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We welcome again our adviser Rita Hale. Today we will hear from representatives of the Convention of Scottish Local Authorities, which has produced a full report for the inquiry. At today's meeting, we will consider parts 1 to 8 of the report. The witnesses are due to give further evidence on 20 November, when I am sure we will consider the rest of their report.
There was great disappointment when the Executive rejected the McIntosh commission's recommendation that it undertake an inquiry into local government finance. COSLA has for a long time campaigned for such an inquiry and we welcome this opportunity to explain to the committee the evidence that we have gathered on the issue. As members will see from the size of the document that we have submitted, COSLA has collected a considerable amount of evidence. That evidence has been gathered on a fully inclusive basis from all local authorities and from elected members who were involved in task groups and officer working groups.
The next time that we appear before the committee, we will give a separate presentation on capital. However, all authorities are treating capital and revenue as an integrated stream. Capital flows through to revenue so, as John Pentland said, we must treat the evidence on those issues as an integrated whole. All authorities are dealing with capital and revenue on a common planning basis. We want to draw together all the threads from the different parts of the report and integrate them.
In part 1 of the report, you set out proposals for a new approach to the development of local government policy in Scotland. You outline how that approach would work at political and officer levels. How long would it take to set up the new system?
I do not know how long it would take. Rather than having breaks every year, the process would be on-going.
Are you confident that everyone—councillors and officials—would sign up to what appears to be a radical proposal?
We hope that everyone would sign up to it. One of the reasons why we are discussing it with the committee is that we are asking for a radical approach to be taken to finance and local authorities. Our report is totally inclusive of all authorities. Through their input into the report, they have all sent out the message that they are interested in signing up to it.
Everyone in COSLA.
That is the majority of local authorities.
I gather that the move away from the development of policy on the departmental or service level towards a theme-based approach harks back to the local authority corporate planning experiments of the 1970s. I also gather that the best of those experiments produced good local government, but that the worst produced mountains of paper. How would you ensure that the theme groups envisaged in the COSLA paper focus on the big issues? Such issues might include how to address problems of educational underachievement in different parts of Scotland, how to assess the importance of reducing underachievement relative to, for example, reducing the level of child abuse, and how to assess the costs of tackling such problems. How would you ensure that the groups addressed those problems instead of degenerating into talking shops, which characterised some of the 1970s experiments, and debating at great length, for example, whether street lighting contributes to the theme of sustaining and enhancing the built and natural environment or to the public infrastructure theme?
It is always difficult to ensure that such initiatives do not develop into huge bureaucratic exercises. You can see from the size of our submission that these initiatives generate a lot of paper—the more evidence that we gather, the more paper is generated. If councils see the new approach as the route to sustainable funding, there will be an incentive to make the system work; if the themes work by defining how councils get the money, councils will be pushed towards making the approach work.
Perhaps I could develop that point, although, as an officer, I might be commenting against myself. Part of the problem is that, in the past, many of the issues have been considered to death at a technical level. There has been no forum or mechanism to consider issues at a strategic or policy level. We are proposing such a forum.
I have a supplementary point. I have been involved in the system for more than 20 years and the issues have been about the money that is in the system, not the policies, and what should be delivered for the funds. COSLA's approach is, "Let's discuss the cross-cutting issues, the strategies and the outcomes, which will give more focus on what is provided for the money." In the past, the approach has been, "This is the money that is available, and these are the segments over the various individual services." That has not been an invigorating or rewarding exercise, because it has been about one side saying, "We need more money," and the other side saying, "This is what is available." I hope that the structure will be able to focus on strategic issues and what the resources will be spent on.
My second question is on the same issue. In paragraph 20 on page 23, you say that the work of the theme groups will
The main point is that we are talking about outcomes. As someone who has come into local government fairly recently, I see that it abounds with strategies and plans. We seem to be good at developing those, but what we need is to put them into effect. The point is not about developing more and more documents; it is about achieving the outcomes. The themes are the guiding principles that authorities should use to allocate the resources to achieve those outcomes.
How much flexibility would there be in the system to tailor local outcomes for each of the councils?
If we are talking about nationally agreed priorities and nationally agreed outcomes, there will be almost complete flexibility, as long as the outcomes are achieved. That is the objective. The issue is not how things are done, but the objective at the end.
You say in paragraph 23 on page 24:
That comes back to our comments about the link between policy and financial considerations. At the moment there is a division; separate consultation machinery considers those matters. The purpose of the theme groups is to put in place structures to develop local outcome agreements and to provide councils with flexibility to deliver the outcomes on the most appropriate basis at a local level. Initially, the task of the theme groups will be to feed into the 2002 spending review. We refer to the distribution of funding on a thematic basis and we see that approach spreading across all local government funding.
Before I bring in Michael McMahon, may I ask whether you have looked at other European Union countries? Is there a similar system anywhere else? If you have not pursued that issue, have you considered setting up a pilot project? You are trying to be more efficient and to save money, but are you absolutely convinced that you are not going to end up with disputes between councillors and departments?
I have not examined the situation in other European countries, but I am quite sure that the officers will be investigating that. As to conflict between departments, we hope that, if the finances are right and proper, conflict will not arise. That is about meeting the priorities of the Scottish Parliament and the local authorities.
The part of the submission that deals with the balance of funding reports on how these matters are dealt with in European countries and refers to a PricewaterhouseCoopers study. We have examined what happens in other European countries. The different political and social characteristics have to be taken into account. The Department of the Environment, Transport and the Regions prepared a paper that included fairly detailed evidence on the matter. In some respects, that is the paper from which the idea of safety valves in relation to grant distribution jumped out at us. We developed that idea by examining the systems in other countries.
As John Pentland said, the submission is a substantial body of work. One of the larger elements of the report is part 8, on the revenue grant distribution. In order to get to the underlying principles, could you explain COSLA's proposals for grant-aided expenditure assessments? Perhaps you can give us a synopsis of that part of the submission.
I am happy to cover the technical aspects. We developed the idea with the idea of simplifying the system. There is always a conflict arising from the need to balance fairness and simplicity. In a grant arrangement, the fundamental difficulty is that there are not enough resources overall—councils are fighting over the crumbs of an inadequate cake. However, it is recognised that the scale of the formula is too large and needs to be rationalised; it has become unduly technical and open to challenge. Problems with data since reorganisation have resulted in inertia in the system. We want to break down those technicalities and open up a more transparent system that is linked to the planning framework process.
A lot of the evidence that we have heard has touched on the complexity of the system. I think that I am right in saying that there are approximately 90 GAE assessments. Approximately how many separate assessments does COSLA consider would be appropriate? Would it be more or less than 50 or would the figure be as low as 20? Have you addressed that issue?
We thought about that early on but, at this stage, we felt that it would be inappropriate for us to put a figure on the number of indicators that should be put in place. What is right is what works and is sensitive enough to deliver the results that we want. We hope that an early review of the distribution system is undertaken along the principles that we are suggesting. Following a sensitivity analysis, we can rationally consider the appropriate number of indicators that should be put in place.
Do you think that 90 is too many?
Far too many.
I agree. From being involved in the process, I have noticed how complex the system is, in revenue and capital terms. The purpose of the cycle of controls that developed over decades was to try to achieve oblique objectives, not just the direct distribution of money. Those controls are there to achieve other objectives and to push a local authority in a particular direction. Smart local government officers then find ways around those controls so that they can control the money and achieve their objectives. We come back to agreeing priorities and outcomes rather than using arcane finance distribution rules to direct and control local authorities in a particular way. Distribution controls are just another way of agreeing outcomes.
Approximately 73 per cent of the grant distribution depends on four or five specific indicators that no one would dispute—for example, numbers of pupils, road lengths and population. The other 80-odd indicators probably distribute the remaining 25 per cent or so of grants and that is where the problems arise. We need to find a balance that determines the right fix for the areas of activity that we want to develop.
On a slightly different area, has COSLA undertaken any research into the development of non-expenditure-based GAE assessments? If so, how do you envisage those assessments being produced?
Our focus has been on those things that we could achieve, working with the bones of the client group approach, developing the good parts of the system and reviewing those areas that need to be addressed. Our focus has therefore been on the expenditure-based assessments, which do not filter out policy decisions of individual councils and distribute sizeable sums of money sensitively.
I have two quick questions. When we were talking about GAE assessments, Albert Tait mentioned indicators. Are they the same as GAE assessments, or are they different?
The study should be carried out by the resources and outcomes committee that is to be set up to be in some respects an equivalent to the existing distribution committee. A lot of difficult exercises have been undertaken when we should perhaps have stepped back a bit before we started them. If we had done that, we would have seen that the data that we needed to deliver a result at the end of the process did not exist.
Will you answer my question about GAE assessments and indicators and whether they are the same?
They are mixed up in the same issue. There are 90-odd assessments for various elements of spend. For example, the spend on primary school pupils could be regarded as a GAE assessment. The indicator is the best basis that has been identified for driving an expenditure need. In other words, the indicator for an assessment of primary school teaching staff costs would be the number of primary school pupils. Therefore, there is a slight difference between them, in that there is a primary indicator, which is the main driver of need, and a secondary indicator, which is a refinement.
You did not answer Sylvia Jackson's question about who should carry out the feasibility study.
Yes, he did.
I was not listening. [Laughter.]
My question is on distribution, but it is probably more a policy or political question than a technical question. You say in your report that you are concerned that the existing funding balance damages local accountability and makes councils too dependent on central funding. However, you also express concern about the increases in council tax that have taken place since 1996-97 and about the disparity in council tax levels throughout Scotland. If COSLA could change the present arrangements, how would you change the balance between central and local funding?
The answer is that we do not yet know. That is a difficult political problem. There is no way that I am going to tell my constituents that I will double their council tax, but that is the implication. The other approach would be to consider non-domestic rates—we will come back to that point on 20 November—which could change the split to 57:43. It would be difficult to have local input into the decision-making process and give people ownership of local government funding without overloading them. It is not possible to transfer to local government funding matters that are funded by central Government—Westminster—taxation. We cannot change VAT or income tax, so we cannot change the fundamental split in general revenue taxation. If we were to double the taxes that are raised through council tax, we would not be able to balance that with a consequent reduction in other taxation. The problem is difficult to deal with.
Would anything that you could do take into account those additional burdens, such as VAT or taxes that impact indirectly on local authorities? How would it be possible to build that type of assessment into a funding structure?
I am not sure.
As an example, aggregate tax has an impact on those who build roads and it increases the costs for local authorities. COSLA has calculated that aggregate tax might cost £30 million to £40 million. How would you build something like that into the system?
Landfill tax is the same. There are compensatory arrangements with regard to national insurance contributions. There are a number of technical devices that we could develop.
We have tended to regard those issues as spending pressures on local government. Perhaps we should take a step back. We have tried to demonstrate in our report that through fairly non-transparent means, the spending needs of councils have gone up while the grant to support that increase has gone up by less. The burden of taxation has been transferred indirectly to the local taxpayer. Over the past five years or so, council tax has increased by 31 per cent while spending has increased by only 12 per cent. The balance of funding is a political issue. This is about trying to get that message across to the public, who do not understand who is responsible for making cuts to services and who is responsible for council tax increases. We want to introduce transparency to the system. Balancing funding issues is not easy and there are no easy solutions.
How would you get the required information? What would be required to produce an assessment based on what you have just said?
Do you mean an assessment of the spending side of things?
Yes.
It comes back to the spending review. We are proposing, through the planning framework to which we referred earlier, a joint approach. So far, the case has tended to be that the Scottish Executive says one thing from one side of the table and we say something from the other side of the table, but we never quite meet in the middle. We are saying that there must be joint consideration, by which I mean realism rather than idealism.
I want to address what Councillor Pentland said about ring fencing in his opening remarks, which was that ring fencing resulted in other local authorities' commitments suffering. Could you expand on that, and highlight the main problems that that causes to local authorities?
Commentators have said that ring fencing applies only to about 10 per cent, but as the document shows, the amount is nearer 30 per cent. The problems that we have with ring fencing are that it weakens local accountability, results in great dependency on central Government, reduces the amount of general funding and erodes core services. There are many examples. On pages 42, 43 and 48 of the submission you will see good examples of where ring fencing does not work. The excellence fund is a key example of ring fencing; its administration is bureaucratic, it is inflexible, priorities are dictated, creativity is reduced and it is very time consuming.
Ring fencing tends to drive people into considering elements of GAE as spending targets, when in fact GAE is a distribution formula. It is not about saying that £X million is available for a purpose and that it should all be spent on that purpose. For some elements within local government administration, such as the corporate and democratic core, there is no GAE element. Money is subtracted from every element of GAE to support the general administration of local government. Ring fencing does the same thing; it takes a big chunk out of funding, a percentage of which is no longer available to be spent on central support services. Money must be taken out of other budgets to fund those services. Ring fencing distorts priorities.
Michael McMahon would like to come in on that point.
I would like clarification on a specific point. At the outset, John Pentland said that, according to the Scottish Executive, ring-fenced funds account for about 10 per cent of local authority funding. COSLA, on the other hand, argues that such funds account for about 30 per cent of funding. However, the first bullet point in paragraph 18 on page 49 of your report states:
No. We are saying that the 10 per cent of funding that is ring-fenced is specific grant, and that added to that is another 20 per cent of funding that local authorities must bid for. If an authority has been forward thinking, it will find that it is unable to bid for that remaining 20 per cent funding. In effect, that means that 30 per cent of the money that comes from the Scottish Executive is ring-fenced.
If that funding were not centrally directed, local authorities would have the ability to spend it as they wished. That would mean that they could use funds that were aimed at police boards or fire boards for something else.
We are not saying that there should be no ring fencing, but that it should be reduced. There might be a case for retaining it for police and fire services, particularly where there are joint boards. At 30 per cent, ring fencing is far too high; we could probably live with 10 per cent.
However, in your figures ring fencing accounts for only 10 per cent.
Yes—it accounts for that amount of aggregate external finance. We are saying that to get a true assessment of the situation we must consider the bigger picture, not just specific grant. The 10 per cent relates to specific grant, but when we consider all the funds in which our spending is constrained, that is 30 per cent of the total.
I want to clarify a point. There is a key issue about specific grant and ring fencing. We are in no doubt—the figures illustrate this—that specific grant is about 10 per cent of the total grant that we get from central Government. We are not disputing that figure. Our evidence indicates that a large proportion of the money that we get comes with strings; in other words, it is ring-fenced. That phrase is sometimes used loosely to mean specific grant, but we identify it as ring-fenced money. One of the problems with ring-fenced money is that, when an announcement is made that certain funds are to be spent on a certain service, in most instances that means that the money is not additional to the overall pot. Therefore, our core services are constrained.
Thank you for your explanation of whether the amount is 10 per cent or 30 per cent. My next question relates to that.
It is not necessarily a matter of extra money; it is about outcomes. If we want to achieve certain outcomes, such as on special educational needs, classroom assistants or nursery provision, we ring-fence the money. We say, "We will ring-fence the money—you have to spend it on that." However, rather than do that, it is better to agree on a partnership basis on an outcome and to say, for example, "We will achieve an outcome for special educational needs. The money is in the budget to achieve that." Some authorities might already be achieving that outcome, so they will not need to spend or bid for any extra money. Others might have to reallocate money within their budgets to do that. It is a matter of mutually agreed outcomes.
Do you have a strategy to cope if the Executive withdraws ring-fenced funding?
It is not a matter of withdrawing funding, but of leaving funding and removing ring fencing.
I understand completely. That would be your strategy—the Executive should not impose ring fencing.
Yes.
The money would just stay there. That answers my question.
They are slightly different concepts. Two or three concepts are floating around here: themed-basis funding, outcome agreements and ring fencing. It might be useful to get a handle on those, because they are not mutually exclusive. The theme basis acknowledges the interrelationship between services—but not the service silos that perhaps existed in the past—where there is an education service, a social work service and so on.
That has explained the matter.
Part 5 of your report suggests that a deprivation index might be used for purposes of grant distribution, but section 6 of part 8 suggests the possibility of abandoning the secondary indicators that are used in grant-aided expenditure calculations. Will you explain how you envisage deprivation being dealt with?
There is a case for holding another review of that issue. You might complain about having another review, but the review in 2000 lacked a lot of data because of its short time scale. We must have transparency and find out what money is in the system for deprivation. Councils are being asked to tackle the social justice and inclusion agenda, but they have no idea what the budgets contain for deprivation.
Are you saying that there should be a review of how deprivation is measured and how it is included in the GAE calculations?
Yes. We want a budget for deprivation in GAE.
How would that be assessed?
You mentioned a number of indicators, some of which could be used to assess that. To give a good example of how the indicators work, a council might qualify for money under the primary indicator, but the secondary indicator might take away some of that money. Councils are confused about the moneys that are available for deprivation in their budgets.
Do you envisage the moneys for the deprivation agenda being separate from those that go to local councils through GAE?
Where there was an agreement, it would be a lot clearer than what happens now. Councils find it difficult to discover how much money is in their budgets for deprivation.
I will clarify that point. The concept of separate money for deprivation outwith GAE depends on one's interpretation of what GAE is. We are saying that there should be a simplified distribution system for grants on which people can agree.
How will the safety valve work and how will it fit in with your planning policy, which I talked about at the beginning? Will it also be discussed within your theme groups at the initial stages?
The safety valves that we have suggested are urbanity, rurality and deprivation indicators. Much work needs to be done to refine those, but they are cross-cutting issues that run across the themes. That needs to be taken into account as part of the outcome so that they will not be identified separately, but will be part and parcel of issues such as children and families or community safety. Those are all interrelated issues.
Section 1 of part 3 is about putting the "local" into local government. In that section, you talk about how the Executive develops policies for local government and particularly for local government finance.
I come back to the comment that was made earlier about realism not idealism. Perhaps the wording that we used—
I move on to talk about pages 31 to 32, where you consider a three-year rolling financial plan and the three-year plans that have been produced under the spending review process. You seem to prefer the three-year rolling public spending plans to the three-year plans that were published under the spending review. Why did you not advocate a return to the rolling plans nationally?
That is because the plans are driven centrally. Ideally we would like to go back to the rolling plans nationally.
In many respects, and in theory, we would prefer a three-year rolling plan, which would link substantially with three-year rolling budgets that councils have in place. It would link significantly with the strategic planning process. That is a link between issues that are not just financially driven. Policy is interacting with the whole arrangement.
Would you like our system to be brought in line with the Welsh system? Would you like the Welsh system to be examined and compared with your proposals?
In Wales, national totals for three years are announced, as they are here, but we have the advantage that individual councils have firm figures for three years ahead. That helps councils substantially with their financial planning and avoids the annuality process. We may be a step ahead of England and Wales.
Our system also instils confidence in constituents and local authority staff, because they know what services councils will deliver for three years. They also know their council tax rises and rent increases for three years, so the system offers stability and gives them confidence.
I thank the witnesses for their evidence. The committee has started to examine your report and you will return on 20 November. Sometimes in these circumstances, it is difficult for us to remember all the questions that we want to ask. We may want to clarify some points and allow witnesses to give the fullest answers, so we may write to ask you for clarification, if that is okay. We may write about anything that has cropped up today. You will have a bit more time to think about an answer.
Yes. I put up my hand to show that I wanted to ask questions.
I am sorry; I did not look in your direction.
My first question is on local outcome agreements. COSLA's submission is large and I know that COSLA worked with the Executive on strategic issues. Will you summarise briefly COSLA's attitude to local outcome agreements? You have given them a favourable report, but will you outline any concerns that you have about them?
Local outcome agreements involve focusing on outputs, not inputs. They involve developing a partnership of shared priorities and agreement between the Executive and local government about the destination. That should give us flexibility to use resources most effectively and efficiently.
I am not obsessed by Wales and I do not think that it does things better than we do, but Wales has different models for local outcome agreements. You said that you are happy with our system. Do you prefer Welsh local outcome agreements to ours?
You beat me to the microphone—I was about to refer to our earlier discussion. We are prepared to learn from England and Wales on the matter. As Drew Edward said, we have some concerns about the proliferation of local outcome agreements that are very specific. In Wales, such agreements seem to be more strategic. Five or six main strategic themes have been identified there. That seems to be a favourable approach, which we want to investigate further.
That returns to my point about not having a plethora of plans. We do not want to spend all our time writing plans. We want to develop strategic themes and achieve the outcomes.
We are willing to learn from other associations. Later this month, we have a meeting with the Local Government Association. One of the items on the agenda is local outcome agreements. As Drew Edward said, we do not want to replace specific grants or bureaucracy with a paper chase of documents. We are happy with outcome agreements, provided that they are strategic rather than used for every £5 million or £10 million that comes our way.
You prefer local outcome agreements to ring fencing. There will need to be many meetings between COSLA and the Executive. You seem quite positive that local outcome agreements are preferable. Do you expect any delay in the strategic plans if the Executive and local authorities have different priorities?
No. We come back to the beginning of our discussion—it is all about partnership and trust. We hope that before any strategic plan that may have a knock-on effect on local authorities is put on the table, we will be part of the discussion as a true partner.
Perhaps COSLA could produce a short paper for us following the meeting with its English and Welsh counterpart—the LGA—tying up the planning process and the local outcome agreements.
Certainly.
I apologise to Sandra White for not taking her question earlier. My excuse is that it is difficult to see when the witnesses are all to my left and the members are all to my right.
Meeting adjourned until 15:33 and thereafter continued in private until 16:16.
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