—£11.14 billion falls some way short. I do not agree with the view that you ask about. However, when the Convention of Scottish Local Authorities is negotiating, we consider two things. One is whether the overall amount of money is satisfactory and will enable us to do the work that we have to do; the other is, as the president said, what our share is. Share is important to us, because it tells us how we are viewed, within a tight financial settlement, in relation to other parts of the public sector. I think that we are pleased that the diminution of our share has been stopped and that a reversal of that trend—however marginal—has occurred.

Notwithstanding the fact that the increase is below average, as has already been said.

It is lower than in previous years, but it is above inflation.

I am interested in two points that Councillor Watters made. The gist of them was that not all councils are the same, and that they are not necessarily there to do the Government's bidding. How does that square with the fact that a council tax freeze is part of the deal? That is part of the Government's agenda rather than local government's. If a council did not freeze council tax, would it get to keep its efficiency savings? Would it have a single outcome agreement? Would it have ring fencing?

I should say that the concordat does not freeze council tax. There is an opportunity for councils that freeze their council tax to get a percentage of the £70 million. As the president of COSLA, I do not have the power to freeze council tax, and neither do my presidential team, the minister or Parliament. The power to freeze council tax is held by individual authorities. Only they can make that decision, after considering their financial position.

On the second part of your question, it is my clear understanding that authorities that decide not to freeze their council tax because they take the view that the cash that would be available to them as a result of freezing council tax would not be enough for them to deliver their services would not get their proportion of the £70 million.

And, therefore, they would be outwith the concordat.

No, they would not be outwith the concordat. They would have made the decision—as is their democratic right—to raise tax in their area to meet what they see as the needs of their communities.

Yes, but in effect they would incur a financial penalty because of that. Would they still have ring fencing and a single outcome agreement?

No, they would not. The only penalty is that they would not get their share of the £70 million.

That has to be the case because, on 13 December, the cabinet secretary will announce the distribution of the un-ring fenced resources, and councils will not have made the decision about whether to freeze council tax before then. The only penalty that councils will be exposed to, therefore, is a loss of their share of the £70 million.

On the point about the power to freeze council tax, am I right in thinking that there is, on the statue book, a power for the Scottish Government effectively to freeze council tax? I think that if the Government gave what it thought was a generous settlement to a council, but that council proposed an increase in council tax that the Government considered was unreasonable, the Government could exercise its executive power to cancel that increase, which would freeze the council tax in that authority.

That is not quite correct. The wording of the power suggests that the Government must prove that the council's expenditure, rather than the level of the council tax, is unreasonable. Given that we are likely to be talking about marginal differences in expenditure, I do not think that the situation will arise. The Government does not have the ability to force a council to freeze council tax through the use of that power. That is the line that we have taken in the discussions up to now, for the reasons that I have mentioned.

But if the Government said, "We have given you all this money, and you are proposing to spend even more, and to put up your council tax to cover the cost of that," surely it would be entitled to say that that expenditure was unreasonable?

The Government would have to prove that the expenditure was unreasonable. We say that the Government cannot freeze council tax, yet according to the publicity there is going to be a council tax freeze. It is not in the gift of Government to say that there is going to be a council tax freeze.

Across all the 32 authorities, as the law currently stands—yes.

On only one occasion—maybe twice—in the 26 years that I have been an elected member has the Government decided that a Scottish authority's expenditure was excessive and unreasonable.

I remember it well—there was the exercise of a grant penalty.

Your recall might be better than mine on that.

It was in relation to the ill-fated and late-lamented Lothian Regional Council—effectively, there was a grant penalty because the council insisted on putting up the council tax.

It has happened once in 26 years—and that was when there were 69 authorities.

Yes.

So it happened to one out of 69 authorities during that period, and it has happened to none of the current 32 authorities.

I do not want to interrupt this meander down memory lane, but Johann Lamont is anxious to ask a question.

I apologise—it is Alasdair Allan first.

You have mentioned a number of times the importance of flexibility, and specifically the fact that top-slicing in many areas effectively is coming to an end, which will allow you to keep efficiency savings. Will you elaborate on the benefits that that has for you, with regard to flexibility and council finances?

I will bring in the head of finance and the chief executive of COSLA on that point. The previous spending review top-sliced 1.5 per cent efficiency savings from local government, which over the three-year spending review period totalled £168 million that we lost at source. The Government announced a target of 2 per cent efficiency savings in this round of the spending review, and it has said that we will be able to retain that money and use it. We still have to make the efficiency savings, but we will be able to use the money to deliver services at a local level. The fact that we will be able to keep that money is an improvement on losing it—but I am not an accountant.

Neither am I, thankfully.

You mentioned enhancing the status of local government. Do you feel that the increase in flexibility enhances your authority and status within the governance of Scotland, which you mentioned at the beginning?

No. The status of local authorities is enhanced by being able to discuss with Government how we deal with items. Having flexibility makes good sense in relation to how we manage our resources. Flexibility in itself does not enhance our status; it allows us to have good governance at local level.

I have listened to Pat—sorry, Councillor Watters—over the years—

Pat is fine.

I have heard him speak about the modernisation of local government and the changes and efficiencies that occur year on year. How realistic, with regard to jobs, is a target of 2 per cent efficiency savings? City of Edinburgh Council is losing 1,000 jobs—I presume that that is part of the efficiency drive. How will local government monitor efficiency savings? How easy or difficult will that be, how will it be monitored and how will we know that efficiencies have been made?

I ask the chief executive of COSLA to answer that question.

The work that we did with the previous Government, in which we had to demonstrate efficiencies, has allowed us to get together our methodology for monitoring efficiencies. One of the big difficulties at the beginning was that when we reduced costs, it was unclear whether we had made a saving or an efficiency. To determine that, we needed to know the level of service before and after, but we did not have all that baseline information. Thanks to the work that we did with the previous Government, we developed a monitoring system, which is now in place. We are now able to say what the level of service was and what the cost base was. When we make changes to the cost base, we now know whether we are talking about an efficiency or a saving.

We were able to declare efficiencies to the Government at the end of the previous spending review period, and we will be able to carry on doing so. Our view is that 2 per cent efficiency savings is probably achievable in the shortish term within local government. The big issue will be when we get beyond local government efficiencies and into the business of efficiencies across the public sector. You cannot carry on squeezing out 2 per cent, 2 per cent and 2 per cent simply from within local government. We will have to consider how to become more efficient across local government, the health service, the enterprise network and the other agencies. We will not drive out 2 per cent efficiencies forever simply within our own budgets.

It will be difficult. I understand the point that efficiencies have to be driven out across the health service and in social care services and so on. That need is obvious to many of us, given our experience in our constituencies. Can the 2 per cent saving be made this year or next year? How quickly will you get to the stage where 2 per cent savings cannot be squeezed out without pressure being put on the other agencies with which you work? How many jobs in local government will be affected?

I cannot answer the question about jobs, because different councils will make efficiency savings through different routes.

Can you make 2 per cent efficiency savings without losing jobs in local government?

I do not think that we can drive out 2 per cent efficiencies without there being some reduction in jobs over the period of time.

But surely if the money is to be retained in local government, rather than returned, you will be able to use it to invest in other services and to create jobs in other departments within local authorities?

Yes, but the deal thus far has been that we are trying to drive efficiencies out of backroom services to deliver more front-line services. I take the convener's point about the workforce. The difficulty is that there might be a disproportionate hit on low-paid administrative workers in the back office. Councils will not create exactly the same number of front-line social work staff or community care staff, so there will be some overall reduction in jobs. We have to be careful that that reduction does not disproportionately hit parts of our workforce that we do not want to be targeted.

I will come on to the question that I was going to ask in a moment.

You said that job cuts made through efficiency savings might affect particular groups of workers disproportionately. How does that sit with the recognised pressure on local government of equal pay claims? I know that you had a dialogue with the previous Executive about that challenge. In your negotiations with the current Administration, did you discuss how local authorities could be supported in that regard? How do you make efficiencies in the context of the huge pressure of equal pay claims?

In the negotiations, we did not discuss with the Government the specifics of whether there would be further support for local government for equal pay claims.

Did you not ask?

We did not have the discussion. We presented our case, which was that we want our base and specific bids to be recognised, and that we face a bundle of pressures, which includes single status agreements and demographic pressure. We said that we need a big enough budget to accommodate all that. We tried to negotiate the biggest budget that we could get, and arrived at the figure £11.14 billion. I have said that the settlement is tight and, since the negotiations, councils have told us that they will have difficulties, given the on-going costs of single status agreements and demographic pressures.

However, by saying that the settlement has all been rolled up together, and that you recognise that it is tight but sufficient, when the pressures come along, particularly on equal pay, you will not be able to say that you cannot meet your equal pay obligations because the settlement was not substantial enough and you should have asked for more money from central Government. Do you accept that the settlement should be able to accommodate those pressures?

We have not been trying to move forward on the equalities issue only this year: the issue has been around for some time, and the Government has never said that it would tackle it alongside us. Part of local government's problem is that we have been unable to say what the cost would be to local government. Individual authorities might have an indication, but time goes on. For example, in the authorities that struck the compensation deal, the clock has begun to tick again. If the initial problems that caused inequalities in local government are not solved, the clock will begin to tick again. The costs alter all the time. We have never had a commitment from any Government that it would meet the equal pay commitment if local government could not meet it.

I accept that. The issue is difficult. Nevertheless, the difficulty is borne disproportionately by women workers. There will be a right to retain efficiencies, which is good, but my point is that those efficiencies might disproportionately cost women workers.

I apologise for not being here at the beginning of the meeting; it was not meant as a discourtesy to our witnesses.

On ring fencing, you said that should an authority decide not to freeze council tax, it could not be said that it was unpicking the settlement, because the funds would already have been de-ring fenced. My question is about homelessness responsibilities. We are aware of the tension between local government and central Government over capacity to deliver on the 2012 homelessness target. Was that discussed as part of the negotiations? Do you believe that the target is deliverable? Are you aware that the Minister for Communities and Sport has indicated that he will contemplate re-ring fencing the money if it is not spent appropriately? Is that doable, given what the chief executive has just said about how, once you get past a certain stage, it will be difficult to unpick the settlement? I think that I have represented fairly what he suggested.

I will bring the chief executive in, but I can answer a couple of points.

Local government is very supportive of the homelessness legislation. We worked closely with the Government to deliver it, but there were two parts to that. The first part was that we were keen for Scotland to be at the forefront of developing legislation to deal with homelessness. However, the second part was that resources were needed to deliver on homelessness.

Discussions are continuing, and I have raised the issue with the responsible cabinet secretary. Local government and central Government need to sit down together and consider the pressures that are on local government and communities because of the legislation that is steadily being created.

So negotiations are continuing on resources to deal with homelessness.

We certainly aim to discuss with the Government the impact of the homelessness legislation on communities.

The Minister for Communities and Sport has said:

"If we find a local authority who decide to use the money for something else entirely, we can always re-introduce the ring fencing."

How easy would it be to do that?

My difficulty is that I view the concordat as just that—it is an agreement between us that cannot be broken, and one of the parties cannot choose to do something different. If one party does do something different, the concordat will no longer be in force. That is the line that we have taken throughout the discussions. Both parties have to stick to their side of the bargain for the concordat to work. If ministers suddenly said that they were going to alter how they behave, we would have to reconsider our position on the issues that the Government wants us to deliver.

We have an agreement. We spent weeks and weeks negotiating it and, at present, I would be surprised if any party to it decided unilaterally to rip it up and do things differently.

So your position is that you have now been given sufficient money, and if you do not deliver on the target the Government will re-impose ring fencing.

I have two separate questions. First, Councillor Watters said that there is still debate about the resources that are required to deliver on the homelessness target, but the minister seems to have said, "We've given you enough money. If you say that there is not enough money, you are breaking the concordat." Was it reasonable for the minister to suggest that?

Secondly, on a practical issue, how could funding be re-ring fenced? As you said, even if someone broke the agreement and decided not to freeze council tax, the settlement could not be unpicked, because the moneys have already been un-ring fenced.

In some ways, you are asking the wrong person. I do not see how the moneys could be re-ring fenced. We have an agreement, and the way in which the money will be distributed will be announced on 13 December. That can only happen if the Government knows the total amount of money, how much will be ring fenced, and how much will not. Councils will be told exactly what resources they will get. I am not sure how one could move away from that and re-ring fence funds.

So, in the next three years, if there was a disagreement between COSLA and the Executive about whether you were delivering with the money that you were given—on homelessness, say—it would not be possible for the minister to re-ring fence the money.

We do not think so.

There is a legitimate argument around ring fencing, and I respect local authorities' position on that. We could argue about whether the lever is required, but after the announcement has been made on how the money will be distributed, it will no longer be possible for the Executive to use the lever to ensure that money is spent in a particular way.

In addition, if it is not possible for something to be delivered, the Executive could say, "Well, we gave local authorities the money." Local authorities will be the fall guys if it is not delivered.

That is one reason why an annual discussion with the Government about the impact has been built in. We will be able to revisit things and sit down and discuss them. I am not saying that additional cash will be available, but we will be able to discuss the impact each year.

Our view is that one cannot cherry pick, saying, "We like this bit, but we don't like that bit." It is no secret that we believe that there is tremendous pressure on local communities because the homelessness legislation came in without the necessary resources to back it up. For example, more and more of our waiting lists are taken up with people who are homeless rather than people who have been waiting for some time. If local communities think that a piece of legislation is unjust and is not fair to everybody, we need to consider the impact. That is why I said that we have already raised the matter with the cabinet secretary who is responsible for homelessness and we expect to discuss how to proceed.

But, once the announcement is made on the distribution of the moneys, there will be no financial means by which the Executive could drive local authorities in a particular direction. I am not saying that you are not committed to tackling homelessness, but, as you said, you have other pressures from elsewhere. The Minister for Communities and Sport could not do anything to rearrange the moneys that come to you to ensure that they are directed in a particular way.

No.

Maybe we could come back to that. I am interested in pursuing the point about the annual meeting and how we monitor progress towards targets.

I ask for more detail on ring fencing. As a former councillor with some 15 years' experience, I am well aware that local authorities had concerns about the ring fencing of certain budgets. I appreciate that you feel that you have been freed up. However, you will be aware that the freeing up of ring fencing of certain budgets is causing a great deal of concern, particularly in the voluntary sector. I share that concern somewhat. What assurances can you give, today or in the future, to those in the voluntary sector who feel that they will be disadvantaged by the removal of ring fencing from their budgets? They are concerned that money might be taken from their budgets to back up budgets for local authorities' statutory functions.

I can give the assurance that local government will treat those matters extremely seriously, as it always does. I cannot speak on behalf of the local authorities—that is a matter for 32 individual, democratically-elected organisations, which have responsibility for how they deal with their budgets at the local level. There is not an authority that does not value highly the input of the voluntary sector in its community.

I appreciate that point, but there is real concern that there is no guarantee that money will not be moved by individual local authorities—

There never was any guarantee that money was ring fenced. There was no ring-fenced money purely for the voluntary sector. Is there an assumption that, because we have greater flexibility, we will be irresponsible? I do not think so.

On that point, whether we like it or not, there is anxiety in the third sector. I have no reason to dispute that COSLA and many local authorities respect and value the work that is done by that sector, and that they would not be able to deliver services without that sector. However, organisations feel that they will lose out as a result of the money not being ring fenced. I do not know what work is being carried out to reassure them, or whether that is the job of local government, but according to MSPs' mailbags, there is a big issue.

There is a further issue, on which I hope you will be able to reassure me. There is anxiety that as we roll up the funds that were targeted at communities such as mine, where there are pockets of deprivation—I accept that, as Rory Mair said, those funds were bureaucratic to manage—the distribution mechanism will not reflect that change. What discussions have taken place to ensure that such hard-pressed communities will still get an appropriate share of the resources to tackle their serious problems?

I will bring in the chief executive to answer your question, because there have been discussions on that. On concern in the third sector, that is not being heard by our organisation; nor are our leaders reporting that concern is being manifested to local authorities. I cannot get beyond the assumption that because local authorities have flexibility in their budgets, there is concern about the £2.7 billion that was ring fenced under 50 different headings, much of it in very small packages. Much of the money that goes to the voluntary sector is not ring fenced. Local authorities already deal with that.

I will ensure that the representations that the committee receives are passed on to you. I hope you are not suggesting that I am fabricating anything. A daily scan of the press since the agreement was made would confirm what I am saying, right across the board, on any given issue, whether it is child protection or community transport. We have Government ministers saying that local authorities have billions of pounds in the social work budget to deal with child protection. This week, the Cabinet Secretary for Finance and Sustainable Growth said that there is a record amount of money in local government to deal with community transport. If you need confirmation, I am sure that COSLA has researchers and others who can provide you with information.

On the second part of your question, there is genuine confusion in people's minds about the difference between grant-aided expenditure lines, which used to cover the entirety of our budget, and ring fencing. Some people equate the two. GAE lines are no longer being published. That does not mean that money will not still be available for the fire service or for anything else. GAE lines never meant that the exact figure in the line had to be spent by a local authority. People are confusing GAE and ring fencing.

We are in a difficult position in this spending review, because there is such a short gap between the end of the spending review process and the beginning of the financial year. We have said that the previously ring-fenced funds that are no longer ring fenced should be distributed exactly as they were previously. That will cover the majority of funds, such as the cities growth fund. All those funds will go where they went. Playing around with the distribution of those funds three or four months before the beginning of the financial year would create a ridiculous level of volatility. We have said that we will distribute the money as it would have been distributed. If we want to alter the distribution, that will be done over the next three-year period according to the methodology agreed between ourselves and the Government. There will be no change in the distribution of the money.

The only difficulty that we have is with regard to funds that were previously bid funds. For example, there was previously a bid fund for flood prevention. Once a local authority got an agreement from the Government for a flood prevention order, 80 per cent of the money came from the bid fund, which was not otherwise distributed. If that money was distributed to 32 councils, you might give resources to councils that do not have a flooding difficulty. In addition, splitting up the funds in that way would mean that no realistic flood prevention schemes could be carried out. We have said that we should honour all the existing commitments for those funds, which deal with issues such as flood prevention and derelict land. There are sufficient commitments to mean that the funds could be distributed to the places to which they would have gone over the next three-year period.

But you are saying that that applies only for the first year.

No, I am saying for the next three years. I think that—

But the funds will be distributed this year as they would have been, so I have nothing to worry about in respect of the community regeneration funds and so on that go to Inverclyde Council. That money will be distributed as usual. In fact, that money is ring fenced, so I have used the wrong example, but the money that goes in will be, for this year at least, as it would have been. So there are no anxieties and, as you say, the apple cart will not be upset.

That is right.

You also mentioned discussions that may be taking place with Government about the future years of the concordat.

Sorry, I expressed what I was trying to say poorly. The current distribution should continue for the three-year period that we are in. The first time that we will look at redistribution will be for the next spending review period. Redistribution is so sensitive and so difficult that it will take a significant time to do that work, if indeed we want to consider a fundamental redistribution of resources.

So there is no indication that you are considering redistribution, and at this stage there is no indication from the Government that redistribution will be considered.

That is right.

First, I apologise to Jim Tolson for not acknowledging that he has much greater experience in local government than I do.

I do not understand why there is so much anxiety about the voluntary sector. Although funding fell from £24.4 million in 2005-06 to a measly £15.1 million this year—a significant cut—my understanding is that it will go up to £23.2 million next year, £32.2 million the year after that and £38.2 million the year after that; in real terms, that is a 37 per cent increase. The announcement was made by the Cabinet Secretary for Finance and Sustainable Growth on St Andrew's day. Total spending over the three years will be £93.6 million. I hope that that puts the concerns to bed.

If you could give us the money before we go, Kenny.

Would you like it in cash, by cheque or through a credit agreement?

I will move on. The concordat provides for

"a move to a Single Outcome Agreement (SOA) for every council, based on the agreed set of national outcomes … supported by streamlined external scrutiny and effective performance management."

Does COSLA expect there to be a national core of outcomes or targets that all local authorities will be expected to achieve? What sanctions does COSLA expect will be put in place should local authorities fail to meet the terms of their single outcome agreement?

It is not definite that there will be a core of common indicators across the whole of local government. In other words, all the councils will not necessarily say that they will make progress on the same issues, but they might say that; we are working on that just now.

Following the publication of the five national outcomes and the 40 or so sub-outcomes, we must ask how councils can contribute to those outcomes being met. Some councils will say that they will contribute in some ways, while other councils will say that they will contribute in other ways. On education, for example, we might not want East Renfrewshire Council to do more work on educational attainment at school because it is already extremely advanced in that area; we might want it to look at another aspect of achieving the target for the smarter objective, on which its progress is less advanced. At the moment, each council must agree with the Government how its running of services will ensure that the national outcomes are achieved.

We should remember that we are talking about a national outcome agreement. The other part of the agreement that we have been keen on is ensuring that ministers get the agencies that they control directly to deliver local outcomes. Sometimes we have felt that it has not been possible to get the whole of the public sector to co-operate on a core set of outcomes. Community planning will be bolstered by the fact that, under the agreement, ministers will ensure that the agencies that they control are focused on the same outcomes that local government is focused on as a result of signing up to the joint national outcomes. The agreement is genuinely an outcome agreement, which places responsibilities on both sides. We have not even begun to talk about what will happen if either side does not behave in the way in which it has said that it will behave. We have not got to that point yet.

You are trying to tie up as many agencies as possible to ensure that outcomes are delivered. That will help with the process of decluttering and preventing the duplication and wasted effort that we often get in the public sector.

The other thing about outcome agreements is that they are a determination of what must be achieved rather than how things must be achieved. That leaves greater flexibility for all the agencies to use local discretion to decide how to go about achieving better performance on each of the outcomes. That represents a change; it means that instead of saying what we will do, we will simply say what must be achieved by the public sector in a particular area.

That will bring in greater efficiencies.

When we discussed ring fencing, you mentioned that you might have to produce 50 reports for a quarter of your budget. What level of resource will be freed up for local government given that time, effort and money will no longer have to be put into producing endless reports? Will it be possible to transfer that money to front-line services, now that you will be able to keep savings rather than having to funnel them back through to Edinburgh?

It is difficult to quantify how much money will be released, as that also depends on the implementation of the Crerar report. The Crerar report suggests an end point, but it does not provide a road map for getting to that point from where we are now. The amount of resource that is released will depend on the pace at which that happens. Councils have consistently told COSLA that having to produce reports on specific budgets or initiatives represents a significant cost. We are not even sure that those reports are used for management purposes; we are not sure what purpose they have. We would like to stop doing that activity and divert the resources into front-line services. If we can do that, it will be a big element of the efficiencies that we create.

Traditionally, Edinburgh has given local government money but then clawed some of it back through efficiency savings. Will the new circumstances make the funding much more transparent? Will the knowledge that money will be recirculated within local authorities for their own priorities give them a greater incentive to make efficiency savings?

The opportunity exists for local authorities to look right across the public sector, not only at how we can interact better with other parts of the public sector, but at how we can interact better with each other. We have an opportunity to improve. Nobody in local government, including me, wants us to have the ability to work with other agencies, but then to deliver a worse service. We must ensure that, when we work with other agencies or local authorities, we improve on what happens at present. Change is important to communities only if it improves their lives.

Exactly. In effect, you are talking about getting more bang for your buck.

The reduction in bureaucracy will free up officers' time, which can then be devoted to more productive elements of service delivery, rather than just producing reports on how we spend £2,000.

At the same time, you will be able to deliver the same level of service in the services for which funding is ring fenced at present. Therefore, the organisations that have raised concerns with us do not have to fear that their funding will be cut in the next three years.

I would rather get a complaint when there is something to complain about.

I wonder whether I picked up one of Mr Mair's comments correctly. Did he say that, in effect, every local authority will have to come to an agreement with the Government?

Yes.

That makes me wonder two things. First, how will COSLA, the Parliament and the committee monitor that? Secondly, will you achieve the efficiency savings that you think will arise from doing away with ring fencing if every local authority has to come to an agreement with the Government about how it will meet the targets and indicators? That strikes me as totally counterintuitive.

You have outlined the difficulty of being a membership organisation with no ability to instruct our members how to behave—and we would not want to do so. For the past three years, we had an efficiency target for the whole of local government that COSLA had to co-ordinate. We had to ensure that local government met the overall target, but we did not set an individual target for each council. The 32 councils had to work together to ensure that we met the target. That will not change. Each council will be responsible for achieving a level of efficiency savings—between us, we must ensure that those levels are sufficient to allow us to meet the national target. Some councils were quick to make efficiency savings and made more than their share, and some are getting to that stage now. That is how the process has worked.

I am not talking about efficiencies; I am talking about the indicators in the concordat. I understood that you said that, with the outcome agreements, the outcomes will not be absolutely the same for every council, that they will get there in a different way and that each council has to reach an agreement on that with the Scottish Government. If that is the case, will there not be a new job for all the people who have been writing the 50 reports on ring fencing? They will have to be involved in drawing up the individual agreements and then, I presume, be part of the monitoring of the agreements over the piece.

There will be monitoring—we have never said that there is not an accountability issue. However, from what we have seen thus far, the 45 indicators are ones by which the Government will be judged, not ones by which we will be judged. We must demonstrate to Government that we are contributing to that, and councils will do so individually. The Parliament will hold the Government accountable on the indicators. We will have to show how we are making progress on them, but that will be a more efficient process than the one that we have at present.

A question just popped into my head about why you would sign up to all the indicators and targets if they are somebody else's responsibility. I accept the challenge in some of the indicators. For example, indicator 33 states:

"Increase to 95% the proportion of protected nature sites in favourable condition".

Another states:

"Improve the state of Scotland's Historic Buildings".

There are all sorts of issues that are not currently your problem, but you have signed up to them.

No, we have not signed up to them.

Government ministers tell us every day, when we ask about such matters, that you have and that it is your responsibility.

Let us be absolutely clear: the indicators that you have read out are those through which cabinet secretaries will be held accountable for progress.

Not local government.

That is correct. We have not yet delivered a package of indicators for local government that says how we will contribute—that work is on-going.

When will that be produced?

We have said that the first of the joint outcome agreements should be delivered by April and that, during the next year, every council should reach an outcome agreement—that is the period.

I have one final question. What is the expected impact of the decline in real terms of the capital budget over the period 2008-09 to 2010-11?

I will ask the head of finance to answer that.

The capital budget has a 13.37 per cent increase between the current year and 2008-09. That increase will then be maintained, although the figure will not grow—we will get the money up front and it will be baselined to provide services in future.

So there will be no impact.

There is no decline, because we are getting such a big—

It is only 0.5 per cent above inflation.

Yes, but we are getting a 13.37 per cent increase in the first year, which will then be in the baseline for future years.

There are several questions that we have not reached. Can we write to you to clarify any points that we may not have covered?

That would be entirely appropriate. We will respond as quickly as possible.

I thank the witnesses for attending—we have had a good session.

Meeting suspended.

On resuming—