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

Item 5 is evidence from John Swinney, the Cabinet Secretary for Finance and Sustainable Growth; David Henderson, head of local government finance with the Scottish Government; Ruth Parsons, director of public service reform; and Graham Owenson, local government finance team leader. I welcome the cabinet secretary and all to the meeting. If you wish to make an opening statement, cabinet secretary, I ask you to proceed. Alternatively, we can go straight to questions.

I suspect that what I have to say you might have heard before, so we may as well go straight to questions.

Once or twice. You may have heard some of the questions before in the Parliament.

What is the estimated cost of the proposed council tax freeze and what impact will it have on people who live in areas of deprivation on low incomes?

The cost of the council tax freeze, for which provision has been made, is £70 million per annum. The Government has put that sum of money into the local government settlement. When we set out the approach to distributing local government finance, it will be made clear that I will retain £70 million for distribution once local authorities have decided their position on whether to freeze the council tax. A subsequent order will be introduced to allocate the £70 million to the local authorities in question, once the council tax setting arrangements have taken their course.

Clearly, the council tax freeze will mean that there is no increase in council tax bills, which will benefit a wide range of individuals. When we take inflation into account, the freeze will result in a real-terms reduction in the cost of council services for local residents, which I think will be warmly welcomed.

The freeze will not help people who are on the lowest incomes and who do not pay council tax.

The freeze will clearly benefit those people who pay the council tax. That is one of the most attractive parts of the Government's position.

We received evidence this morning about the below-average increase in the expenditure that will be available to local government, once we take out the council tax and other measures. Will that have an impact on people who do not pay council tax? Will cuts in services impact on them?

Through the headline local authority settlement, the Government will deliver a strong and positive message about our investment in local public services. The Government will allocate to local authorities a 4.6 per cent increase on the 2007-08 allocation. If we were to add the increase above inflation of 0.5 per cent that the Government is receiving for its budget in the next financial year, we would get a 3.2 per cent increase across the board. However, we are giving local authorities a 4.6 per cent increase in their budget. We should add to that the fact that local authorities will for the first time be given the ability to retain within their resources and programmes the efficiency savings that they make, and the fact that the Government has relaxed substantially the ring fencing of funds, to allow for a more flexible approach to the delivery and design of local public services. Taking all that into account, we see that the financial package for local authorities is robust and will allow them to invest in delivering the key features in the concordat that the education secretary and I signed with COSLA and the other statutory and non-statutory functions that local authorities habitually perform.

I am sure that you or your officials heard this morning's evidence from the COSLA representatives, who confirmed that the increase in expenditure was below average—it will be 0.5 per cent above inflation in the next couple of years. I think that that was agreed.

The poorest 20 per cent will gain nothing from the council tax freeze. Do you agree that, as a consequence, the gap between rich and poor must broaden?

I spent the morning with the Economy, Energy and Tourism Committee, so I did not observe what was happening here.

Sorry.

The increase in cash terms in 2007-08 is 4.6 per cent. The point that I made a moment ago was that if I had applied a uniform 0.5 per cent uplift to all the budgets, irrespective of their contents, local authorities could have expected their budget to go up by 3.2 per cent. In fact, the budget is going up by 4.6 per cent and I am putting in place the elements of the retention of efficiency savings locally and the relaxation of ring fencing, which will bring efficiency savings.

We must be clear that the settlement is significant, in the context. In the past few years, the public sector in Scotland has been accustomed to significant above-inflation increases in budgets. That has been a consequence of the above-inflation increases in budget with which the United Kingdom Government has provided the Scottish Government through the departmental expenditure limit. Those days are over and we now have a much tighter financial settlement, not just for the Scottish Government but throughout the United Kingdom Government, too. The expectation of increases that are significantly above inflation is not borne out in the settlement that we have before us. Despite that, we have delivered an increase of that magnitude in the local government budget.

The significant public concern about the council tax is clear to us all. The Government has proposals to change the system of local taxation, for which parliamentary agreement on legislation is required. We will publish a consultation document on that shortly. The council tax is a significant burden on individuals and the Government is taking steps to put in place the resources to freeze the council tax to give respite to those individuals who have been hard pressed by significant council tax increases in recent years.

You did not deny that the bottom 20 per cent will get nothing, or that the increase in expenditure is 0.5 per cent over inflation, which is below average.

Excuse me; I will go through it a third time, convener. It is a 4.6 per cent increase on the local government settlement of 2007-08, which is nearly 2 per cent above the rate of inflation. I am at a loss to understand where you get your figure.

It is below the average since 1990.

I rest my case, convener.

I have just explained it to you, but let me go through it again.

It is below average.

At the cost of repeating myself to the committee, I will go through it again. During the past few years, Scotland has seen significant above-inflation increases in public expenditure. In the financial year 2002-03, if my memory serves me right, the Scottish Government of the time received an increase in the departmental expenditure limit of more than 11 per cent above the rate of inflation. In the forthcoming financial year, we will receive an increase in the departmental expenditure limit of 0.5 per cent above inflation.

I cannot distribute what I do not have. As a Scottish nationalist finance minister, I would love to be able to manage all aspects of public expenditure and to have the revenue-raising responsibilities of Government. Nothing would make me happier. However, I live with the reality of what I have today. To be fair to the UK Government, it advertised the current public expenditure climate well in advance. The Prime Minister, previously the Chancellor of the Exchequer, made it clear in the run-up to the spending review that resources would be a great deal tighter, and they are. We have to live within those resources.

We can make comparisons with the past, but I can only distribute the resources that are provided to the Scottish Government by the UK Government under the spending settlement that we have.

You also say that there are opportunities for local government to boost resources through efficiencies.

I do.

It was made clear to us this morning that those efficiencies can be gained only through redundancies.

I did not hear the evidence so I am not in a position to speculate about what was said. However, at the Finance Committee yesterday, COSLA said that 2 per cent efficiency savings were achievable and that local government could go even further with the opportunity that the Government has created by relaxing ring fencing, which is significant because it will allow local authorities to design services and approaches in a more flexible way, without some of the rigidities that are required by ring fencing. That can be undertaken without any of the consequences that you are talking about. In this debate, it is crucial that we give the authorities the flexibility to take some decisions locally and design their services accordingly.

COSLA said that local authorities could not continue to squeeze their budgets. We would all agree that they have achieved quite a lot of efficiencies over the years, so it will be difficult for them to achieve more without contemplating redundancies.

Local authorities have a formidable record on efficiency savings; that is beyond dispute. The recent efficient government report for 2006-07 recorded local authorities' contribution to delivering more efficient government.

We are now in a culture where we quite simply have to become accustomed to a constant search for efficiency in the way in which we deliver public services. As I said, I have just come from the Economy, Energy and Tourism Committee. That committee is focusing on the fact that some of the budgets that it is dealing with have significant reductions. The organisations are adjusting to that through voluntary severance programmes.

The key point in what the Government has said is that there will be no compulsory redundancies in our programme. Clearly, however, authorities have to consider their staffing levels and approaches to service and take into account the delivery of the efficient government agenda. That approach is not unique to the current Administration. It is an implicit part of the financial settlement and part of what the UK Government requires of all departments. Indeed, the letter of guidance that I have from the Chief Secretary to the Treasury about how the Government should approach its programme encourages and extols us to deliver efficient government savings. I am happy to take part in that.

We heard earlier this morning about the move from backroom services to front-line services. How will we create efficiency savings if there are no compulsory redundancies and everybody decides to stay?

First, there is always turnover in staff. Secondly, there will be individuals who wish to leave the public service. Thirdly, individuals can be redeployed in other ways to deliver services in a different fashion.

I will give an example. When I visited North Lanarkshire Council during the summer, I was enormously impressed by the way in which the council has reconfigured its services to manage customer requirements and focus on access to services—the routine things of life. The council has improved the quality of service to members of the public and reduced waiting times for all the elementary local services that we all require. It has used resources effectively. I dare say that an element of voluntary severance was involved in the package, but the council has reconfigured services to do things in a different fashion. Crucially, the initiative has created a platform to allow the council to bolt on other ways of accessing services. That struck me as a good example of the way in which local authorities are adapting to the different climate and redesigning their services to meet the needs of individual customers.

That is all possible but, in your estimation, at the end of the spending review period, will there be more people employed in local government or fewer?

My judgment would probably be that there will be fewer, convener—

Fine.

I welcome you, cabinet secretary. I hope that, at some point, you will go into more detail on the implications for housing. However, I have a couple of questions on your plans for the council tax.

First, I think that you will agree that, even in a tight budget settlement, the Executive or Government will be judged by what it prioritises within the budget. The size of the budget does not matter. It is the shares of the cake that reveal the Government's priorities. It has already been confirmed that the council tax freeze will not affect the bottom 20 per cent. You have committed to spend £265 million over three years on the small business scheme, which has no conditions whatsoever attached to it. On what basis is that a priority over other spend? Presumably, it will not benefit the poorest people in our communities, given that there are no conditions attached in relation to training, employment or capacity to work with local employability strategies. Why is that a priority in a tight budget?

On the point about the council tax, the people to whom I speak during my travels around Scotland are grateful for the Government's commitment to freeze the council tax. I have met many pensioners who pay full council tax and find that enormously difficult. They are pleased that the Government has decided to put their interests at the heart of the agenda, and they will benefit.

But it would be fair to say that the bottom 20 per cent in terms of income will get no benefit from it at all.

It is clear that people who pay council tax will get the benefit of the council tax being frozen. I accept unreservedly that the Government must be prepared to be judged on the decisions that it makes on its spending priorities.

The reason why we have gone for the small business bonus scheme is that it will provide the smallest companies in different parts of Scotland with a competitive advantage in building the activities of their business. One of the issues that arise in my discussions with local businesses is that the level of business taxation is an inhibitor to encouraging employment growth in communities; businesses just cannot take on extra people, because their business costs are too high. If we can put in place a measure that reduces the business costs of those companies, that increases the likelihood that they will be able to increase employment. We are improving their competitive position by reducing business taxation. If more employment opportunities can be created in the small business sector, that will make a significant contribution to assisting the poorest individuals in our society in finding access to employment locally. One of the major themes of the Government's economic strategy is to ensure that we improve levels of economic activity. This is one of the areas in which we believe that there will be a positive benefit for local organisations and individuals.

You said that there is a likelihood that small businesses will be able to create jobs, but you are not building into the scheme an obligation for small businesses to participate in local employability schemes. You said that you will ensure that there is increased economic growth, but you said only that there was a likelihood that small businesses would create jobs. Given that you are putting a significant amount of money into the scheme, in a tight budget, why not put in conditions that would allow you to get the benefit of such investment?

If my memory serves me right, I recall that the previous Administration tried to set a condition on business rate cuts in relation to research and development activity but was unable to design a scheme in which that was possible. We have decided to provide the incentive to improve the company performance of small businesses right across the country in every community in Scotland. That will be a beneficial move to stimulate the level of economic growth—I am confident that it will have that beneficial effect.

Given that the settlement is tight, I find it quite remarkable that although there is such certainty about what is being given, no attempt whatever has been made to get something back—we will just have to cross our fingers.

What will be the implications of freezing council tax and getting rid of council tax for second homes? You will be aware that, currently, £17 million from council tax raised on second homes is ring fenced for affordable housing. The sum is £17 million a year—and something like £43.7 million over three years—which is 40 per cent of the new moneys that have been available for affordable housing. What will be the implication of getting rid of the council tax on second homes for affordable housing in communities that rely on that income?

I suspect that the difference in income will be marginal, bearing in mind that the revenue raised is £17 million out of a total council tax revenue of just over £2 billion.

That is £17 million pounds for an authority such as Argyll and Bute Council. When it was agreed that that money should be ring fenced, that was welcomed.

Yes, but £17 million will not be realised from council tax on second homes in Argyll and Bute.

I did not say that it would.

With the greatest of respect, I have to say that you have conflated—

Let me finish. There will be a disproportionate impact on communities that have second homes and which experience the consequences of that. If you abolish the council tax on second homes, what will be the consequence on the funding that has been generated in communities that have disproportionate numbers of second homes? Has that been considered?

Let us not take a total national figure of £17 million and suggest that that will have a disproportionate effect on the finances of Argyll and Bute Council. In fact, the total council tax raised in Scotland is in excess of £2 billion.

You are going to reduce it. If you reduce the take, by definition you will reduce the take from second homes and communities that rely more on second-home income will be disproportionately affected. While there is only a freeze on the council tax, the effect may be marginal; it may be more significant once you abolish the tax altogether.

Those are two entirely separate issues. First, as I have said, the impact of the council tax freeze on second homes will be marginal—£17 million out of a total of £2 billion of council tax revenue. In distributing the £70 million following the council tax freeze, we will take into account the income from second homes to ensure that some of the possible marginal consequences are not felt by local authorities in Scotland.

I am sure that the convener will not take it amiss if he and I have slightly different recollections of the evidence session with COSLA this morning. The witnesses acknowledged—as has been acknowledged by others here today—that it is a tight settlement because of the income that the Government here is receiving from London. They also acknowledged and welcomed an end to top-slicing and some of the more restrictive practices that have operated in the past with local government's funds being ring fenced. I wonder whether you can say something about the philosophy behind that and the benefits that you hope to see accrue to local government as a result of its having more flexibility and freedom in those areas?

We are dealing with a much tighter settlement than we have had in the past, and that is being felt right across the board. Nevertheless, we have managed to put in place a settlement that is good for local government. On the day when the Government's budget was announced, I was pleased that the president of COSLA said that he would not do a deal with any Government that left local government short. That showed his acceptance of the fact that we have delivered a good settlement for local authorities.

On the philosophy behind the relaxation of ring fencing, the Government takes the view that ring fencing has become an obstacle to the efficient delivery of public services in a number of different areas. Where the Government sets out a particular ring-fenced fund and says that local authorities must spend within the confines and constraints of that, that may not take into account the existing level of service provision in a particular locality in a particular area of service. One council may provide a much higher level of service in a particular area than another council, yet the Government has ring fenced the pot of money for that service. Understandably, local authorities want to ensure that they have access to as many resources as possible, so they apply to the ring-fenced fund and we end up with a surfeit of provision in a certain area despite the fact that there might be difficulties in service provision in other areas. That puts obstacles in the way of the effective and efficient delivery of public services.

We want to create the flexibility for local authorities to design public services without the obstructions of ring fencing and to move to the system of performance management that we have set out in chapter 8 of the spending review document. That sets out the outcomes and indicators that the Government and local authorities are trying to achieve together. The whole approach allows us to focus much more on what we are trying to achieve with public money than on accounting for the inputs of the public money. We can gather a fantastic amount of information on the inputs of public money; what are less clear, in the information that we gather, are the outcomes and impacts of the way in which we spend public money. We want to change the focus in that direction.

Good morning, Mr Swinney. Earlier, I asked COSLA about the financial implications of single status and equal pay for local authorities and the settlement that you have reached. As a member of the previous Finance Committee, you will recall that in its report on this matter, which was published in March 2006, it concluded:

"The Committee believes that the implementation of Single Status and retrospective compensatory payments is the biggest financial challenge that local government in Scotland has faced."

This morning, COSLA told us that many of those issues remain unresolved. Given the gravity of that financial challenge, why is there not a single word in the concordat about it?

For the simple reason that the matter is for local authorities to resolve as part of their functions. As some local authorities have entirely resolved their single status and equal pay questions, it would be inappropriate for the Government to become involved in such matters. It is not a global local authority issue; it is an issue for a number of authorities—the majority of them, I concede—to resolve. Governments over the years have made it clear that local authorities have received financial support to address single status and equal pay issues, and some have done so.

Yes, but you did not think that a year and a half ago.

I knew that this was coming.

In February 2006, at a Finance Committee meeting with Mr McCabe, the occupant at the time of at least a small part of the post that you hold, you complained:

"hundreds of millions of pounds in contingent liabilities on equal pay are not even making it on to the balance sheet. That seems to be an absurd position for us to be in."—[Official Report, Finance Committee, 21 February 2006; c 3427.]

Are we still in the same absurd position, or have you resolved the matter in the past six months?

I thought that at some point we might get around to my sins of commission as a member of the previous Finance Committee.

If my memory serves me right about the exchange that you have quoted, it related to the provision for contingent liabilities in local authority accounts to deal with this matter. I believe—again, if my memory serves me right—that the Finance Committee took advice on the matter, subsequently or at the time, such that the arrangements for such provision were appropriate and certified by local authority auditors. If so, it is not my business to intervene in the auditing role of individual local authorities.

As for the approach that should be taken to resolving single status and equal pay issues, although the situation still prevails, local authorities are making more progress with it and more of them have resolved it satisfactorily. I freely concede to the committee that I might now be seeing the world from the other end of the telescope, but I think that local authorities are now positioned to take the matter forward. The Government does not need to be active in that respect.

This morning Councillor Watters, the president of COSLA, said that many of the liabilities are uncosted and unquantified and that these financial chickens will almost certainly come home to roost over the period of this settlement.

In February last year, you suggested to your predecessor that he

"set out certain conditions under which local authorities would within a given timescale have to resolve various single status agreement issues, including cost neutrality".—[Official Report, Finance Committee, 21 February 2006; c 3436.]

Will any such conditions in relation to the resolution of single status and equal pay matters be applied as part of the single outcome agreements that you reach with councils in Scotland that still have unresolved issues?

I have not given consideration to that point, but in relation to the structure of the concordat, we have the opportunity to discuss those issues with COSLA on a bi-monthly basis. We can discuss the whole approach to single status and equal pay to address the question of how much more progress is required. I stress, however, that the financial consequences of all those issues are matters for local authorities to address—as some local authorities have done already.

How can that be a matter simply for local authorities to address, given that they are being invited to freeze their council tax, have run down their reserves in many cases and will expect the Scottish Government to fund any liabilities that remain unquantified and unspecified?

Local authorities are self-governing institutions and they have financial responsibility for the resources that they are allocated and the liabilities that arise out of single status and equal pay issues. The matter is one for them to determine. Obviously, the performance and experience of local authorities vary in relation to their reserves, and it is entirely up to them to determine how they manage their reserves and what they deploy to support particular aspects of expenditure.

Back in February and March 2006, the cost of funding equal pay compensation for local authorities was estimated to be between £310 million and £560 million. Has the Scottish Government, in conjunction with COSLA, made any estimate of the range of the potential unquantified liabilities for equal pay compensation claims that might arise over the next three years?

I have no better estimate of the position as it stands than the one that you cited from the inquiry that the Finance Committee undertook last year. The issue must be addressed through the proper decision-making processes of individual councils.

Is it your submission that the cost of settlement at the upper end of that estimate—the £560 million, which some people have said is not even the upper end—is all factored into, and has to be satisfied from, the global financial settlement that you have agreed with local authorities? Is that the Government's position?

My position is clear: the resolution of single status and equal pay issues is a matter for local authorities, to be considered in the context of the financial settlement that the Government is offering. Some local authorities have been able to resolve those issues, but others have not, so far, done so. Therefore, it is appropriate for individual local authorities to take the steps that they think are required in order to address the matter.

I must point out that previous Governments have maintained that adequate provision was made within settlements to address the matter. If that is the position—which this Government also maintains—local authorities should be able to address the situation through recurring resources or the reserves that they have built up to address it over time.

I am surprised that you are taking refuge in the position of the previous Government—I thought that there was meant to be a major change in Scotland in 2007.

In relation to reserves, the Accounts Commission recommends that local authorities have reserves of 2 per cent. We know—certainly the Finance Committee knew back in March 2006, and I know in relation to the City of Edinburgh Council—that reserves are nothing like the 2 per cent that would be needed to fund equal pay claims or, indeed, anything else. Is money to enable local authorities to build up their reserves to the appropriate 2 per cent level that is recommended by the Accounts Commission factored into the financial settlement for the next three years?

That takes us to the nub of a significant issue—the nature of the relationship between this Government and local government, in comparison with the relationship between the previous Government and local government. With the greatest respect, the way in which we are proceeding represents a seismic change from the way in which the previous Administration proceeded. We have constructed a relationship with local authorities that is not about me, as the Cabinet Secretary for Finance and Sustainable Growth, making decisions on every point of detail in each local authority's priorities and spending plans.

I have set out the policy framework within which the Government wishes to work with local authorities to agree certain shared priorities, which are set out in the concordat. That policy framework addresses the issues that are of significance to local authorities and to the Scottish Government. If there are other issues that affect particular local authorities, frankly it is for them to decide how to address those issues. It would be wrong of me to get involved in second-guessing how particular local authorities take decisions about specific spending lines at local level. For example, I have nothing to say to South Lanarkshire Council about single status and equal pay, because it has resolved the issue. It is entirely up to individual local authorities to address that issue.

The Accounts Commission gives guidance on reserves. I do not think that I preach heresy when I say that some local authorities have reserves that are in excess of the level that the Accounts Commission has suggested. Local authorities must make their own financial judgments in that context.

Your position is that it is a matter of indifference to the Government whether councils follow the advice of the Accounts Commission on the level of reserves that they should have. Is that correct?

The Accounts Commission provides advice to local authorities on reserves. It would be unwise of local authorities not to take due account of what the Accounts Commission says. Given that professional guidance and advice are available to local authorities, it would be completely inappropriate for ministers such as me to second-guess local authorities' decisions. They are self-governing organisations that are elected by and responsible to their local electorates. It is entirely appropriate for the Government to set out a policy framework within which we wish to work with local authorities to deliver certain objectives, aims and aspirations, as set out in the concordat, but, beyond that, local authorities should get on with the business of running the affairs of the local communities for which they have responsibility.

If it is unwise of local authorities to ignore the advice of the Accounts Commission on reserves, do you accept that it would also be unwise of a Government to construct a financial settlement that ignored that advice?

The Government establishes a financial settlement that it discusses with local authorities. Another example of the seismic shift in the nature of the relationship between local and central Government is the fact that, in advance of the spending review, we had a series of highly constructive discussions with local authorities about spending requirements and so on, in order to avoid the situation to which you have drawn attention in a number of parliamentary debates—namely the ping-pong that goes on about whether there is enough money in the settlement and all the rest of it.

We have had constructive discussions in which we have agreed a concordat that reflects the shared priorities for the future of the Scottish Government and local authorities. As I said a moment ago, we have produced what the president of COSLA has described as a fair settlement in a tight financial context. That is an indication of the nature of the mature relationship that exists between the new Government and local authorities. We have addressed our priorities and, into the bargain—given that COSLA is a joint signatory of the agreement—we have addressed the issues that matter to local authorities.

During COSLA's evidence, concerns were raised about the level of voluntary sector funding in the local government settlement. There seemed to be a lack of knowledge among some members of the committee of the announcement that you made on St Andrew's day, in which you said that £93.6 million would be provided to the voluntary sector over three years, which I understand represents a 37 per cent uplift. Will you expand on what that investment will be spent on?

There are three means by which the voluntary sector in Scotland acquires funding. The first channel is for services that are funded by local authorities, of which there are many. The second is for services that are funded by other elements of the public sector and by the lottery. Some of that funding comes from the health service, while some comes from other parts of government, such as the environment bodies, which distribute funding to voluntary organisations. Such funding is supplemented by the national lottery.

The third channel, to which I referred on St Andrew's day in my speech to the Association of Chief Officers of Scottish Voluntary Organisations, is the component that the Government provides. The 2007-08 budget includes provision of £15.1 million, which will rise to £38.2 million by the end of 2010-11 and is split between two elements. The general resource that we put in place to support third sector development will rise from £15.1 million to £22.2 million. Before the spending review, the voluntary organisations to which I spoke were concerned about how they would be treated in a tight spending round, but I am delighted that the Government has been able to deliver a significant uplift in funding. We have also introduced the Scottish investment fund, which is designed to reach £16 million by 2010-11 and will be invested in key capacity-building elements of the third sector.

There is good, strong evidence of the Government's commitment to the third sector. One of our key priorities is to ensure that we align every aspect of government and public services at local and national level to support the Government's policy framework. One of the key elements and attributes of the concordat with local authorities is that we should move towards having a shared policy agenda and a shared agenda on outcomes. Crucial to that is the involvement of the voluntary sector in providing a significant element of services. Individual local authorities will make decisions on the support that they give voluntary organisations, but I encourage them to take a positive stance on the allocation of resources to such organisations. Invariably, in my experience, the voluntary sector has greater success than traditional public sector investment and activities in reaching some of the hardest-to-reach individuals in our society.

There is a good story to tell about the voluntary sector, which has great potential to contribute to meeting the Government's wider objectives.

Earlier you did yourself something of a disservice—I will explain why. Page 3 of the report that the budget adviser has given the committee states:

"Since the overall settlement in Scotland is below that of the UK, it is impossible for the Scottish budget to match the planned growth rates in England for each portfolio."

However, despite the Barnett squeeze, the report from the Scottish Parliament information centre tells us that local government expenditure will increase by

"4.9% … compared to 4.6% for Scottish Government expenditure overall".

In fact, is there not more money for local government, because efficiency savings, which we discussed earlier and which were clawed back by the previous Scottish Government, are able to recirculate within local authorities? That provides an incentive for efficiency savings to be made and ensures that the prospective redundancies that have been mentioned will be minimised.

I am pleased with the settlement that we have been able to deliver to local authorities in a tight spending round. Crucially, the proportion of the Scottish Government's budget that is allocated to local authorities will begin to rise again—albeit by a marginal factor—having declined consistently for the past six to eight years. Essentially, resources for local authorities as a share of the Scottish block have gone down, and the Government has decided that they need to start going back up again. That is evidence of your point.

Further, we have to accept that one of the consequences of the funding formula for the Scottish Government is that because our population now represents a smaller proportion of the UK population, we get a smaller proportion of any increases in key public spending lines in England. That is resulting in a convergence of expenditure levels between Scotland and the rest of the UK. The Barnett squeeze, as you referred to it, is undoubtedly having an effect. Within that context, the Government has to take some difficult decisions.

Concerns have been raised about the impact of the council tax freeze on people on low incomes, and particularly on people whose homes are in band A. Will you confirm whether the financial impact will be around £9 a year per household? That compares with, for example, the £130 a year that the changes in UK taxation in April next year will cost people with incomes of less than £10,000 a year.

The latter figure is not one that I have available to me just now. However, I can say that there will be a beneficial effect for everybody who pays council tax. I suspect that that will come as substantial relief to those who have had to endure a 60 per cent increase in council tax over the past 10 years.

I have concerns about the small business bonus scheme. Local authorities have been advised that they need not worry if firms in their area close down, because their income will be protected. That is the reverse of the structure in Ireland, where the only way in which local authorities can raise money is by rates and there is, therefore, a direct incentive for local authorities to work with the business community to improve the environment for local businesses. Most local authorities do what they can to help local businesses, but surely the issue of incentivising local authorities to consider their dealings with the business community should be revisited.

There is an argument for considering how we can incentivise through business taxation, although that does not form part of the Government's budget proposals. In my experience, local authorities are keen to encourage the process of economic development in their localities. As I was discussing with the Economy, Energy and Tourism Committee this morning, I want to ensure that local authorities have greater proximity to and responsibility for the economic growth agenda.

If the Government is to succeed in its objective of increasing sustainable economic growth in Scotland, we will not do it on our own; we need to have the willing participation of local authorities and other public bodies in that process. By aligning the interest of national Government and local authorities in shared priorities, we have an opportunity to create momentum behind the process of economic growth in Scotland.

Having said that, there is an argument about the incentivisation process and about business rates and economic growth at local level. I will consider how we might take forward a process of incentivisation. We will discuss that with local authorities and we would be happy to discuss it with the committee on another occasion.

I crave your indulgence again, convener. With regard to the new fund to tackle poverty and deprivation, I understand that there will be a merging of three funds: community regeneration, working for families and community voices. Current expenditure is £131 million a year. However, that will jump to £145 million for each of the next three years. Why has there been that increase, why is it being held at the same level over three years, and what impact on service delivery in those areas do you think it will have over the three years?

The funds have been drawn together to follow up some of the suggestions that were made by the Finance Committee in the previous session that related to a concern over the proliferation of funding streams to tackle poverty. The Government has responded to that by trying to put in place a more cohesive and effective fund. That should bring about a simplification of funding streams, as a consequence of which there should be efficiencies in the way in which the funds are distributed. That should guarantee that they have the same—if not greater—impact without some of the burdens of cost and bureaucracy that have characterised them in the past.

By focusing the funds in that way, we make possible the cohesive design of services at the local level. That will fit in with my general message about joining up public services at the local level, which will take place under the umbrella of the community planning partnerships, where local authorities are in the lead. That will provide an opportunity to make such an approach to policy as cohesive as it can be.

In relation to the single outcome agreements with local authorities and the associated framework, can you give us an idea of how you will ensure that local authorities act consistently in relation to Government priorities? How will the Parliament be able to monitor and scrutinise the use of the large sums of money that are to be transferred to local authorities? That will be more difficult for the Parliament and the Government to do, particularly given the removal of ring fencing. When are the single outcome agreements likely to be in place? How are they to be developed? Will they be developed to ensure that, for example, they provide clarity about deliverables but do not become so detailed that they turn into unworkably large and rigid documents?

Your question captures some of the dilemmas that exist. If one wanted to put together a single outcome agreement that monitored to a precise degree certain indicators in every local authority, we might end up with a single outcome agreement whose length rivalled that of "War and Peace". There is a balance that must be struck.

In chapter 8 of the spending review document, we have outlined the architecture of the single outcome agreements. We want individual local authorities to play their part in aligning their priorities and activities to support the Government's national outcomes and the various indicators of performance that we have set out. There is a clear structure and framework to what we are aiming to get local authorities to concentrate on delivering. That brings me back to my central point about aligning local authorities to support a certain number of outcomes that the Government wants to achieve. That is an important asset in relation to that cohesion of priorities.

I accept that there is an issue in connection with the scrutiny of budgets that were previously ring fenced. That means that we have to have an effective level of parliamentary scrutiny of those single outcome agreements. I am happy to discuss with the committee ways in which we might ensure that that happens. There is a difference between the information that will be available in the new scenario and the information that is currently available. The structure of the single outcome agreements will be designed to show how progress is being delivered against a certain number of key outcomes and indicators for Government and local authorities.

My officials and I are working hard to ensure that the agreements are in place by 1 April 2008, so that we have a replacement regime from day one. Undoubtedly, further development work on the nature of the single outcome agreements will be required. They will be the subject of reporting by local authorities to Government on a six-monthly basis. Further, they have the capacity to be reviewed.

Finally, I want to make the point that there is a strong case for developing, over time—this is not an issue for 2008-09 or, probably, for the subsequent financial year—single outcome agreements with community planning partnerships rather than just with local authorities. Such agreements would provide a forum for the integrated policy delivery that we all recognise is essential at local level. Some community planning partnerships would be able to sign such a single outcome agreement tomorrow because they are at such an advanced level of cohesion, but others would take a great deal longer to reach that point.

I welcome that response. I also very much welcome the fact that we have been given a firm deadline and that the committee will be further involved in discussions.

Good afternoon. I have two main questions, but first I want clarification on comments that have been made both today and last week in the chamber about the new fund that will be set up to tackle poverty and deprivation. Will that fund consist of the three funds to which Mr Gibson referred or will other funds also be rolled up into it? In the chamber last week, Mr Maxwell seemed to indicate that it might include more than just those three.

I am advised that more than just those three—I think there will be seven in total—will be rolled up into the new fund. Mr Henderson has the information, so perhaps he can explain.

I do not have chapter and verse on all seven, but the fund will include seven grants. A number from outwith the local government portfolio will make up the total.

It would be helpful to get a note of the seven and the budgets that they will bring with them into that rolled-up fund.

We can certainly provide the committee with a note on the composition of the fund.

I will move on to my other two questions.

If a local authority decided not to freeze council tax—COSLA was at great pains to point out that such decisions are for local authorities and cannot be made by COSLA on their behalf—could it still retain its ring-fenced efficiency savings and could it still have a single outcome agreement with the Government? Would such authorities have the same ring-fencing agreement as other local authorities?

That will depend on the extent to which local authorities agree to the package. That is the clearest answer that I can give—I apologise if it does not sound terribly clear. Essentially, what happens will depend on what each local authority is prepared to sign up to. If the local authority is prepared to sign up to every element of the Government's package, including a single outcome agreement, but decides that it will not freeze the council tax, that is a much tighter definition than a decision that the authority does not want to enter a single outcome agreement, which it might conceivably also say. In a sense, my response will reflect what each local authority is prepared to sign up to. That will be done case by case.

An authority that did that would not be eligible for some of the £70 million, for example.

No, it would not.

Who will be responsible for meeting the indicators that are referred to in the concordat?

The indicators in the spending review document, which are also reflected in the concordat, are the responsibility of the Government. Ministers are accountable for them: obviously, a key element of that will require working in partnership with local authorities on shared priorities. Clearly, certain commitments that the Government makes will depend on the contribution of local authorities to delivery of the outcomes. The advantage of the settlement that we have achieved through the concordat is that we now have a set of agreed up-front shared priorities that the national Government and local government are working to deliver. That gives us a strong platform for delivery of what is envisaged in the concordat and for wider public service delivery by local authorities.

I find that answer very interesting and helpful in one respect, but it does not completely tally with what local government representatives have told us. They seem to be firmly of the opinion that the indicators relate to what the Government would achieve and what the Government plans and aspires to. I do not know whether you need to have more discussions with the councils or whether you can clarify the issue.

I am looking for the exact reference in the concordat. We refer to the sharing of priorities. I cannot find the reference—one of my officials will find it for me.

I apologise for the delay in getting to the right paragraph. The paragraph on single outcome agreements states:

"The national outcomes and indicators are listed in Annex A to this concordat. As part of this package each local authority would aim to reach a Single Outcome Agreement (SOA) with the Scottish Government at the earliest opportunity, based on the national outcomes and, under a common framework, local outcomes to take account of local priorities."

The steps that are outlined in the second sentence give cohesion to our approach. I accept that they are Government indicators and that they set out what the Government is trying to deliver, but we cannot do that without the participation not only of local authorities but of statutory agencies that are responsible directly to ministers. The advantage of the arrangements that are now in place is that we, as ministers, have direct responsibility for and, in many circumstances, power of direction over, national agencies. We can say, "Look—those are the indicators that you have to achieve. Work towards that." We cannot say that to local authorities. We have to do it by voluntary agreement, which is essentially what is covered in the sentence that I quoted.

The beauty of the situation that we are now in is that there is an alignment of priorities between national Government, local government and the various agencies. We are all working to achieve the same outcomes and indicators. Clearly, all the indicators can be monitored. On Friday, we published the definitions and the working papers that lie behind all the indicators, which give the detail of what we are measuring and why it matters.

Am I right in thinking that, although a concordat has been arrived at with COSLA, an outcome agreement has to be reached with each individual local authority before we will know what local authorities have signed up to deliver?

Yes, but I assure Patricia Ferguson and the committee that the Government will not sign up to single outcome agreements and agree to the package unless we have confidence that we can achieve our national outcomes and indicators.

The evidence session with the COSLA representatives was refreshing, in that they were very open about their discussions with the Government. They said that they went into the discussions saying that between £10.8 billion and £11.5 billion was the range of their expectations for their settlement in the next financial year. They settled for £11.14 billion. Obviously, they would have liked £11.5 billion, but they think that that is a good settlement in the circumstances. COSLA's written submission states that the negotiations

"were clearly based on our costed understanding of our spending requirements, but took into account an expectation that the resources available to the public sector in Scotland would make this a very tight Spending Review."

COSLA seems to acknowledge that the Government was operating within a tight spending review and that the concordat is realistic. Mr Mair from COSLA stated that it was the first time that they had had detailed discussions with Government before the budget figures were released. That seemed to be a breath of fresh air.

I will say one final thing on that before I come to my key question: the witnesses seemed to be pleased to have resolved a series of non-cash issues within the concordat. That is all the positive stuff.

Members of the committee have expressed concerns about the lack of ring fencing, but COSLA was clear about the need for a reduction in ring fencing. I would like to hear your comments on that. Mr Watters, from COSLA, repeated that people must understand that flexibility does not mean irresponsibility. The witnesses were keen for the committee to acknowledge that greater flexibility would not reduce the ability or desire of local authorities to deal with issues across the range of their responsibilities.

The witnesses also said that the withdrawal of ring fencing from 50 areas would have an immediate benefit through efficiency savings, as there would not have to be 50 separate sets of reports, audited accounts and returns for each ring-fenced fund. They said that the money could be used more effectively if those relatively small amounts could be pooled to improve service delivery. Can you reassure the committee that flexibility for local authorities does not mean irresponsibility? Do you think that increased flexibility will bring some major immediate benefits through efficiency savings?

I agree with what the president of COSLA said about flexibility bringing responsibility. I cannot persuade myself of the malevolent view that, unless money is ring fenced, local authorities will spend it on different priorities. I cannot believe that local authorities are waiting for the removal of ring fencing, rubbing their hands and saying, "Great—we won't have to spend money on vulnerable people in our society any longer." I refuse to believe that. By removing ring fencing, we can provide flexibility to ensure that services are designed appropriately for local circumstances, and remove a volume of frankly pointless bureaucracy that goes with ring fencing.

Let us consider the situation that the Government inherited. In 2007-08, about 75 per cent of the funding that was provided to local authorities was unhypothecated—local authorities were free to do with it what they wanted, within their statutory responsibilities. The Government has extended the figure from 75 per cent to—probably at the end of the period—about 90 per cent. We have replaced ring fencing with a focus on outcomes that allows us to see what difference our public investment makes to the quality of life of individuals in our society. At the moment, we could look at endless amounts of information on the inputs of money and all the paraphernalia that goes with that without getting much sense of what impact the money has on people's quality of life, so this is a good positive agenda to take forward.

Obviously, there are reporting requirements in place to ensure that the Government will in due course be able to inform Parliament about performance—which relates, by extension, to the point that I made in answer to Jim Tolson. The process provides a strong platform for how we want to proceed in the period ahead.

Can I ask one final question? There will be new Governments in 2011 and 2015. Is this a principle of mutual respect between national Government and local government that should be extended irrespective of which Government is in power?

I look forward to committing the Governments in 2011, 2015, 2019 and beyond to that principle.

Well done, Mr Doris. If that does not get you up the list, I do not know what will.

The only thing that Bob Doris missed was to suggest that I will be a participant in all that. That would have definitely got him up the ladder.

On that point, we had an interesting discussion with COSLA on the parochial matter of Inverclyde having pockets of deprivation and the fact that some of the funds that have been rolled up are important to us. COSLA assured us, and I hope that you will confirm, that the funding will be protected for the three years and will not be rolled up or allocated on a per-head basis that does not take into account deprivation and our other problems. It is positive news that, in effect, that funding will be protected for the next three years.

We are changing a number of arrangements for funding streams, but the distribution mechanism and its effect will be stable. I accept Duncan McNeil's point. Once the concordat was agreed, we embarked on a more detailed set of discussions with COSLA about distribution issues, which are informed by individual local authorities' perspectives. We have had good discussions to the satisfaction of local authorities on the stability of the arrangements. I will examine the matter closely in the next few days, before I make the local government finance settlement statement next week.

I presume from your earlier evidence that we can give the voluntary sector some reassurance that the outcomes of spending un-ring fenced moneys will be subject to scrutiny by the Government and the committee.

The atmosphere that I am trying to create for the discussion involves our having not only a focus on national outcomes and indicators, but a clear steer—I made the point explicitly in my response to Mr Gibson and have made it on countless other platforms—that we want the voluntary sector to be significantly involved in the design and delivery of public services. We encourage local authorities to pursue that locally. I hope that that provides sufficient reassurance.

I am happy to take your assurance. I think that, like COSLA and the committee, you will acknowledge that a serious problem of perception exists. The third sector—the voluntary sector—perceives that it will take a disproportionate hit as a result of some actions. I am prepared to accept your assurance that that is not the case, but I hope that you agree that we all need to work to reassure those people. As you said, part of that reassurance will involve our scrutinising outcomes and whether the impact on voluntary sector funding has been disproportionate. I am happy to work with you on that.

I accept that entirely. The message that ministers have given the voluntary sector has been entirely consistent with what the convener has said, but we must monitor how individual decisions are taken and their consequences.

I welcome that comment and the fact that we will be a part of that monitoring or at least of the scrutiny process that results from that monitoring.

We need in the fullness of time to have a separate discussion about where the committee sits in relation to the scrutiny process. I am happy to discuss that.

I have questions to which you can respond in writing if you do not have the time to respond to the substantial points now. It would be useful to know the rationale for ring fencing money for some purposes but not for others. The logic of working on the basis of flexibility is to make all money un-ring fenced.

Will consultation on single outcome agreements go beyond local authorities? I understand that health boards were not consulted on the current position. Will they be part of the process? You will know that equality groups are anxious about the impact on their concerns. Will they be consulted on the development and monitoring of SOAs? I have lodged questions on those matters, but they have all received holding answers, and to have that information would be useful.

Where are we on full cost recovery in the voluntary sector? Voluntary organisations' budgets might be growing and I support the idea that the voluntary sector provides some services better than local government can, but if local authorities are driving efficiencies into the system, the danger is that they will drive out into the voluntary sector. Progress has been slow. If you told us where we are with full cost recovery, that would provide reassurance.

I want to ask a specific question about housing and the anxieties—well founded or not—of housing organisations about the impact of the budget. They are saying that the consequence of removing ring fencing from the supporting people fund might be that critical homelessness prevention services suffer. Has the minister met representatives from housing organisations to discuss their legitimate concerns? If not, should he?

Will the minister contemplate either keeping the money for dealing with homelessness out of the single outcome agreement or keeping it ring fenced until the single outcome agreement is in place? Do you agree with your minister—Mr Maxwell—who said that if local authorities spend money that used to be ring fenced for dealing with homelessness on something other than homelessness, the Government could always put the ring fencing back? I ask because—you might want to look at this in more detail—COSLA officials indicated that once you make the announcement on distribution it will not be possible to re-ring fence money for the next three years.

Should the responsible minister meet the housing organisations to talk through those issues? Should something be done around ring fencing in the short term until the single outcome agreement is agreed? What input will the housing organisations have to the development of the single outcome agreement? What is your capacity to re-ring fence funds if there is evidence that local authorities use the money for something else—although I am not saying that they will? The minister said that you could do that but COSLA said that you could not do it after next week.

I will try to address all those questions.

We decide case by case whether to ring fence money. We decide whether the transition to a non-ring fenced fund is achievable within the context of the settlement. In my view, some grants will always be ring fenced, such as the police grant, for example. There is no appetite to de-ring fence that grant, even within the local authorities, because it makes sense in terms of the number of police boards that we have. We decide case by case where there could be a practical advantage to relaxation of ring fencing.

I know that the equalities issue has been emerging through the parliamentary scrutiny process. I hope that the budget is making enough provision so that equalities question can be properly addressed. Many such issues have statutory—

I am sorry; I probably misrepresented what I wanted to say. Will the organisations that work on behalf of excluded groups, equalities groups, disabled groups or whatever have a part to play in shaping and monitoring the single outcome agreements? Their fear is that if they do not, their particular issues will not be recognised in whatever comes out of the other end. I am not asking about how the Government conducts itself over equalities duties because local government has a responsibility in that respect. It is about how the single outcome agreement will incorporate an equalities dimension to what it looks like and how it is judged.

That is a question that we can answer during the practical steps that we are taking to agree the single outcome agreements. I certainly want to see such issues reflected: local authorities would take the same view.

The Government is encouraging delivery of full cost recovery. I am happy to provide the committee with further updates on the steps that have been taken, but it is an example of something that will, to be honest, be seen once it has been delivered.

On housing and supporting people, I am not familiar with where the Minister for Communities and Sport is in discussions with the relevant organisations.

Could you confirm that it would be a good idea for him to meet those organisations? They are anxious that he has not shown the same degree of urgency in meeting them as, for example, the higher education sector. They should be reassured that their concerns will be allayed.

I am sure that you appreciate that I do not know where the Minister for Communities and Sport is on that question, but I will certainly report to him. The last thing that the Government can be accused of is a lack of engagement with organisations around the country. I am sure that a lot of organisations feel that they are sick of the sight of ministers, frankly. I will recount your point to the Minister for Communities and Sport.

I suppose that, in theory, money could be re-ring fenced if the concordat does not work and we end up ripping it up. However, members will understand that I am proud of the concordat because it reflects a sense of partnership that I want to bring to Government and its work with local authority partners on delivering services. At this stage, I prefer to think about the strengths of the concordat, how they translate in respect of matters such as the single outcome agreements, and how we can refocus public services to support the needs of individuals in our society and our aspirations on economic growth. If it all goes pear-shaped, the Government will have to revisit that—

I understand, but the issue is not whether it all goes pear-shaped. If you are concerned about spending on a particular group of vulnerable people but everything else is going a whizz, can you re-ring fence money to meet certain targets?

I presume that the specific issue that you raised refers to the indicator in the concordat that

"All unintentionally homeless households will be entitled to settled accommodation by 2012".

If I am correct, that is an absolute continuation of the legislative commitment of the previous Administration. It is a hard indicator—not only in that it is difficult to achieve but in the sense that it is definitive. We have to put in place in our outcome agreements with local authorities the capacity to achieve on that indicator. Otherwise, we will not deliver on it. There will be various staging posts between now and 2012 at which it will be obvious whether or not we are on course to deliver.

The structure of the agreement is such that the COSLA leadership will meet the Cabinet Secretary for Education and Lifelong Learning and me bi-monthly. There will be a six-monthly report from local authorities on performance, and we will need a single outcome agreement to achieve such hard indicators. The Cabinet will meet COSLA annually to address the issues. There are enough mechanisms in the concordat to allow us to take account of issues on which we are not making progress as we should. The indicator on homelessness is one of the more definitive on which the Government must ensure delivery.

I call Alasdair Allan to be followed by Kenny Gibson—I am conscious that we have taken half an hour more than our allotted time with the cabinet secretary.

As I understand it, one area in which money remains ring fenced is the health and well-being budget. How does the Government view the measures of deprivation that are used when calculating that budget, and are any of them in need of adjustment or review?

The Government uses the Scottish index of multiple deprivation to assess most such questions. That mechanism has many strengths, but it has a weakness in that it cannot capture small pockets of deprivation, particularly in dispersed populations. It captures significant blocks of deprivation pretty effectively, but it is not focused enough for rural areas.

I discussed that with the convention of the Highlands and Islands at our meeting in Ballachulish just a few weeks ago. Some work is going on to see how best we can continue that debate, and discussions have taken place between Government officials and representatives of local authorities in the Highlands and Islands and of the convention to try to address those points. I understand that the situation also has ramifications in some of the Highland and Islands health boards. Development work is under way, but it has no effect on the settlement.

At the start of the next financial year, there will be a 13.3 per cent increase in the local government capital budget. In the two years following that, there will be only a 1.8 per cent increase and then a 0.1 per cent increase. COSLA has welcomed the overall increases, but why has it been front-loaded?

The increase has been front-loaded to ensure that local authorities have the capacity to take forward some of the practical physical work that is required to ensure that we can, between local and national Government, deliver the reductions in class sizes. From my experience of local authorities, I know that there will be an endless amount of capital work that local authorities could undertake. However, we took the decision to front-load the settlement to give the maximum opportunity for progress on class sizes.

How much is included to reduce class sizes?

The uplift in the budget for the first financial year is 13.3 per cent.

Is that specifically for class sizes?

The money is not ring fenced, but, as I have said to Mr Gibson, one reason why the increase is front-loaded is to take account of the fact that there is clearly a consequence of the policy of reducing class sizes. Infrastructure and fabric works may be required in schools, so we have to provide resources to allow them to happen.

Will it become clearer after we discuss it with the various local authorities?

It will become much clearer.

Will we be able to identify an overall figure or council-by-council figure of what has been allocated to reduce class sizes?

You will be able to see the capital allocations to local authorities, but we are not putting a little price tag on each allocation to say that the money is exclusively for class sizes. I was simply illustrating to Mr Gibson that the reason why the increase is front-loaded is to recognise that there is an infrastructure and fabric issue at the outset.

I take note of your smile, cabinet secretary.

I am always smiling when you are here, convener.

Thank you very much for your time and for that of your colleagues—we appreciate it. We hope to resolve any outstanding issues in writing, if that is okay.

I will be very happy to respond. There are issues on which I have not been able to give definitive answers today—they will follow in writing as soon as possible.

Thank you.

Meeting continued in private until 13:40