Agenda item 2 is consideration of the report “An overview of local government in Scotland 2014”. We welcome to the meeting Douglas Sinclair, chair of the Accounts Commission and, from Audit Scotland, Fraser McKinlay, director and controller of audit, and Gordon Smail, senior manager.
Douglas Sinclair might be interested to know that Bruce Crawford and I were just reminiscing about days gone by in the Convention of Scottish Local Authorities. It is good to see that you have lost neither your interest nor your influence in the public sector, Douglas. Would you like to make an introductory statement?
I will make a short opening statement, convener.
The Accounts Commission welcomes the opportunity to discuss with the committee the challenges facing local government. Scotland’s councils provide important services, but they do so against a backdrop of reducing budgets, an ageing population and rising demand and expectations from the people whom they serve. Our work shows that although councils are coping well they face increasingly difficult choices about how to maximise the value that they get from the available money. To help make those decisions, they need to make better and more consistent use of options appraisal, look carefully at how services are delivered and think openly about how services might be delivered in future. They need to ask the question, “What works best, and can we prove it?”
Many of the messages in this year’s report are not new; indeed, the fact that they are similar simply serves to underline their continuing importance. I want to emphasise two areas in particular. The first is the fundamental importance of good governance. It is the foundation of a successful council, with officers and councillors working well together and in a way that engenders the public’s trust and confidence. Bad governance, on the other hand, is dysfunctional, time consuming and expensive.
Secondly, the statutory duty of best value remains paramount. We believe strongly that councils that place best value—in other words, continuous improvement in all their functions—at the centre of all that they do are best placed to deal with change. Although we recognise that the current context is challenging, the commission is looking for councils to raise their ambition and up the pace of improvement. For our part, we are considering carefully how the commission can provide further support through its audit work in relation to local government.
My colleagues and I are happy to answer questions.
Thank you very much. I am interested in your comment that councils are “working well”. I suppose that it all depends on how we want to use words. From what I can see in my area and from talking to people across Scotland, councils are working well given the circumstances under which they are operating. We might say that councils are working as well as we can expect, given the severe limitations on finance. We are hearing stories that there are clear problems now, but real fears are beginning to emerge about the next two years. Can council services be sustained at the present level with the current financial settlement?
With regard to councils working well, it is worth making the point that all councils are balancing their budgets, as they are required to do. That is not necessarily the case in England; certainly, evidence is coming through that councils there are finding it hard to do that. It is true that money is tight and that councils are under a lot of pressure. I have already mentioned the ageing population, which creates more demands. However, there is still the issue of maximising value from the money that councils spend, which is £120 billion per year. That is why we have stressed the importance of options appraisal.
To date, councils have largely balanced their budgets by reducing their workforce and increasing charges. As the report says, reducing the workforce is not a long-term sustainable solution, and given that councils cannot go on cutting their workforce, they have to look at other ways of balancing the budget. That is why we have encouraged them to look at new ways of delivering services and to have an open mind. The aye been principle—doing something because that is the way it has always been done—is not the way forward, and councils need to carry out options appraisal to consider whether there are better ways of providing services of the same or better quality and at reduced cost.
That requires a mind shift in local government, because loyalties run deep and it is never easy for councils to change the way that they do things. However, that is the agenda that they have to face up to. I do not dispute that, in the next few years, resources will get even tighter. That creates even more of an imperative to look more critically at the money that they spend and to consider whether they can tell the public that they are maximising every single public pound.
Even if councils do as you suggest, can they sustain services at present levels within the current financial settlement?
That is partly about councils being much clearer about their priorities. One thing that came through in our report “Scotland’s public finances: Addressing the challenges” is that there is not a huge amount of evidence to show that councils are focusing their budgets on their priorities. To an extent, it is a case of rolling the budget forward from one year to the next and making the necessary cuts to balance it. Local government has a tendency to run to cuts too quickly without examining whether there is a different way of providing services at a lesser cost.
This is also partly about councils being clear on where they think that they can provide maximum value. Are there things that a council believes that only it should provide, or might it prove more cost effective to deliver services through other organisations or in other ways? That is the kind of debate that we want to encourage councils to have.
We have seen evidence of councils starting to share services so that they are delivered across council boundaries, which seems to be working fairly effectively. It is not just councils that are doing that; for example, services have been shared with the national health service and other agencies. Is it your view that, given the size of this country, we do not need 32 councils, 32 chief executives and 32 bureaucracies and that at some point there will need to be a reconfiguration of the local government structure?
I will duck that question, convener. Those are issues for the Government, not the commission.
With regard to shared services, I think that we say in the report that there is not a huge amount of evidence to suggest that shared services, certainly on a big scale, have been particularly successful. There are only two examples on shared services on roads: Tayside Contracts and the two Ayrshire councils. My sense is that councils have rushed to introduce shared services without necessarily thinking of the steps that must be taken before doing so.
When I worked in local government, I remember a consultant talking about what he called the three Ss. First, we need to simplify the process. You might think that councils are different, but they all undertake the same functions. The cost of paying an invoice, for example, varies enormously from one council to another. Why? In order to answer that question, you need to get into the detail, which is part of the benchmarking process.
If two similar councils decided to get together and look at the costs of paying an invoice, they would first try to simplify the process and standardise it between them, and they would share the process only if there were a case for doing so. A benefit of the Society of Local Authority Chief Executives and Senior Managers and COSLA benchmarking project, which you will no doubt want to touch on, is that councils have the evidence to drill down to the family group of councils and consider why their costs are higher than those of a comparable council. Councils need to do more of that. That is a big agenda, but it provides another opportunity to save money for the public benefit.
We would encourage councils to simplify and standardise more because there is not a huge amount of evidence that shared services on a big scale have been successful. A huge amount of money has been spent on that, and it would be interesting to quantify how much money has been spent on shared services initiatives that have not come to fruition.
In the report, under the heading
“Key priorities for councillors in 2014”
in the report, you talk about
“Understanding the changing context and the crucial role of councillors”,
part of which is
“Keeping up to date through training and development.”
Are councillors clear enough about the separation of roles? My understanding is that councillors set the policy agenda and the priorities as well as make the decisions about how budgets are spent. Is it appropriate for councillors to tell officers at management level what staff should be deployed where, and is there sufficient guidance to allow councillors to understand their roles?
No. As we point out in the report’s introduction, the role of councillor comes at the beginning and at the end of the process. As you have said, that role is to set the priorities, to allow management to manage the council in order to deliver those priorities and to hold managers to account for their performance.
The big issue is training. In our report, we are critical of councillors not taking up the training that is available, and I believe that we need a wider debate about the training of councillors. Why do I say that? The fact is that most councils are pretty good at providing induction training for new councillors; however, it is very much left to the discretion of the individual whether he or she takes up the suite of training that is offered thereafter. Is that good enough? With such an approach, an individual can become the chair of a committee without necessarily having had the training to undertake the job.
Funnily enough, I was speaking yesterday to an ex-councillor who had been appointed as the vice-chair of an education committee. When I asked him what training he had had for the role, he said that he had been given absolutely none. That sort of situation leads to a democratic deficit. How can members hold officers to account successfully if they do not have the skills and the training to do so?
Way back in 2006, the Scottish local authorities remuneration committee recommended a national job description for councillors that would be accompanied by a description of the skills required to do the job, with different skills for different jobs such as chairing committees, a training needs analysis and a personal development plan. Although some councils have adopted that approach, it is very much left to individual councillors to decide on their training needs, which is a very subjective and difficult judgment for them to make. The council as a corporate body needs to get a much better grip of that, and there must be a debate about whether the training arrangements are fit for purpose. I do not think that they are. After all, we are talking about a business that costs £120 billion.
We really need well-trained councillors to do this kind of job. They come with a huge amount of good will—they want to serve constituents and deliver good public services—but we must ensure that they have the skills for the job.
09:45
What happens if councillors engage inappropriately in managerial decisions?
That sort of thing is inappropriate and causes confusion about respective roles within the council. As head of the paid service, the chief executive should be held to account for the management of the council staff and their performance. If we are not clear about that, we end up with a dysfunctional council. To go back to my point about good governance, I believe that people need to operate within well-defined and well-understood roles.
Are there any sanctions for councillors who behave inappropriately in that respect?
The code of conduct for councillors, which is policed by the Standards Commission for Scotland, contains specific references to that very issue and the point at which councillors have to be careful about going beyond that boundary.
In practice, of course, this can be quite a grey area. There is a trade-off between councillors understanding the business and being able to make decisions and scrutinise performance. However, as Mr Sinclair has said, at the end of the day it is very important to ensure that people understand their respective roles and responsibilities. I stress that it can be quite a grey area, and it needs to be managed very carefully by both the councillors and the officers.
As an addendum to that, I think that the crucial thing is the quality of the relationship between the chief executive and the leader of the council to ensure that they understand their respective roles and that the leader can say to the elected members, “That is your job and this is the job of the chief executive.”
To continue that line of questioning, in your recommendations there is no specific suggestion about the kind of training that you have just described, which I took to be a recommendation, or an inference, that such training needs to be done on a national scale, even in the sense of guidance being given to councils. Do you think that that is the case for the future?
No. I was trying to say that we need to ask whether current training arrangements are fit for purpose, and we need to revisit the recommendation of the Scottish Local Authorities Remuneration Committee in respect of the pluses and minuses of having a national councillor job description and what training councillors need. There is nothing in “The Councillors’ Code of Conduct”, for example, about councillors’ requirement to take up training. It is left to their individual discretion.
I admit to making a mistake earlier. I added £100 billion to the local authorities budget; it is £21 billion rather than £121 billion. That was a piece of wishful thinking.
There is a debate about the skills that councillors need, not least because public services are becoming ever more complex. We are no longer in the days when councils ran everything; we now have arm’s-length external organisations, health and social care partnerships, community planning partnerships and various trusts and outside bodies. It is becoming a much more complex business and different skills are required in different organisations.
We do not have a job description for MSPs—some people may be tempted to say that we should. Do you not think that there would be resistance in local government circles to, for example, those of us who are sitting in this room lecturing local government—especially those of us who are former councillors, as a number of us are? I recall you mentioning to me privately many years ago the danger of MSPs lecturing people in local government about what they need to have to do their job properly—you said that they might say the same to us lot.
Fools rush in where angels fear to tread.
Yes. Exactly.
All I am saying is that there needs to be a debate about whether the current arrangements are fit for purpose. That is a personal view, not the commission’s view.
Thank you for that. At paragraph 112, the report says that
“Community planning is at a crossroads.”
I took that to be quite a significant statement. Is the commission concerned about where community planning is going? I think that we all have some deep concerns that community planning—which we have talked about for a long time—has yet to deliver substantial change in local government.
It is fair to say that community planning has been around for a long time—since the Local Government in Scotland Act 2003. To some extent, the spirit was willing between 2003 and 2012, but the execution was not desperately good and there was a bit of treading water. The joint statement of ambition from the Government and COSLA has given a spur to community planning.
As you know, we have done the first round of three audits of CPPs and we are well through the next round of five audits. We have two more on which to report back to the Accounts Commission. Then, along with the Auditor General, we will take stock and produce an overview report on what we have found. I do not want to prejudge that, but it is fair to say that we found lots of examples of good partnership working, which it is important to capture. We did not necessarily find that partnership working was attributed to community planning partnerships. There is a lot of good stuff on the ground; it is important to capture it and to share it across the 32 councils, so that they can learn from each other.
We found that the community planning partnerships that are clearest about where they can add most value and which have focused priorities are more likely to succeed than those that do not have that clarity of purpose and values. We also found that there is a long way to go on scrutiny, performance management and use of resources.
In that assessment, did you look at the merging of care and social care—
Are you asking about health and social care partnerships?
Yes.
We have not looked at them yet. The Accounts Commission has been given the responsibility of auditing the incorporated bodies from April next year. We are not sure about the extent of that audit; the regulations are still going through Parliament. The incorporated bodies have been defined as local government bodies, to which the duty to secure best value applies, as members know. We are not yet clear about whether the duty will apply to the incorporated health and social care bodies.
The commission is getting itself up to scratch on that. Last week, we had a useful session with Highland Council and NHS Highland to find out why they went down the road of having a lead agency. We intend to have discussions with councils and health boards that have chosen to have an incorporated body, so that we can learn from them. That is work in progress.
Paragraph 112 of the report is right to say that community planning will happen only if
“sustained leadership ... is significantly stronger than we have seen to date.”
Does that jar slightly with the fair findings about the political short-termism in much that is going on? That is the nature of the beast that is local government, in the current context. It strikes me that it is difficult to achieve the sustained leadership that you refer to while there are many short-term pressures.
That is a fair point. By definition, community planning is a long-term game. We are talking about work being done over a generation—if not more—to make major inroads into inequality. There is no doubt that leadership changes in community planning partnerships can have an impact on that.
That is equally true of councils. We are more and more convinced from our best-value audits of councils of the importance of having an ingrained culture of continuous improvement that can withstand changes in leadership, whether at officer level—the chief executive—or council leader level.
We want to define more clearly the ingredients of the culture of continuous improvement that we want in all councils. We come back to training officers and members to embed that culture and ensure that it can withstand change. If that can be done in a council, the hope is that that can be transferred to the community planning partnership.
Paragraph 59 says that the commission plans to
“publish a report on procurement in local government.”
I have a factual question. Do you plan to look at hubcos and the hubco structure? I have heard lots of representations from local government about that. I will not get into how hubcos operate, but they strike me as a fundamental part of local government procurement that certainly needs scrutiny.
The procurement report has not looked at hubcos, but hubcos and the Scottish Futures Trust’s wider role are firmly on our radar. We will make proposals on that to the Accounts Commission and the Auditor General in autumn this year for the programme of work from 2015 and beyond. We will build that into considerations. There is no commitment yet, but we are interested in that process and that way of funding capital projects.
I will continue that theme and give it a little twist. The report refers throughout to leadership and the inadequacies of leadership. That is repeated again and again. It is sometimes unclear whether you are talking about a lack of leadership among officers or among members.
We have mentioned training, but we are talking about more functional training—for example, skilling somebody to be able to chair a committee. It is much more difficult to train somebody in leadership, so I wonder how that can be addressed. I assume that we are talking about leadership of the council as a body, as opposed to the members or the officers. Can you confirm that?
You are absolutely right. We are talking about the corporate leadership that is provided both by politicians and by the officer cadre. There is an element of functional skills—understanding budgets and being able to challenge—and officers must have those skills, but behaviours are important as well. If you take leadership in community planning as an example, the leadership role lies with the council, but that is not about dictation but about a leadership style that involves facilitation, and it is something that people need to learn to do. Behaviours are just as important as knowledge.
It is easy to give people technical skills, but you have talked repeatedly about leadership skills. How do we train people in that? Leadership is much more difficult to train somebody in. A lot of people would say “You’ve either got it or you don’t”, but you can give a person all the tools for leadership and hope that they will respond.
Let me ponder that while Fraser McKinlay and Gordon Smail respond.
I will give Douglas Sinclair a chance to ponder. Leadership development is key, and what is interesting is that we have seen a big change in the senior officers, particularly at chief executive level, although there are often knock-on effects, because the vast majority of senior officers tend to be internally appointed these days, so there has been quite a lot of churn. From what we can gather, there is likely to be even more of that as we get towards the end of the year.
That is something for the local government community to think about in terms of leadership development. In the past, the public sector has had a go at that kind of training. The Scottish Leadership Foundation was set up some time back, as you may remember, so the public sector has experience of leadership development. Mr Beattie’s question is timely, and it would be helpful for people in the public sector—not just in local government but more widely—to think about leadership development activity as well as technical and functional training and development.
Do you see that being left entirely to individual councils to develop, is it for COSLA to try to get some kind of uniform approach, or is it something that—God forbid—should be imposed by the Government?
I would not encourage imposition by anyone. To be fair, there is a lot of development activity through the Scottish leaders forum, which involves chief executives from all parts of the public sector. They meet every year and there is activity that goes on there, but that may not be what you would characterise as formal leadership development. Over the past few years, the leadership of the public sector and public services in Scotland has been as cohesive as I remember it ever being, but that is a slightly different thing, particularly if there is going to be more churn and more new people coming into senior jobs. It would make sense to have that conversation not 32 times with individual councils but as part of a wider conversation about what being the chief executive of a 21st century council looks like.
There may be a question about whether we have enough resource to do that. Fraser McKinlay mentioned the Scottish leadership foundation, which no longer exists. I can remember the Scottish local authorities management centre in Strathclyde, which provided high-quality leadership development to aspiring chief executives and aspiring leaders. As part of looking in the round at training, we may need to look at whether there is enough resource capacity to deliver the kind of leaders of the future that you are talking about.
There have been discussions with Audit Scotland on the auditing of ALEOs; a great deal of public funding goes into them, but it has never been quite clear how to follow the public pound, when it comes to ALEOs. Structurally, they are separate organisations, but public money in ever-increasing amounts goes into them. How are we going to deal with that?
In October last year, the Accounts Commission commissioned a report from Audit Scotland, which will come back to us in the autumn of this year. We have asked for a comprehensive report on ALEOs, because we understand the public interest in them. We want to know the number of ALEOs, their size, turnover, status and form. As you alluded to, they take different forms; some are trusts, some are charities and some are companies. We want to know the rationale for setting them up. Why do councils set them up? Is it to save money or to improve services by providing them outwith the council, or a mixture of those?
We want to know the representation of elected members on ALEOs. If there are elected members on ALEOs, what role do they play? We want to know how councils scrutinise ALEOs, because, as Colin Beattie said, they are funded by public money, and councils are responsible for public money and the quality of services that are provided by ALEOs. We want to look at governance and performance. Once we have had that report, the Accounts Commission will decide what further work we will ask Audit Scotland to do.
10:00
That report is expected in the autumn of this year.
Yes.
I look forward to that one.
On the commission’s behalf, we have asked all the auditors of the 32 councils to carry out work to increase understanding of the issue. In the past, we have grappled with the scale of the ALEOs issue, so as part of this year’s audit, the auditors are gathering that information and data. That will come in to us centrally and we will take a report to the commission. That report will not just inform work in local government because, as the committee knows, there are ALEOs in other parts of the world. The committee has taken a lot of interest in colleges and the new arm’s-length foundations, for example. There are other examples in health. ALEOs are more prominent in councils, particularly because a council’s ALEOs tend to deliver services directly. ALEOs in other parts of the world tend not to do that. However, we hope that the work that we are doing on behalf of the commission may have a wider application.
Paragraph 97 on page 27 refers to “cash-backed reserves” and paragraph 105 on page 28 mentions that
“indebtedness increased by 45 per cent”.
It does not make a lot of sense to run up debt if you are going to have those reserves. Do you have any comment on that?
The commission has had an interest in councils’ reserves and has been monitoring them over a long period. You are absolutely right to make a connection with the position on reserves. In fact, we were here a fortnight ago talking about Scotland’s public finances and the need for long-term financial planning.
We have to look at all those things—the level of reserves, what councils are going to do with them, and how much is free, in the sense of its not being allocated to particular issues for the future—because they are all components that will be fed into a long-term financial plan. It is about looking in the round at everything and encouraging a longer-term approach to financial planning that looks across those individual components.
We are keen to ensure that councils make clear statements about why they have reserves and what they intend to do with them. Overall, there are substantial amounts of money in reserves at the moment, although the amount within that that is free for contingency spending is relatively small. That is the position on reserves.
It is also worth mentioning that the commission is doing some work on treasury management and borrowing in local government. We will bring out a report—I think that it is due for publication in December this year. We are looking at that component as well, just to cover both sides.
I have one last point. Paragraph 26 on page 12 says that
“It will be some time before the full impact of welfare reform is clear.”
and yet the same paragraph goes on to say that
“welfare reform will take more than £1.6 billion out of the Scottish economy each year.”
That is a huge amount of money and it will have a massive impact. That is separate from the budget cuts that are coming down from Westminster, which affect the Scottish Government and, consequently, reduce the size of cake for local government.
That is put in context at the start of the report. The figure comes from the Welfare Reform Committee of the Parliament. It is an important and, as you said, large number. It is something that we need to flag up as part of the overall context for local government.
In your audits of local government, are you looking at the impact of the cuts? They are bound to have a knock-on effect. You have already highlighted that
“Councils with higher levels of deprivation are likely to be hardest hit”
and that there will be
“a substantial impact on local economies.”
The cuts are bound to have a knock-on effect on councils and their ability to generate services and so on for the public.
The impact is wide ranging. It is about the ability to deliver services and long-term financial planning, but there are also many associated issues in terms of what it means for the services and advice that local people need to deal with the different financial context within households. A range of issues are encompassed within welfare reform that have a direct impact on a number of aspects of local government.
Welfare reform is almost worth an audit in itself.
Welfare reform is one of the key issues on which we are keeping an eye in our programme development work. Last year, I think, we undertook for the commission a fairly brief but good study of councils’ preparedness.
To be honest, we have been of the view that we just need to let councils concentrate on preparing for the welfare reforms. That has been the activity up until now. As we go into the next year, we will begin to see more fully the local impacts and what welfare reform means for council services and communities. We will certainly discuss welfare reform and its impact with the Accounts Commission and the Auditor General when we come to think about our forward work programme.
Colin Beattie mentioned the level of indebtedness. Is the big increase in that not down to the flexibility that the prudential borrowing code gives councils? I consider that to be a positive move, as it allows them to plan better and more wisely for the future. The increase of 45 per cent is alarming, but is it not a reflection of how well councils are using the prudential borrowing code to deliver their services?
The indebtedness figure is made up of a number of things. We wanted to give a sense of the overall exposure or liability, whichever way you want to look at it, so it includes not only external borrowing but the liabilities that have built up through public-private partnerships and the private finance initiative, and it becomes net because there are some elements of investment in there that bring the figure down a bit.
It is a large figure. You are right that it has been incurred in the context of the application of the prudential code that oversees borrowing. That is the focus of the piece of work that I mentioned earlier and on which the commission will report later this year. It is central to what we are considering. We want to get underneath the overall figure, because there are wide variations across councils.
You mentioned that you will be doing some work on ALEOs. The committee has considered them previously and I suspect that we will want to return to the matter.
One thing that has concerned us is that those who are on the ALEOs do not always have a clear understanding of the governance arrangements. Do councillors understand that, when they are appointed to an ALEO, their legal responsibility is to the board of the ALEO and not to the council that appointed them? Do you have any concerns about that? I have certainly seen examples of councillors trying to get the council to interfere in the work of an ALEO and politicise it. Is it appropriate for councillors to demand that the council that set up an ALEO should take a certain course of action if they do not like a decision that it has taken? Should councillors be involved in that type of argument and debate outwith the boards of ALEOs?
The points that you raise are the kind of issue that we expect the auditors to address in the report that will come to the commission. That also touches on the point that I made about training. You are absolutely right that, once a councillor is appointed to an ALEO, their responsibility is to further its interests. A related point, if I can separate the roles, is that we also need to consider how effective councils are at scrutinising the ALEOs’ performance as opposed to allowing them to drift off without scrutinising their performance.
You are right that there can be conflicts of interest for councillors who are on an ALEO. They need training to understand where such conflicts of interest arise, how to do the proper thing and how to seek advice about what they should do, if necessary.
Once an ALEO has been established, does the council that established it have any residual ability to interfere or influence its decision-making process?
If the ALEO is going belly up, for example, the council has a responsibility to follow the public pound—the public money that has been invested in the ALEO—and the quality of service that is provided. For example, if there is a service failure—there have been one or two examples of that—the council has not only the right but the duty to interfere.
I understand that, but what about the day-to-day management decisions?
No.
They should be not involved.
No, they should not be involved in those.
That issue was touched on in the first two reports that the commission published in the “How councils work” series. “Roles and working relationships: are you getting it right?” recognised that councillors sometimes have that dual role, while “Arms-length external organisations (ALEOS): are you getting it right?” looked in more depth at how to set up and run ALEOs. We think that the commission will probably ask us to revisit the guide on roles and working relationships, in relation to not only ALEOs but the complex role of an elected member, which we had a conversation about earlier. We will be able to address the issue then.
I concur with Douglas Sinclair—the council absolutely has governance and oversight duties in relation to the money that is given to an ALEO. However, it is the ALEO board that has responsibility for taking decisions, whether the ALEO is an independent charity, a company or whatever its status may be. The matter is inherently complex.
I have a postscript to add to that. Gordon Smail has just reminded me that paragraph 57 of our report refers to “The Highland Council: Caithness Heat and Power—Follow-up statutory report.” That is a very good example of a case in which the roles are not clear and there is bad or weak governance. In that case, an ALEO was set up without equipping those involved with the necessary skills to undertake the job properly.
My first question follows on from Colin Beattie’s question about the £1.6 billion that is mentioned in paragraph 26. Will you confirm that that figure was not arrived at through Audit Scotland or the Accounts Commission, but that it came from a report by the Parliament’s Welfare Reform Committee?
I am happy to confirm that.
I want to return to the issue of behaviours and training. Yesterday, the Education and Culture Committee considered the Accounts Commission’s report on schools. We looked at various issues, but our main focus was on attainment, which is an incredibly important issue.
I am afraid that I did not bring the report with me, so I cannot quote from it, but as Fraser McKinlay will know, one of the its conclusions—that councillors rarely challenged officials—is quite surprising. We in this Parliament do not want to tell councillors what to do, but you implied—I would rather use your words than my own—that councillors were not always fully informed about issues relating to attainment and what could be done to reduce the attainment gap. Is that because councillors are being kept in the dark—the phrase “mushroom syndrome” comes to mind—by officials so that they come to the conclusions that the officials want? Is it the case that some officials do not want awkward councillors to ask awkward questions? Am I right in saying that that was in the report? I think that it was put more diplomatically there.
Democracy needs awkward councillors. In that report, we tried to highlight the fact that although, inevitably, parts of education are covered by the national curriculum for excellence, the delivery of education and accountability for it at local level lie with the councils collectively, and it is important that they undertake that job. Councillors need to get the information and they need to set targets so that, if the attainment of their council is not as good as that of a comparable council, they can decide what to do about that. If they are not getting the information, they are absolutely entitled to ask the officials for it robustly, because that is part of the job of a councillor.
Why did you make those comments? Is it your conclusion that all councillors are not getting sufficient information to make the decisions on pupils’ attainment that we want them to make?
I do not know whether we had sufficient evidence to say that. We set out very clearly that councillors have a key role. The public and parents rely on them to ensure that the local delivery of education is as good as it can be and that they are setting targets and benchmarking the performance of their schools against comparable schools.
We found that, in a fair number of councils—in almost half of them, in fact—the gap between the best performing schools in one area and another is getting bigger. Councils need to be on top of that. They need to ask, “What are we doing about that?” They need to challenge officers to ensure that attainment and performance improve.
10:15
I think that, to some extent, a superficial argument often applies when we talk about best attaining schools. I can see from my own constituency that it depends on what your yardstick is. There are many parents in my constituency who send their children to Gryffe high school, which is one of the best performing schools in Scotland in terms of exam results. Just a few miles along the road, we have Linwood high school, where the exam results are not so good. However, comparing their exam results does not measure the quality or effectiveness of those two schools or of their teaching staff, because there are other factors, such as deprivation, parental support, and the ability and resources of parents to bring in tutors to support their children. There are all sorts of issues at play. It would be dreadful if we said that, because there are schools of high attainment and schools of low attainment in the same area, the schools of low attainment need to look at those of higher attainment, because it is not as easy as that.
I am not suggesting for one minute that it is easy. The issue is very complex. We found in the report that the councils that had made the most improvement had done four things. They had invested in the quality of leadership in their schools, they had invested in the quality of their teaching staff, they had invested in improving relationships with parents and parental involvement in schools, and they had introduced systems of tracking and monitoring the development and attainment of individual pupils.
It is also right to point out that the report stressed the importance of achievement and the need for indicators of achievement as well as of attainment.
I would like to ask more about behaviours and training. In paragraph 6 of your key messages, you talk about the need for councillors to achieve
“a balance between their council responsibilities and their wider political activities.”
I am not pointing a finger at any political party, but you mention Aberdeen City Council in paragraph 74 and, from the little that I know, I am aware that there are issues there. You say that those issues have affected decision making. You also state:
“Behaviour in the council chamber was regularly disrespectful and it had been necessary for councillors to be reminded of the requirements of the councillors’ Code of Conduct.”
Has that affected good decision making? Is it something that could be remedied, or at least ameliorated, by training? Given the challenges that councils face, it would be a sad day if political tensions were to affect wider decision making.
I will answer your second point first. The situation can be ameliorated by training, as it is a question of councillors’ understanding of the code of conduct, which states that they have a duty
“to maintain and strengthen the public’s trust and confidence in the integrity of the Council and its councillors in conducting public business.”
That is part of their duty. It is also part of their best value duty that they must honour the trust that is put in them by the electorate through probity and propriety.
We all accept that political tensions and differences are part of the DNA of local government. That is what local government is about. It becomes an issue when those tensions are taken to an extreme, so that the only news that comes out of the council is about squabbles and fighting, not front-line services. It is a question of extremes. If differences are taken to an extreme, the danger is that the council will not demonstrate good governance or good leadership. It is the Accounts Commission’s duty to point that out.
I note that that was one of your key messages.
My final question is about something that you said in your opening remarks. You mentioned the financial challenges, which are not new. You also mentioned the ageing population, which is not new, either—I have a lot more grey hair than I had 15 years ago. In addition, you said that cutting staff is not sustainable in the longer term, but are the legal obligations of councils, many of which were introduced by this Parliament, sustainable in the long term?
I give the example of free personal care for the elderly. I know that the situation with the lead agency in Highland is different, but there are difficulties there with providing respite care and home care, for instance. Is there enough of an understanding of the need to balance passing laws in the Parliament that place legal obligations on councils with funding local authorities sufficiently to meet those obligations?
Those are really issues for Government and COSLA, as the representative of local government. When new bills are introduced, COSLA will make the case that the resource implications are X and that it hopes that the Government will provide X in the settlement to make the proposal work. Local government has to live with the consequences of Government legislation, but I understand the point—
Those are the major challenges.
They are big, big challenges. Elderly people’s needs are by definition more expensive than those of people who are not elderly.
When there is no ring fencing, which we all agree with, the legal obligations and priorities must come first.
Yes.
I will ask about maximising resources, reserves and assets and about learning from experience elsewhere. The whole public sector is under significant, on-going and sustained pressure because of the resources situation. Between 2007-08 and 2012-13, resources that were under the Scottish Government’s control increased by 6.4 per cent in cash terms and, for local government, the increase was 8.9 per cent. However, different challenges are faced, particularly on the issues to do with the elderly that Mary Scanlon raised, so how we maximise resources for local government is hugely important.
In the context of the sustained pressure on resources, I was surprised to read in paragraph 95 of the report that
“The overall level of reserves increased by £174 million to £1.86 billion”.
We all know why reserves exist but, in times of financial challenge, it seems to go against the grain of how we might best use money that reserves should increase rather than do the opposite. That £1.86 billion is a huge amount of money.
Absolutely. As I said, we have examined that over the year. The trend has been to increase reserves. The reserves that we are talking about are not the product of accounting; the figure represents cash that is potentially available. It is important to keep it in mind that a relatively small element of that—£312 million across all councils—does not have some intention for the future.
I will come back to that sum, but on you go.
We will come back to that.
The commission has taken the right position over the years, which is not to specify how much should be held in reserve but to monitor reserves. The principal point is that reserves policies should be absolutely clear as to why the money is in reserve and what it will be used for.
All councils now have policies, but they are not sufficiently transparent about why they hold reserves and what they will do with reserves. More detail is needed about how reserves have been built up and what the components are. When we use the term “earmarked”, we need to know what exactly reserves are earmarked for. After those decisions have been made and made public, we need to know what has changed in the year and why reserves have got smaller or bigger.
This is the first time in the years that we have been monitoring the situation that the amount of available reserves has fallen—a later exhibit in the report shows that—which suggests that, among all the other components of financial management, such as borrowing, councils are starting to use reserves to support expenditure.
We have talked about training for elected members. Finances must be at the front of the list of matters that councillors need to understand more fully, because councils’ finances are complex. However, the point is that reserves can be used only once; they are not for sustaining services year in and year out. There are important points about transparency and accountability in that.
It is worth saying that councils would probably argue that some money that has been put into reserves is designed to save money in the longer term. They are in a tough period, which will continue to be tough. Some councils expect the next couple of years to be even tougher than recent years. In paragraph 96, we mentioned some things that reserves can be used for, such as change programmes, voluntary early release programmes and other measures that have an up-front cost but will save money later.
As Gordon Smail said, we still think that there can be more transparency about and better reporting and monitoring of all that, but it is not the case that councils are sitting on a big pile of cash. Many are seeking to use that money for something that should release savings, if it works.
It surprises me that some reserves have not already been used to make the changes that need to be made, given the scale of the challenge that is to come. We saw from the Auditor General’s report a couple of weeks ago that the projected further reduction in the overall expenditure that is available to Scotland is between £3 billion and £4 billion. I would have thought that reserves were already being used to make the changes that are required to deliver the necessary reshaping. It frustrates me to see that money increasing. I am not getting the sense that we are getting to the bottom of what all that money is about. How can we get there a bit more quickly, to ensure that it is used properly?
I understand that frustration. There is no doubt that it seems counterintuitive that, as money is going down, reserves are going up. I understand that you might assume that councils would have put money away when they had more money to put away, if you know what I mean. However, I suppose that the financial pressures are beginning to focus people’s minds and ensure that they take more difficult decisions about transformation.
We will continue to monitor the situation, and that will form part of our programme development thinking as we try to get further under the skin of what is going on. As you say, we would want to ask serious questions if reserves continued to rise.
I would certainly have liked some of the money to be used on spend-to-save measures earlier. That is the point that I am trying to get at.
There is £312 million in free reserves—what an unusual concept. If that was the case in central Government, the Government would be getting a kicking for not using all its money properly. Why is that free reserve pot there? Why is the money not being allocated to the front line as part of a properly managed process?
The sum has gone down a bit from the previous year. It represents a relatively small amount of expenditure—I calculated that it amounts to about six days’ expenditure for councils.
The notion of having money available to deal with unforeseen things is prudent. For example, if there was a worse winter than we have had in the past couple of years, money would be available—
That is what the normal reserve pot is for. This is a free reserve.
We use the word “free”—
We can call it an unearmarked reserve.
Unearmarked—yes. It is better to think of it as a contingency fund, so that money is available for things that might come up, such as issues relating to the weather, flooding and severe winters.
From our point of view as auditors, it is reassuring that there is a level of contingency, without specifying what that might be. It is right that, in the big and complicated business of running a council, money is available for the unforeseen, as part of overall financial planning.
There is £1.86 billion there—
Well, there is the £312 million—
I know that there are general fund balances in that.
The point is well made. It is interesting that, for most members of the public, a reserve is a rainy-day fund for unexpected stuff. There is no doubt that referring to earmarked and unearmarked reserves is a relatively recent phenomenon. That is why the commission has reported regularly about greater transparency and better reporting, because it is an unusual issue for most people to get their heads around and, as you say, it is important to understand better what that is being used for.
If councils were sitting with just £312 million, most people would understand that that pot of money was being kept just in case. However, as you say, it is on top of another significant sum of money.
10:30
My next question is about maximising resources. We have discussed the increase in indebtedness, but the report also states that councils’ assets have increased to £38 billion, as described under “Assets” on page 35. That is a heck of a lot of money sitting in assets. The general question is whether councils are making the best use of their assets. I am not suggesting that we sell off the family silver, but I would have thought that those assets could generate additional income if we got better flexibility in the system.
In recent years, the commission has asked Audit Scotland to do various pieces of work on asset management plans. That raises a range of issues and is about not just the money but people and property.
Earlier, we discussed community planning. The Government and COSLA have made statements about using the overall resource in an area better, which in part is about making better use of the buildings that are available, whether that is space that councils have or space that colleges have, for example. Part of the solution is to look, through community planning, at the resources that are available in a geographic area. The point about making better use of what is available for service delivery is certainly well made.
Is it understood across local authorities that they need to manage that resource better and maximise income from it?
This morning, we have focused on long-term financial planning. From our point of view, that is about the total resource that is available. We are looking for longer-term planning that considers the use of resources, which include financial resources and the people and assets that are available. In better-run councils or ones that have a better grip of the issue, those strategies are interconnected—for example, the implications for finance of new buildings and assets are considered, as the issues are closely linked. That is where the process works at its best.
It is fair to say that not all councils are where we want them to be. For example, our report on road maintenance showed that a fair number of councils do not have road asset management plans.
As you will know, I come from a background in which Tayside Contracts has operated for a while. Given the savings and scale of activity that can be achieved, I am astonished that more local authorities have not followed that model.
Convener, I want to move on to a slightly different issue, but perhaps other members want to ask supplementaries.
Tavish Scott can come in briefly, before I go back to Bruce Crawford, but we need to curtail the debate, as we have a full agenda.
On Bruce Crawford’s line of questioning, do all 32 local authorities have a long-term financial plan that takes into account the reserves that Mr Smail has been discussing with Mr Crawford?
Absolutely not. The follow-up report on Scotland’s public finances that we brought to the committee two weeks ago very much made the point that only a small number of councils look to the longer term, by which we mean more than five years. There is more planning for the medium term of between two and five years, but longer-term planning is not particularly well embedded. That planning could be about how reserves are to be applied or, to connect to an earlier conversation, about the implications of the ageing population and an area’s demographic profile.
That is a fair point. Do we know how many of the 32 councils have long-term financial plans?
The number is small—it is along the lines of five or eight.
So that is a challenge.
Yes.
I have one more question, which is on learning from others. We know that local government in Scotland is under challenge. Since 2010, local government spending in England has reduced by 14 per cent in real terms, whereas that figure is 3 per cent in Scotland. Councils in England are experiencing a much more extreme challenge than those in Scotland. There must be opportunities to learn from how they are tackling the scale of their difficulty and to apply those approaches here. Is any cross-border discussion going on so that we can understand better how councils in England are dealing with that significant problem?
The short answer is that not enough is going on.
I thought so.
A recent Welsh report on public services uses the wonderful phrase, “Good practice is a bad traveller,” which is very true. Along with other scrutiny bodies, the commission could do more to highlight examples of good practice, perhaps in a yearly digest. To go back to ALEOs, there are examples in England of ALEOs being used to improve services. We need to capture and share that practice in Scottish local government.
That flips back to the leadership issue. Why are we not getting people to try to find out, even from individual authorities, what the experience is?
The United Kingdom Government’s abolition of the Audit Commission has not helped.
That is a fair point.
I return to the increase in net indebtedness, which has gone up from £9.1 billion by 45 per cent—£4.2 billion—over the past nine years. That is almost £500 million being added each year. Is somebody accountable for that rise and monitoring it nationally or is it just the responsibility of individual local authorities?
The responsibility is with individual local authorities as part of the prudential code, which includes a series of indicators on financial stability and the like. Councils are required to have a policy that sets out how they will monitor indebtedness and examine what is affordable to them and sustainable in the longer term. However, that is a local decision that is based on the local financial position. That regime has been in place since about 2004.
You said earlier that part of the increase is due to the increased use of PPP and PFI. I am always surprised by how much the Government, which speaks so strongly against PPP and PFI, uses them. How much of the £4.2 billion increase is due to the use of private finance or revenue finance resources?
I do not have that information to hand. The report just gave a bit of contextual information. We can supply the information to you if you would find it helpful.
It would be helpful.
We all approve of John Swinney’s action to set a 5 per cent cap on revenue-financed capital expenditure. The difficulty with that cap is that it does not include everything; in fact, it specifically excludes local government revenue-financed capital expenditure. Does that concern you at all?
We are talking about local government, so we are considering local government borrowing. We are doing some work on the Auditor General’s behalf on financial reporting in the round and we are considering the implications for financial reporting of the new taxes that will come into play from April next year. As part of that work, we certainly want to develop consideration of how all aspects of finance are reported, so that there is transparency. We will then consider the cap that has been applied in the central Government context.
In the context of the report, there are a couple of really interesting things about the indebtedness figure. First, the figure has gone up a lot. There is also something about the complexity of the arrangements, which brings us back to elected members understanding fully what they are signing up to.
Another important thing is the recurring impact on revenue budgets. Do councils fully understand the impact of taking on more borrowing for annual running costs and the extent to which money will be spent on financing the loan rather than delivering front-line services?
That is our specific interest. We will look to understand that more and get under the skin of the issue in the report that we will do for the Accounts Commission towards the end of the year.
Should there be greater scrutiny—“accountability” might be a better word—of the figure at a national level?
I will let the chair of the commission take that one before I speak on the commission’s behalf.
Mr Sinclair ducked earlier questions.
We are entering dangerous water. Local government is accountable to the people of Scotland.
Indeed, but 80 per cent of the finance comes from central Government. Should there not be accountability for that finance? It is revenue finance.
Yes. There is accountability through the ballot box.
That leads me on nicely to my next question. The report talks quite a lot about governance and political tensions. There is not much about local democracy. In recent years, the police service and the fire service have been centralised, local courts and local police stations have been closed and colleges have been regionalised. There has been a marked tendency to centralise governance arrangements in Scotland. Does that affect the effectiveness of local democracy?
Those are not issues for the commission—they are not in its remit. The decisions are for the Government to make. Further down the line, an interesting academic study could be done about the general long-term impact on local democracy, but it is not a subject for the commission.
That is interesting. Governance is something of a concern to you, but the decisions over which local councillors have influence are not a matter for the commission.
COSLA represented local government interests on the single police force, for example, and it expressed clearly to the Government its view that it was not in favour of a single police force, which led to the debate on the issue. As democratic bodies, councils make their views known—for example, I think that all councils made representations on the closure of local courts. That is how democracy operates in Scotland.
On a more practical level, it will be interesting to see how the community planning process plays out. If we leave aside the voluntary sector and private sector interests in community planning partnerships, the councils are the only local public sector bodies—colleges are regional and the police, the fire service, Scottish Enterprise and Highlands and Islands Enterprise are all national and regional bodies. We will be interested in how some of the tensions between local and national priorities play out.
One thing that I can remember knocking around in my days as a councillor is the issue of equal pay and the pressures arising from that. You point out in paragraphs 17 to 19 of the overview report that there are still pressures in that regard and that there is a review. Are some councils handling the issue of equal pay better than others? Are we any distance further forward? The issue has been going on for years. Obviously, the longer it goes on, the more pressure there will be on local authority funding. A significant number of settlements do not appear to have been dealt with yet. Paragraph 18 refers to
“unquantified workforce resources and associated costs”.
How far down the road are we towards seeing a page in a future report saying that all the resource issues have been dealt with?
I wish that I could give you an assurance on that. It is worth pointing out that equal pay is not just an issue for local government, because it is also an issue for the NHS and, prospectively, for ALEOs. You are right that significant sums are involved. The Audit Commission is having discussions with the controller of audit on what work we might do that would add value. There are two potential areas, one of which is to look at the extent to which councils undertook a proper risk assessment in considering equal pay claims. For example, as Mr Keir alluded to, there is the impact on human resources staff, who spend a huge amount of time dealing with the equal pay issue rather than with wider HR strategies in the council.
Secondly, there is an important relationship or balance between the huge amount of money that is being used up in settling equal pay claims and value for money. There is a trade-off between making those payments and modernising conditions of service in local government and reducing costs there. I do not know whether there would be a benefit to the public and, indeed, to councils in undertaking a study of those issues.
Okay. In the interests of time, I will leave it at that.
Willie Coffey has a question. Is it brief, Mr Coffey?
I have a couple of brief questions.
No. You can have one brief question, then I will move on.
All right. I have a question for Mr Sinclair about the role of councillors. You said in your presentation that we are placing more and more demands on our councillors. Having been one for a number of years, I sympathise with that view. I foresee the demands that are placed on our local councillors going through the roof. Not only do they do more work but, with the multimember system, they serve bigger communities. You have opened up a discussion about job descriptions. Do you see that leading us naturally to a discussion about remuneration and time off?
I do not think that councillors get enough time off to carry out their public duties, which partly explains why the profile of the local councillor has not really changed. It is older people who are retired, or people who work part-time as a councillor and do a full-time job somewhere else. Do you see any discussions beginning to seriously address that?
10:45
The issues that you raise are not new. They are valid points that have been around for a long time. If you are having a debate about job descriptions, training and attracting a wider range of talent to serve on councils, time off from employment and remuneration have to be part of the mix.
I thank the witnesses for contributing to a very full discussion. I suspect that the issue will become bigger across Scottish public life as the impact of financial restraint kicks in. Thank you for your individual contributions and for the work that Audit Scotland and the Accounts Commission have done.
Next
Section 23 Report