Comrades, we will continue our scrutiny of the budget. We have with us Professor Arthur Midwinter and Donald Gorrie. We asked representatives of the Scottish Trades Union Congress and the Chartered Institute of Public Finance and Accountancy to attend our meeting but they declined, as did representatives of Dumfries and Galloway Council because of the difficulties that they are experiencing with foot-and-mouth.
Thank you, convener—and thank you for the invitation. Members will have received our submission, which I will supplement with a couple of points.
Falkirk Council was one of the pioneers of PFI. Last week, other councils told us that they were unhappy with section 94 consents. If you had a choice, would you opt for PFI and get rid of section 94 consents?
There is no doubt we would opt for section 94 consents. Not only were PFIs expensive, they have created a number of problems in education that did not exist before. For example, because of problems with access to PFI schools, we have great difficulty meeting the Scottish Executive's directive on community schools. The PFI schools are ours only during educational hours. PFI is more expensive and there are major practical difficulties for local authorities—particularly in education.
We inherited a situation, post reorganisation, in which our secondary schools had major problems. As I indicated, there was no way that our capital allocation could have gone anywhere towards providing a massive injection of capital into particular secondary schools. When officers went to councillors, they explained that it would not be possible to address the problem through conventional mechanisms. Therefore, we put it to them that PFI was the only game in town. Councillor Alexander has outlined the misgivings, but there was no other policy option if the council wanted to deal with the problems in schools.
Convener, you will appreciate that there is a new administration in Falkirk Council. As the opposition group, our position at the time was to promote the principle of charitable educational trusts, which we believe would have created an alternative and would have addressed some of the concerns that we now have. The administration at the time felt that PFI was the only game in town. As a result, that was the direction that our officers took—and quite rightly so, because that was the instruction from the majority group at the time.
Thank you for your comprehensive submission. You mentioned the difficulties created by the gearing factor. Have you any suggestions about how to address those difficulties?
That is being examined in the review. Suggestions have been, and are being, made through the Convention of Scottish Local Authorities about a revaluation of the council tax banding system. Consideration has also been given to returning non-domestic rates either wholly or partially to local government control.
Under the heading "Capital Expenditure" in your supplementary submission, you mention the backlog of repairs, particularly for roads and schools. Have you quantified the cost of that backlog?
The cost of the existing backlog of school repairs has been quantified at around £40 million.
You said that your capital consent is set at £8 million a year.
Yes.
So, despite the budget increases that have been announced this year, you are still nowhere near resolving any of your problems.
We are considerably short of the minimum requirement—in effect, we are simply standing still.
In the first year after reorganisation, our capital allocation was £7.2 million. In the space of five years, our capital allocation has risen to £8 million. This is not simply about investing in schools and roads, which are major services; that money must cover the range of services, other than council housing, including social work, looking after the basic infrastructure of our office buildings and so on. Education and roads are high up our list of priorities, but it is not as if the full £8 million can be spent on increasing investment in schools or roads.
In your submission, you talk about large projects, such as the construction of five secondary schools.
We were attracted by the policy direction and by the fact that there would be no significant burden on council tax payers if we were to go down the PFI route. The amount of level-playing-field support from central Government was integral to our PFI project. We were one of the first councils to go down the PFI route. Because we got in early, we got level-playing-field support of £8.64 million a year. Members can read about that in our submission.
We must also consider the bigger picture of total local government expenditure—that is, the total amount available to the Executive to distribute. The higher the percentage of level-playing-field support that is paid out, the less there is available for local authorities to spend on services. There is no doubt that the authority would have chosen the route of section 94 consent, as that would have been the most cost-effective route for local government budgets overall. Falkirk Council, like most authorities, sought to protect its position, but we also recognised that the local government cake as a whole was becoming somewhat smaller.
May I ask a supplementary question, convener?
Councillor Alexander, I was interested to hear you say that you could not get the use of the schools after school hours. For the record, could you quantify the difference to the authority between a school that is not constrained by PFI and a PFI school?
There are additional charges for out-of-hours services at PFI schools. Schools that are run by the local authority are flexible—our staff will man the schools after hours. The owners of PFI schools employ all the auxiliary staff, which means that there are always additional costs for and problems with extra-curricular activities. For example, children's luggage was left in the street after they returned from a field trip because access to the school could not be gained.
My last question is—
Very last, Gil.
Will the five PFI schools to which you referred revert to council ownership at some point, or will they revert to someone else's ownership?
At the end of the 25-year leasing period, we will have paid £360 million but we will not own anything. We will have the option to purchase the schools at market value or to extend the lease, but we will not own them
I would like to congratulate David Alexander on becoming Scotland's newest council leader. I hope that he remains in the position for as long as he wishes.
Please do not make any political points.
The points that Mr Jannetta made about PFI and the level playing field were echoed by the administration in North Lanarkshire Council, which we visited a year ago—other local authorities are deprived of resources by flagship projects such as those run by Falkirk Council.
It is obvious that the £8 million is not enough to mitigate depreciation. We are unable to invest in schools, roads and other services and, post reorganisation, we had to cut normal revenue-funded repairs as well. In effect, we faced a double whammy—we had reducing capital allocations and reducing levels of day-to-day maintenance.
Given that you have £8 million, what is the on-going level of depreciation of your asset base?
It is about 10 per cent.
If your assets are deteriorating by £25 million and you are getting £8 million to counter that, in effect that means that the backlog is increasing by about £16 million or £17 million a year.
I do not want to give the impression that all our assets are in bad nick.
No, but there is a level of on-going depreciation.
The early years after the 1996 reorganisation, 1998 and 1999, were bad years. We did not receive any increase in grant and our expenditure was being constrained, first of all by the capping regime and then by the guideline system. In those early years, we were lucky if we were able to increase expenditure by 0.5 per cent or 1 per cent. At the same time, we were faced with a reduction in grant. In those early years, we had high percentage increases in council tax, although in our case percentages are slightly misleading, in that we have just about the lowest council tax in mainland Scotland. Our indicative council tax increase for 2002-03 is 5 per cent, but that is 5 per cent of £813 at band D, whereas the Scottish average is more than £900.
So was your decision to increase council tax by 5 per cent—more than double the rate of inflation—based on provision of additional services or on maintenance of services at the current level because of reduced revenue grant?
It was accepted across the political spectrum in the authority that this year's budget was a standstill one, which was an improvement on previous years. Council tax levels tell part of the story. In the six years since 1995-96, Falkirk Council's increase has been 48 per cent overall. However, during that period there have been additional charges for social work services and increases significantly above the rate of inflation for other council services, such as the burial service and cremation, and for the use of council facilities such as sports facilities. All that makes it difficult for the authority to meet its policies of social inclusion and the encouragement of healthy lifestyles. The whole package has to be taken into consideration. Council tax levels give an indication, but there have been additional burdens and additional pain for the residents of the Falkirk Council area.
As you may know, the committee is conducting a comprehensive and independent review of local government finance. Does Falkirk intend to make a submission? If so, will you consider alternatives to the current funding regime, such as local sales tax, or will you be operating out of the box in terms of what you would include in such a submission?
Our favoured option at the moment is for local income tax to broaden the tax burden across the community. There are additional sources of income that we believe local authorities should have the right to consider—we support the principle of the increase in local authority involvement in other areas. We also very much support the power of general competence.
Before we continue, I want to point out that Kenny Gibson asked four questions. Please ask the questions through me.
Are there any areas of expenditure where your council feels that the amount of grant-aided expenditure that is assessed for your authority is way out of line with your actual expenditure needs?
We certainly spend above GAE in education, but whether that implies that the GAE is inadequate is a matter for debate. We would probably argue that the amount that we get through the distribution system is insufficient in relation to the essential service of education. As a consequence of that, the authority has chosen to exceed its GAE in its investment in education.
An issue that has been raised is the increased number, in some authorities, of placements by children's hearings into secure and residential accommodation. Have you faced that problem?
The specific GAE that you are talking about is quite volatile, as it depends on the decisions of children's panels. It is not an acute problem, in that it has not contributed to an overspend in Falkirk's budget in the past couple of years, but we are conscious that that can change—it would just take one bad year. The local authority would have to pick up the tab—if that is the point that you are trying to make—if the GAE were inadequate. That is outwith our control, given that the children's panel makes the decisions. If we had to pick up the tab, that might mean redirecting resources from another heading to pay for that particular area.
I was trying to identify whether that was a general issue.
Yes. It is a volatile issue—it can change from year to year.
Is the amount of additional resources from the Scottish Executive adequate to meet the additional costs for your authority of the McCrone settlement?
As I said in our introduction, there is some uncertainty about that. In the current year, we hope that central Government will meet the full costs of the McCrone settlement. However, our indicative budget includes an estimated funding shortfall of about £0.75 million in years two and three—2002 and 2003. We are awaiting full details of the reimbursement that we will get on McCrone, but we expect to face a deficit of about £1.5 million over those two years.
Is that in addition to what you would expect to pay for teachers' pay?
No. That is not the case. The shortfall would be the equivalent of a 3 per cent increase. Taking the tack that pay awards would not normally be recognised by Government, as has happened in previous years, it could be argued that we simply have to budget for that 3 per cent. The money must be found from somewhere and, if it is not found from Government grant, the burden falls on the council tax payer.
The assumption that council tax would increase by more than the rate of inflation, which is 5 per cent at the moment, has been part of successive Governments' funding packages for local government. Does that assumption create political problems for councils such as Falkirk Council, which has a fine balance of political parties? Do the public accept that the increase in council tax is somewhat higher than the rate of inflation? Is the Government package workable or will it cause problems if it continues in the same way?
To a certain extent, that is seen as an attempt by central Government to pass the buck. The situation must be seen in the light of the transfer from direct to indirect taxation. We cannot ignore the increases in water and sewerage charges, because those are locked in to increases in council tax charges. The public are becoming increasingly aware of the issues that relate to council tax and water and sewerage charges. The situation is becoming a problem, but not for myself.
In your presentation, you said that you needed greater flexibility in the specific grant. Do you mean that you want to shift the grant into GAE, or do you want the grant to have flexibility?
I will take education as an example, as that is one of the largest areas of specific grant. We have something like £15 million in specific grants and, of that figure, £5 million is ring-fenced for excellence funds in education. However, year after year, when I see the director of education about the non-ring-fenced element, I have to say, "Your budget is too high and you require to reduce it." That does not make much sense. Therefore if the £5 million was not so rigidly ring-fenced, we could transfer moneys to other areas, including the core elements of the education service.
The issue of section 94 consents always arises, and the committee will address that matter. I was interested to hear your comments on PFI and what happens when a school closes, which I had not thought about deeply. I was also interested in your comments on the costs of new burdens and the fact that you are signing up to Executive decisions regarding new burdens and the way in which they are funded.
Thank you.
Convener, I am afraid that I must leave now.
I cannot believe my luck.
The meeting will be quick from now on.
Yes, it will take only half the time.
I thank the committee for giving us the opportunity to give evidence in the consultation on the 2002-03 budget process. I shall keep my remarks brief, as I am aware that time is pressing.
I shall kick the ball off—or whatever it is that footballers say. All the committees have been asked to consider the budget from the perspective of gender. Have you considered the need for gender weighting in the local government budget? The health budget has such a weighting, as does the education budget, because girls remain at school longer than boys. Given the fact that we are living longer and that women usually live longer than men, there might also be a case for weighting the community care budget. If you are not weighting that budget, do you think that there would be merit in doing so, in an attempt to simplify the formula, or would that make the formula more complex?
That was a bit of a show-stopper of a question. It would certainly make the formula more complex. Committee members will no doubt be aware of what we have just been through in trying to rejig the distribution formula. In my view, the pursuit of the perfect distribution formula is a bit like the pursuit of the holy grail. Ultimately, it is not attainable, because people have many differing views about what a perfect distribution formula should look like.
One issue that is constantly cropping up, and which has been mentioned by practically everyone from whom we have taken evidence, is the imbalance between Government and local taxation accountability. Have you any ideas or suggestions for addressing the gearing factor?
Philosophically, I can understand the desire for a more equal balance in the burden of expenditure that local government incurs, between local taxation and central Government grant. However, articulating a sympathy for that view is different from getting us from where we are to arriving at that position. I cannot see any straightforward and pain-free ways of doing that, but that is not to say that my mind is closed to suggestions that may be made.
In the current climate, is your proposal to address the gearing factor to continue to expect councils to increase council tax well above the level of inflation?
Those are your words, not mine, and they do not accurately reflect my position.
COSLA has estimated that, on the capital side, it needs about £2.8 billion over the next three years. The witnesses from Falkirk Council said that they have a backlog of repairs to schools of £40 million and to roads of £30 million to £35 million. The council receives a capital consent of £8 million, which has to address all other capital issues apart from roads and schools. Have you any proposals for addressing that problem in the forthcoming years?
There are three or four points that I would like to make in response to that. First, an investment deficit has accumulated over the past 18 years. Eighteen years is the figure that I want to use, rather than 19, 17 or 20 years.
We should amend that to talk about the past 22 years, as the Labour Government has also incurred deficits.
We shall have no political points. Please answer the question, Mr MacKay.
As I say, I have settled on 18 years in my own mind, but Keith Harding is at liberty to choose his own figures.
The issue of funding has been raised by one or two councils that are concerned that insufficient money has been allocated to them to allow them to meet the cost of the McCrone recommendations. How has the Executive dealt with the additional moneys for McCrone and what estimates do you have for what the additional costs to local authorities will be?
I can give you a shorthand version of what I understand to be the case following the negotiations that took place between Jack McConnell and COSLA. I understand that we allocated around £400 million more than was originally budgeted for in the McCrone recommendations.
The total price tag is £400 million.
Yes, we have gone £400 million beyond what was envisaged in the McCrone package. The funding for local authorities, either directly in the local government baseline or from other sources, was agreed between Jack McConnell and COSLA. Although individual councils will have concerns about where that money will come from, the package has been put in place not by ministerial diktat but by collective agreement between the minister and local authorities' collective representatives. I hope that each local authority will be able adequately to reflect that agreement and introduce a proper implementation package for the McCrone recommendations.
What element of McCrone do you expect councils to fund?
I cannot give you that figure myself. Perhaps Neil Rennick can.
Councils are not expected to fund any of the additional costs arising from McCrone. They will have to meet some of the costs that they would have had to meet anyway. They would have contributed towards the cost of a teachers' pay settlement in any case and that will be included in the council tax element of the settlement.
That means that money that had been set aside for teachers' pay increases was put into the pot as part of the global figure for the McCrone settlement.
In the evidence that we have taken, COSLA and individual authorities have expressed concern about additional burdens and elements that they cannot take account of but which they are required to fund. One example of that has been the combination of secure places and residential care for children. There is no way in which an authority can quantify what the demand will be if there is a spate of referrals from the children's panel. The local authority is obliged to meet that cost, but cannot plan for it in its budget.
I understand the difficulty that is being articulated. The difficulty exists not just for the local authority but for everyone. Just as the local authority cannot predict the level of demand that will be placed on it by a third party, neither can we. That will impact in a number of ways on different local authorities. In some local authorities, demand will be less than we had estimated, while in others it will be higher.
Is there an argument for having a specific grant or central pool which councils could draw on for that purpose instead of having them wait another financial year to balance out the previous year's losses?
Such a specific grant sounds suspiciously like hypothecation, for which I have been constantly criticised, despite my many vain attempts to reduce its use. If a council wishes to put its desire for hypothecation in black and white for us, we will obviously consider any innovative suggestions. However, I do not want to give a cast-iron undertaking to do so today, nor would I wish the rest of local government to think that we were planning to introduce hypothecation in that particular area for the whole of Scotland.
If we were restricting hypothecation to particular services, the same argument could be made for fairly expensive services such as those for adults with multiple disabilities and other unexpected costs.
You sort of saw through my question. However, by the same token, would not it be better to have a central fund that a local authority could draw on if required, instead of being allocated funding up front that was then hypothecated to meet a particular need? Perhaps it would be better to wait until the need was identified and then draw on that fund, which central Government would hold.
Although such a proposal is theoretically possible—nothing could prevent it from happening—it contains a number of pitfalls for which I can easily imagine we would be criticised. For example, such a circumstance does not arise only in this particular area of service delivery. If we were to set a precedent of establishing a centralised pot that was held by the Executive, we might end up doing the same in other areas of service delivery, which might then result in less money going directly to the local authorities. The authorities might have to bid for matched funding on an output rather than a planned basis, which might cause grief for certain authorities that from time to time benefit from underspending in some areas. The proposal is not as simple as it might at first appear; it carries many other implications with it. However, I have an open mind about any innovative proposals that councils might suggest, and I am happy to have that discussion with COSLA if the organisation would find it useful.
That was not COSLA's suggestion; it came from another source who is no longer at the meeting.
Does his name start with "Kenny" and end with "Gibson"?
That is the very one. I just thought that the idea might be worth investigating.
Councils have contingency funds to meet unexpected demands throughout the year and obviously benefit from that money if the costs do not arise.
In its submission to the spending review, COSLA estimated a capital investment need of £2.8 billion over the next three years. The Executive has provided £1.6 billion through section 94 consents for non-housing capital expenditure. Does the minister think that COSLA's calculation is realistic; and if so, how much of the funding gap will be met by PFI or PPP?
We have already touched on that issue to some extent. I cannot sit here today and say exactly how much of the COSLA estimate is reasonable or unreasonable. As I was trying to point out earlier, the expectations of COSLA collectively, local government individually and the rest of the public sector will be higher ad infinitum than the actual resources that Government can provide. Our job is not only to maximise the level of funding that we can prudently and sensibly hand over to local government but to ensure that we get maximum value for money from that allocation. There are a number of different ways to do that. Although we can grant-assist and give consents to local government, it is equally important to consider other mechanisms. For example, we can give local authorities additional flexibility by allowing them more latitude in dealing with their non-housing capital receipts, so that they can prioritise some of their more pressing projects.
The minister used words such as "sensible" and "prudent". We heard in the evidence from Falkirk Council that it has a massive PFI project that involves five schools. We were told that it will spend £350 million and, after 25 years, it will not own the asset. Falkirk will be placed in a precarious position, much worse than it is in now. Is such a policy sensible and prudent?
Any PPP or PFI project that goes ahead in the way that it has been remodelled under Gordon Brown and the Labour Government must develop and demonstrate value for money for the public sector. As for the whole cost assessment, it must be apparent that a PPP project provides better value than the traditional public sector procurement path. I have little qualms about comparing the headline cost of the traditional public sector option with the life cost of a PPP option. I am confident that it would demonstrate value for money.
The minister is right. That was the only option open to the council. It could not do anything other than that. It had to have either a PFI or nothing.
Is that a question?
I was about to ask a question. The minister asked a question, so surely it is right to answer him. There are only two steps that a council can take: face the electorate and give it no facilities, or play the Government's game and provide a PFI. My main concern is the value of such action. Surely it is the Government's responsibility to allow the community to own something. If PFIs are to be used in the future, that should be part and parcel of any consent that is given.
I am wary of an argument that advocates greater Government control and interference in how local authorities conduct their own affairs. That goes for the construction of PPP agreements, too. If a local authority decides to construct and agree a PPP agreement whereby at the end of the 25-year term, it does not own the asset, that is up to the local authority. One might take a view about whether that is sensible, but it is a matter for the local authority, in my view.
In addition to the £1.6 billion from section 94 consents, how much additional capital have you agreed for the next three years for PFI?
Off the top of my head, I do not know.
The value of projects that will commence in the next three years is just less than £500 million.
Do you have any suggestions for ways in which the Parliament or its committees could be helpful on the subject of joined-up government, to which we all subscribe? I am thinking about instances in which subjects cut across departments. Are there ways in which the Parliament could assist the Executive if, for example, the relevant committees came to the conclusion that, if councils spent more on repairing their pavements, the national health service would save so much on accidents that it would be a net gain to the community, or if the committees felt that, if more were to be invested in sport and youth activities, we would save in due course on the police, drugs and social work budgets, which cut across departments? No doubt you are interested in such things.
That is a broad question. I find it slightly difficult to answer when thinking on my feet. I will answer it by referring to my experience of being Deputy Minister for Justice, when I had responsibility for drugs, and especially my experience of meeting and discussing issues with the 22 drug action teams in Scotland. Sitting round the table were all the key bodies that should have been capable of making a direct impact on our drugs problem—the police, local authorities, health boards, voluntary sector organisations and various other organisations besides and in between. The DAT in any area involved the budgets, the policy powers and the staff of those organisations.
When Orkney Islands Council's representatives attended the committee last week, they expressed concerns about the delays in implementing the full proposals for the special islands needs allowance review. Have you any comments on that? What exactly is the Executive's position on SINA?
I am not aware of what the difficulty is that is causing delays in implementing the review. I am happy to defer to Neil Rennick on that in a moment and to ask him to examine the issue. I know that we had a bit of to-ing and fro-ing about SINA at the time of the local government settlement. The committee may be aware that the independent group that considered SINA recommended essentially that the allowance be frozen at 2000-01 levels, but that some of the mainland councils that include islands be included. In the event, we included those councils, but I need to ask Neil Rennick whether we froze SINA levels.
The recommendation from the independent panel was to reduce the allocations for the island councils. It was decided in agreement with COSLA to retain the current level of SINA for those three councils.
There is quite a difference between what we did and the recommendations. I recognise what SINA is intended to do and I recognise the issues behind it. They are real and need to be addressed. I hope that in future years there will be a consolidation of the SINA formula into the main local government settlement. I am for simplification of the distribution formula that we use, wherever possible.
The overhanging issue that was carried forward from the review was that it concluded that issues of supersparsity, although they impacted on islands councils, were not unique to islands councils. They also impacted on mainland councils. That sparsity is already taken into account within the grant distribution formula.
One of the committee's concerns is that there was a mismatch effect for councils when the reorganisation took place. I guess that you will accept that; Dundee and Glasgow were affected. They have given evidence to us; that is why I use them as an example. Subsequent to that effect of reorganisation, they have the highest levels of council tax. Understandably, they are trying to concentrate on restraining those council taxes. That is what they are saying to the committee. If they were doing that, it would be in direct contradiction to your position on investing in services. Do you agree with that notion? If you do, is there anything that you can do about it?
Their priority was to contain the council tax.
I am tempted to say something like, "They would say that, wouldn't they?" Those councils will always face what they regard as the conundrum that they have very high council tax levels, for reasons that we will discuss soon, and that the only way that they can address that is to consider policy decisions that might impact on service delivery. That assertion assumes that no other variables or factors might be taken into account.
Michael McMahon mentioned the extra cost of secure accommodation and residential care. Children's panels make referral decisions. Other councils have mentioned that when children's panels make a decision they must implement it. Given what the councils said, it must have been an interesting discussion if you got an agreement out of COSLA on that, because a substantial number of councils from which we have taken written or verbal evidence were very concerned about secure accommodation and residential care.
Good afternoon. I am glad that we heard the end of Falkirk Council's evidence and the minister's responses. What we will say will not come as any surprise to the committee—it is very similar to the evidence that the committee has heard. I hope that physically and metaphorically we can add some weight to that evidence.
I thank the committee for giving us the opportunity to submit evidence. I have no wish to repeat our submission, of which members have a copy, other than to draw it to members' attention that we have submitted primarily officers' views. Perth and Kinross councillors have addressed some of the issues before, but the current council has not been asked to consider issues such as the return of non-domestic rates to local control.
Harry Robertson said that you had listened to earlier witnesses, so you will have heard the Minister for Finance and Local Government's answer about McCrone. Given that answer, are you more confident than you were 10 minutes ago that you can fund the McCrone recommendations?
I think that I heard the minister say that apart from the amount that local government had provided for the pay awards, the rest of the funding was in the settlement. I will not hold my breath waiting to check that, because we understand that there is a substantial difference between the settlement and the requirements of the conditions of service that McCrone will introduce, not just its financial requirements. We are nervous about that. In our submission, we identify the sum of money that we think is a shortfall.
What we identify in our submission matches the funding that we believe will be available. However, we have problems—as I suspect other authorities have—in costing the full impact of McCrone. At this stage, we do not know the cost of continuing professional development for teachers or the eventual cost of teachers progressing to chartered teacher status, which allows them to progress through teaching pay scales. We do not know the cost of the winding-down arrangements, which will allow teachers to leave the chalkface gradually. Those are unknowns. My concern is that those unknowns will be costly and have not been recognised in the sums that have been made available to us.
So you will wait and see.
Section 5 on page 3 of your submission concerns the provision that your budget makes for savings. Will some of the pressures that are mentioned in the second paragraph of that section have to be met? If so, where will you find that funding, or have you already identified savings?
We have started to make progress on our budget for 2002-03 and the three-year period. We have allocated resources provisionally to each service. That provisional allocation builds on this year's budget and recognised pay awards, which we know. All the resources that are available to us have been allocated.
Your submission mentions the gearing factor. I am pleased to hear that councillors have not agreed to the position that the control of business rates should be returned to councils. Have you any other ideas on how that issue can be addressed? Every council—without exception—has raised the question of how to address the imbalance, as have other people who have given evidence.
The easy way, of course, would be to return non-domestic rates to local control. That would halve the gearing effect immediately. Without looking into other domestic taxation options, it would be difficult to be precise about what other action could be taken.
Would you support the holding of referendums, as has been done in Bristol, to see whether the public would agree to a tax increase?
For the past few years, we have held extensive consultation each year on our budget. We have what we call budget roadshows, when we go to each part of our council area to present communities with our spending proposals and, inevitably, our proposals for savings and cuts. This past year has been the first in which we have not had Government expenditure guidelines imposed on us, which allows us more flexibility in setting council tax levels.
I do not think that referendums would work without accompanying explanations. We have to get people to come to hear about the impact that changes in services will have. If you just go to the public with a referendum on tax increases, they will vote no. Over the past two or three years, we have been able to convince a substantial number of people that our taxation was not excessive in relation to the cuts in services that were the alternative. This year we had high turnouts at meetings and high percentages agreed with us that 7 or 8 per cent increases were acceptable. That is not as good as a referendum, but it is a good indication.
Would you clarify what you said to Keith Harding about budget savings? Did your answer mean that your indicative council tax will be higher?
No. We have worked within the resources that we expect to be available, based on the indicative tax increase for 2002-03 and 2003-04.
At the bottom of page 2 of your submission, you refer to new burdens, saying:
Mr Robertson has spoken about the level of direction and described some of our concerns about the level of specific grants and the very detailed rules that we are given as to how we have to spend those grants.
Let us consider more widely GAE and the way it is made up. Are there any other areas that are of concern to Perth and Kinross Council? We heard evidence of concern earlier, in the debate about placements in residential care that are made by children's hearings. Do you have concerns about such areas?
Yes, indeed. We are concerned about such areas. Last year, we identified an overspend of close on £500,000 early in our monitoring of expenditure, which related solely to children being placed in residential care. It is not an issue that we have much direction over because, as members will be aware, if the children's panel says that a young person has to go into residential care, they must do so. The number of young people entering residential care in Perth and Kinross has increased significantly over the past few years, which is a matter of concern to us and has led to the council's carrying out a best value review of our services for such young people.
Your submission states:
We have one PFI scheme—an office campus and car park—which was, I think, referred to earlier. That scheme stacked up as a PFI because of the level playing field support that we received through the funding mechanism, which recognised notional loan charges. Without that, the project may well have been very different.
What would you do if you had the choice?
If I had the choice, I would plump for conventional procurement.
Can you give us a notion why you would choose that? What impact does it have?
At the end of the day, conventional procurement will be the cheaper option. I recognise the arguments that private sector expertise that is brought to bear can create some savings. Nevertheless, Perth and Kinross Council has a relatively small population that is spread over a wide area, so the opportunities for putting together any further PFIs or PPPs seem to be fairly limited. A number of years ago, we looked at the possibility of entering into a PPP arrangement for our leisure facilities—although it was not called PPP then—but that showed us that we simply do not have the volume to make the figures stack up for the private sector.
I have one small further question to ask. The representatives from Falkirk Council advised us of some negative impacts from the PFI. Have there been any negative impacts that you did not foresee with regard to your own car park and building project which then came back to bite you on the backside?
Language!
What? "Backside"?
No. "Bite". [Laughter.]
There have been no impacts of any significance. There are teething problems in any major building project. I think that they are exaggerated because of the separation of ownership from occupation. We are having some difficulties over aspects of the building but, in general, the project has gone well. The total net increase in the cost of both projects to the taxpayer is just over £100,000 a year. As Mr McArthur said, without the notional loan charges for grant aid being recognised, it would have been a much more expensive operation in comparison to our current buildings. We would not have been able to do it. The total reimbursement of loan charges through the grant aid process is absolutely essential in order for PFI projects to work in our area.
I was interested in your mentioning the various criteria, including volume, and the justification of the decision on the basis of cost. The minister, when asked earlier about the benefits or otherwise of PPP/PFI, said that a number of criteria had to be taken into account. Do you not believe that it would be best to consider each proposal on a best-value basis rather than on an ideological or preferred option basis?
As we have indicated, we would want to consider any proposals on a best-value basis. I was explaining our experience so far in the work that we have carried out. We would almost certainly want to ensure that, if we identified any other opportunities for PPP or PFI, they would not only achieve what the council wanted to achieve in service delivery—which is what we ultimately have to consider—but would be cost-effective. If we could establish some arrangement that met those criteria, we would want to pursue it.
Another thought has just gone through my head. When we add what the Government brings to the party and what the council brings to it, what is cheaper: PFI or section 94?
Section 94.
Thanks.
Is it your perception that the quality of the services that you provide in what one could call the less glamorous departments, which do not get such high Government priority—including road repairs, cleansing and community education—has got worse in the past five or 10 years, and do they look like they will continue to get worse under the programme that we have been given?
Undoubtedly. The areas of activity that do not enjoy the support of the Executive at present, such as education, police and fire services, have been reducing in quality over the past five years. There is no doubt in my mind about that. We have gone from a first-class refuse collection service, with skip sites all over the community area, down to a very limited use of such facilities. We are still running a good service, but it is not as good as it was three or four years ago. We are not able—other than with special funding in some cases—to develop green waste, although we are very keen on that and are among the leading authorities in terms of the amount of recycling that we do. We cannot develop that to the extent that the council would like, because the funding is not there.
Thank you for that. We will note with interest what happens with McCrone. I was interested to ask you about that, because you had listened to the Minister for Finance and Local Government on the matter. I want to consider further your comments about the secure units and residential care, and about your link with the children's panel. I think that your position on that is interesting, and links with best value. It appeared not to be the view of other councils. They can perhaps learn from that.
Thank you, convener. We welcome the opportunity.