Official Report 253KB pdf
Good afternoon, comrades. We have apologies from Iain Smith and Michael McMahon. The rest of us seem to have made it through the snow.
I will keep my remarks brief, convener. We are grateful for the invitation to appear before the committee; we would be happy to be of assistance with anything relating to the committee's inquiry.
Thank you. I will begin with a general question. When Jack McConnell came before the committee on 21 September 1999, he said that at that point he did not consider an independent review of local government finance to be a good idea. What is the Executive's current opinion on the balance between central and local government funding in Scotland and the revenue grant distribution system? Are you still of the view that there is no need for an independent review of local government finance, given that, as COSLA and the committee have recognised, you have made substantial moves on some of the other issues that we have raised? You addressed some of those in your paper, but we believe that there is still quite a lot of work to be done.
On an independent review, I can only reflect the views of ministers—it is a policy matter for them. When Mr MacKay was before the committee late last year, he said that he thought that we were achieving a lot with the reforms that were already under way. He also said that at that stage he did not see an immediate case for an independent review, but that we would take stock when the reforms had gone through. He said that he would be sensitive to the views of the committee on that. That is the formal position.
What about the balance between central and local funding?
At the moment, ministers have no plans to change that balance, although I expect that they would be open to recommendations from the committee.
You have just answered any questions about returning the non-domestic rate to local councils, so I thank you for that.
I am surprised that the Executive's submission comprises only two and a bit pages. I wonder whether you are taking the process seriously. The committee is to dedicate something like nine committee meetings to the inquiry, yet all that we have from the Executive is a summary of continuing work. No attempt has been made to consider alternative systems such as a sales tax, a local income tax or a vehicle tax. If the Executive does not study other systems for delivering local government finance, how does it know whether its method is the best? We are trying to investigate alternatives, to find the best system for Scotland.
We take the process seriously. The first time that I gave evidence to the committee, I was criticised—rightly—for producing a large volume of paper.
Perhaps there is a happy medium.
We will try to find that next time. I apologise if the paper is too short.
I notice that you and COSLA have said that people are relatively comfortable with council tax. I am not sure whether people who pay council tax would agree with that.
I do not fully understand that position. Until last year, our practice was to set service priorities when we announced a settlement. The first four were education, social work, police and fire. There were other categories of so-called protected services and of low-priority services. We swept all that away when we changed the system last year. All that we have done is to announce the totals. As COSLA requested in our discussions last year, ministers have set out the outcomes that they expect to be achieved with the money. We have not introduced any new hypothecation, ring fencing or specific grants in the recent settlement. The proportion of funding that is accounted for by specific grants will be just above 10 per cent, which is fairly consistent with what it has been over the past couple of years.
Okay. Are you happy with that, Kenny?
No, but I shall return to the issue later.
I welcome what you said about capital investment and flexibility and about the use of outcome measures, which will also bring flexibility. I know that many councils are enthusiastic about going down that route.
I shall deal with the set-aside and pooling issues first. I cannot recall precisely the point that COSLA made on PPPs.
The COSLA paper suggests that there should be a relaxation of the rules governing the way in which PPP arrangements work. It says:
Yes. We agree that it should be possible to establish a level playing field whereby councils can make a best-value decision on how to procure a service, whether through capital investment, revenue expenditure or PPP. One of the purposes of the review of capital controls is to establish a system in which a council does not have to approach the Executive for capital consent, but can make a decision on the basis of the resources that are available to it. That is the situation that we are aiming for. I am not sure that the existing PPP rules are a significant factor in that, and the COSLA paper does not go into sufficient detail on the matter for me to give a view on it. However, I would be happy to take that idea on board.
You are right; the COSLA paper highlights the blurring between the two areas of revenue and capital. The third point in the paper that I would like you to address concerns community planning and the pooling of budgets.
There have been some positive developments in that area. First, three-year budgeting will make it easier for organisations to pool their budgets. In the past, the complaint was that, because people knew how much money they would have for the coming year only, they were reluctant to commit themselves beyond that period. Three-year budgeting will provide a positive contribution. Secondly, the Executive will soon consult on a long-term care bill, which will contain specific proposals to allow health boards and local authorities to pool their budgets. Thirdly, the pilot local outcome agreements that we will initiate next year will not necessarily be confined to local authority funding. If local authorities want to pool their budgets with local partners, we will try to accommodate that in the outcome agreements.
That is good news.
When we spoke previously to the Executive, the committee expressed the opinion that all the evidence that we received in relation to the McIntosh report suggested the need for a change from the present system. The only people on the planet who believe that the present system is worth while are in the Executive.
We are aware that there are different balances in finance between central Government and local authorities in other countries. The issue remains—how do we find the right balance in percentage terms? Local government finance has been held more centrally in the past. The percentage of resources that are held centrally has been higher as well as lower, but the percentage of resources that are held centrally does not signify the degree of control that the Executive extends over local government.
I do not think that it is as simple as that, either. That is why I am surprised that the Executive, knowing that the committee's report is coming up, has not considered examples from other countries of the correlation between the balance of finance and the quality of service delivery. It is all very well saying that, in one country, 40 per cent of local authority finance is raised locally and 60 per cent nationally, but there must be a correlation between delivery of service and the level of local control and local accountability. I am surprised that the Executive has no plans to consider examples from other countries.
It does not appear to have any plans. Maybe we have given it a big hint. Do you have another question?
No, I just wondered whether we were getting a response to that suggestion.
All that I can do is note Gil Paterson's surprise. The position is that ministers have no plans at present to change the balance. However, if the committee thinks that there are reasons for doing so, ministers will undoubtedly consider that.
At this stage, the question is not so much whether the Executive has plans to change the situation, but whether it has plans to consider doing so. We note what you say, however, and you might find that you receive a letter on the subject.
Does the Executive have any plans to re-examine the council tax banding arrangements? Are bands being added at the upper or lower ends? Is there a possibility that the council tax base might be revalued?
Ministers have no plans to make any changes in that area. They are aware that the committee is examining that issue and look forward to reading the committee's recommendations.
Are there any proposals to consider the revenue grant distribution system?
We have just set the revenue grant distribution for three years and are aware that we will soon have to start considering the method that should be used for the next three-year settlement. Part of the benefit of the three-year settlement is stability and the fact that it will dampen down expectations or anxieties about changes. We are not desperate to rush into using a new method at this point but, during the course of the year, we will consult on the way in which we approach the revenue grant distribution for the next three-year settlement. That work will certainly be done by the time of the next spending review in 2002. We will talk to local authorities about that and take the views of the committee into account.
Following Gil Paterson's comments, it appears that the Executive sees no link between local accountability and the proportion of tax that is raised locally. If that is the case, why does not the Executive fund local spending from national taxation? That would do away with the exorbitant cost of collecting council tax.
I did not say that we see no link. I said that we see no direct implications arising from the use of any particular figure and that we have seen no evidence that would lead us to change the situation. Clearly, it is important that councils have some local accountability. We think that the changes that were made this year in relation to council tax control—granting councils the freedom to set their own council tax levels and the abolition of expenditure guidelines—will have helped in that regard. We are not convinced that there is insufficient freedom and accountability, but we would be happy to hear contrary views.
I want to return to the issue of ring fencing. The Convention of Scottish Local Authorities' briefing paper says that
No, I do not. The proportion of funding that we give to local authorities as specific grants is 10 per cent of central Government funding, and it is considerably less than the proportion of total funding. About two thirds of that 10 per cent is the general police grant to support police forces. It is not for any specific project or activity. Most of the rest of the funding is excellence fund education grants, which exist to improve standards in schools and so on. Three per cent or 4 per cent, or less, of total funding to local authorities is in the form of specific grants.
COSLA says that because the proportion is continually increasing, that is causing a lack of flexibility, which is why there will be above-inflation council tax increases next year, at the same time as cuts in core services. Surely you are making it more difficult for local government to decide its own priorities. COSLA and others are saying that you should work jointly with them on shared priorities, rather than saying to them, "This is what you have to do." Are they wrong in their assessment?
I do not agree with that assessment. The proportion of specific grants grew during the 1990s, until 1997 or thereabouts. It has been broadly 9 or 10 per cent since then, and it will remain at that level throughout the spending review period. We did not introduce any new specific grants in the settlement. We actually took some of the inhibitions off local government, in the sense that we did not publish lists of local authority services and what we thought should be spent on them; we left that to local authorities. Ministers have attempted to set out to local authorities the outcomes that they want them to pursue with the additional resources that are being provided. If COSLA disagrees, that is a matter for COSLA, but we have made a lot of progress with COSLA in the past year.
But surely it is a crucial issue if COSLA—which represents 28 local authorities and at one time represented all local authorities—says one thing, and the Executive says another. Do you think that there is a communication problem, whereby you are unable to explain to COSLA what is happening? Is COSLA saying that the Executive is being disingenuous? COSLA told my colleague Gil Paterson and me that the Executive is, in effect, saying where every penny of additional money over the next three years will be spent.
It is not fruitful for me to get into an argument with COSLA when we have been discussing these issues constructively all along. If there is evidence of specific ring fencing or an increase in ring fencing or some other means by which it is said the Executive has extended its control over local authorities' resources, we would be happy to look at that. In discussions with COSLA, I have not been presented with any specific evidence of that.
This matter is raised in COSLA's paper to the committee, and from which Kenny Gibson quoted, so perhaps the Executive could take the matter up with COSLA, given that the paper is now in the public domain.
I wish to address non-domestic rates. Opinions differ, depending on whether you look at the business side or the COSLA side. In its paper, COSLA argues:
On the first issue, ministers' position is that it is in the interests of stability, certainty and a level playing field for business that there should be a uniform national business rate. Again, they have said that their minds are not closed for ever on that, but they do not have any plans at present to change that position.
I will ask a supplementary question to my first question on returning non-domestic rates to the local authorities. The COSLA paper argues that there has been a significant change of emphasis in what happens locally in community planning, and in the relationships between councils and their partners, in the business sector in particular. It argues that that new way of working might lead to businesses being less worried about a locally based rates system. What is your view on that?
During the past year, we have discussed with business and COSLA the concept of business improvement districts, in which local authorities would agree with the business sector to invest in certain improvements in services, which would be funded by an additional levy on business. We got COSLA and business representatives together to discuss that concept. I understand—I report this second-hand because I do not have direct evidence—that the City of Edinburgh Council is discussing with representatives of its business sector partnership arrangements that would move in that direction. I do not know whether any legislative or other support from the Executive would be needed to make that work, or whether that can be done on a voluntary basis. As has been said, there is some evidence that discussions are taking place. That is promising.
Obviously, the non-domestic business rate is part of an overall review of finance, but it will be dealt with by the committee separately when we examine the Executive's paper, which is out for consultation. Perhaps you will be back here wearing another hat to deal specifically with that matter. Sylvia Jackson is right that it is part of the full review.
You will be glad to know that I wish to ask about a couple of completely separate issues. First, we have about 90 different grant-aided expenditure measures, whereas there are 19 equivalent measurements in England. Each GAE has its own separate distribution system. I hope that Nikki Brown, who has been quite quiet, will take the chance to speak, because GAE is her area of expertise. Are there any plans to reduce the number of service GAEs? What discussions are being carried out with local councils on that issue?
As Christie Smith said, we hope to take advantage of the time that the three-year settlement gives us to examine the distribution system. We have heard comments that the current system is very complicated. There are many assessments. That is a product of a system that has been built up over some years to pinpoint as accurately as possible the relative needs to spend of local authorities. It is a matter for discussion whether what we want from a system in the future is accuracy and the fairness that is produced in that way, or predictability and a system that is open, transparent, understandable and relatively easy to track. We hope to consider those issues over the next couple of years.
You mentioned accuracy and predictability, but what about flexibility? Do you agree that the large number of measurements of GAE make the system very inflexible?
That is certainly the case, but it is also true that the flip-side of flexibility is stability. The system has 89 GAE assessments and makes use of 38 primary indicators and 13 secondary activities, so if one reviews and changes one indicator, the change in the resulting distribution is not as great as it would be if the system had only 6 indicators. It would be worth while considering a simpler system, but we should be aware that a simpler system might reduce the standards of stability that we have at present. We understand that stability is an important concept for local authorities. They like the idea that their assessments will not fluctuate widely from year to year. That is a quality of the system that we want to retain.
Do you think that there is any way in which the GAE system could be understood by lay people, or will it always be understood by only a fragment of a fraction of a small section of the population?
I wonder what proportion of the population would wish to understand the system.
Probably more than understand it at present.
You are right that it is important that we try to ensure that whatever system we have is widely understood.
I will ask about the set-aside rules, under which local authorities are required to set aside 75 per cent of the proceeds from the sale of housing assets for the repayment of debt. Does the Executive intend to retain the set-aside provisions, particularly in light of the new prudential regime that might be introduced? Will the set-aside rules be abolished over time? What is the Executive's long-term view?
The set-aside rules apply only to housing capital. So far there have been quite separate arrangements governing housing accounts and the general account. We have already abolished the receipts rules in relation to the general account. It was in relation to that that I talked about moving to a prudential regime. To be honest, I could not answer in detail on any proposals on the housing capital front. If Mr Gibson would like a fuller explanation, I will pursue that matter with colleagues and get back to him after the meeting, but it is my understanding that there are no current plans for change.
Following what Kenny Gibson said on GAE calculation, I will raise a point that I think is linked. The European Charter of Local Self-Government, article 9.4, states:
There are long-standing joint consultation arrangements between the Executive—formerly the Scottish Office—and COSLA. There are committees on expenditure, distribution and capital issues that sit all year, more or less—or at least they have in the past—to review issues such as new pressures on local government, new burdens created on local government by actions of Government and so on.
I am trying to get at whether the proportion that is spent on the various areas is roughly similar to what it has always been. Are figures merely readjusted if something is got from the spending review—readjustments are made, as you say, within the GAE calculations—or is a political decision on where priorities lie then fed into the GAE calculations? Is it a bit of both? I am trying to understand how evolving needs are written in to the calculations.
The traditional way would have been that ministers would have decided their political priorities and would then have made spending decisions on how to allocate resources to local government. Equally, local government is always lobbying central Government on its priorities. In last summer's spending review there was a series of consultation meetings at which COSLA made representations on, for example, the state of the local roads infrastructure, the state of school buildings, the need to make further provision for care of the elderly and so on. Those were reflected to some degree in the spending review decisions that ministers made, as a result of which we distributed resources to local authorities in accordance with those priorities.
It appears that there are no more questions. As I said, this is the start of our review. We called in the Scottish Executive to give evidence first; the last people whom we will call in will be the ministers. I hope that within that time there might be some changes—perhaps the ministers will say something slightly different.
Thank you for inviting us to give evidence. I apologise for the absence of Norman Murray, the president of COSLA, but the weather has kept him in East Lothian today. He would otherwise have been present, and would have welcomed the opportunity to give evidence to the committee. I will now hand over to Norie Williamson, who will give a five to 10-minute introduction. Following that, all of us will be happy to answer questions.
COSLA has long campaigned for an independent review of local government finance. As Oonagh Aitken said, we welcome the Local Government Committee's inquiry into the present system, which we think confuses accountability, creates dependency and has too many central controls. As part of today's oral evidence, we would welcome discussion of how COSLA can contribute to the inquiry's progress, as we are keen to develop the areas that are outlined in our submission.
Thank you.
As I have said, the key priority that feeds through everything is the balance between central and local government funding. It would be possible to tackle the grant distribution arrangements, but the problem of inadequate overall resources and level of funding will never be solved by planning to distribute what we think is an inadequate sum in the first place. Those difficulties would arise if we immediately adopted a revised grant distribution system. If the wider view was taken, it would lead to a better result for local government, albeit that it would open up a lot more doors.
I am quite pleased about your previous answer. When I read your paper, I came to the conclusion—like everybody else, I may add—that COSLA is unhappy with the present system, that you want to go back to the old system and get your hands on business rates, and that everything would then be hunky-dory. I am exceptionally pleased that you have a broader outlook and are considering other mechanisms.
COSLA's view on the balance would accord with that of the likes of the Hunt committee, which indicated that the balance should be at least 50 per cent. That is certainly our view.
Local government has a bit of work to do on rates. I declare an interest: I have a couple of businesses that pay rates. The perception of most businesses, if not the reality for them, is that they pay rates and that, in the bad old days, those rates were targeted. The rates went up because of the political decision to increase the rates of non-voters—business rate payers are non-voters—compared with the rates paid by domestic rate payers. Domestic rate payers had a bit of clout because they ultimately have votes.
We well recognise that perception. Whether it is right or wrong, we have to recognise that it exists. The system that Gil Paterson mentioned existed in the past, and perhaps the perception to which he referred was well founded on events that took place some time ago. We emphasise that local government has moved on. We recognise the difficulties. We recognise the safeguards and the machinery for consultation that would need to be put in place.
I do not know whether you heard the contribution of the witnesses from the Executive, but they seemed rather perplexed about the fuss over the extent of hypothecation. They greatly disputed COSLA's views on that. However, I will not talk about that; you will be able to read the Official Report after the meeting.
We have made inroads on that issue. At the moment, there is double counting in public expenditure. Loan charges count on the revenue side; and, when consents are issued, they count against the assigned budget. In essence, consents are only on paper and are not a grant that is given to councils. We want a simpler and more flexible system.
We discussed the European Charter of Local Self-Government with the Executive earlier. Both Sylvia Jackson and I have quoted from article 9 this morning. It includes the line:
We would hope to follow up on that as part of the work that we will do with CIPFA and Audit Scotland. We will consider not only a revision of the capital control arrangements, but an enhancement of the abilities of local authorities to invest and to borrow. We recognise that local authorities have a bit of a track record that counts against them. We therefore recognise that we need to provide safeguards, and that is why we are keen to advance our work with the professionals in CIPFA and Audit Scotland. I hope that that will reassure the Executive that things are under control. The CIPFA code on treasury management was established because of difficulties in local authorities. We can build on that good practice in developing prudential safeguards.
You mention local authority self-financed expenditure in your submission. For the record, what are your concerns about that?
LASFE has been in and out of public expenditure controls over the years. Economic commentators have said that that has been largely for political rather than economic purposes. The introduction of the new control arrangements, departmental expenditure limits and annually managed expenditure presents an opportunity to review all the public expenditure definitions on local authority self-financed expenditure and capital. We suggest that council tax through LASFE has a minimal impact on the macroeconomic policy of the UK Government. Major economic commentators have also said that.
I welcome your paper, which was very full and is sure to aid us. I am well aware that the process of the local government finance review is on-going and that some of the steps that we have been calling for have already been taken. Thinking about the present and the local outcome agreements in particular, how would you like to see such measures operating? Would you like most councils to take part in that in the coming year? It could be a useful step in getting over some of the difficulties to do with ring fencing.
There are various ways in which to take forward the local outcome agreement approach. Our favoured approach would be for local outcome agreements to be applied in all councils. That is the central difference between the arrangements that we are trying to put in place in Scotland and those in England. We oppose the beacon council concept because we believe that all councils should have the opportunity to take forward best value and local outcome agreements. In areas such as children's services and community care, we hope to roll out the local outcome agreement approach to all councils. When local outcome agreements are determined, there must be discussion about what is achievable realistically with the resources that have been made available. If agreement on that is reached, it can open up the dialogue between councils and the Executive on delivery against the local outcome agreements.
Over the next three years, do you see councils getting to grips with that approach?
Yes. There is a great deal of enthusiasm in councils for that approach.
My second question relates to the section in your paper on capital. I was rather confused by your comment that:
There is a grey area. In the paper, I was trying to highlight the point that when investing in new buildings, we should have an eye to building and designing such buildings with energy efficiency in mind. That means considering longer-term investment and spend-to-save measures. Giving local authorities flexibility to invest now will generate savings in the longer term and create more efficient public services.
In other places in the submission, you mention that there are particular difficulties with roads infrastructure and school buildings. How do we fit that into the picture?
It is a balance. The investment needs that we identified cover several areas, such as maintaining the infrastructure. That includes roads infrastructure, which, largely because of a lack of investment on the revenue side, needs substantial investment on the capital side in order to repair and make good the roads—it is not just repairing potholes. That is one facet. Another is to take forward the modernising agenda: investing in information and communications technology and one-stop shops. We need to deliver more joined-up services. Another facet is the spend-to-save efficiency measures, which will lead to savings in the longer term.
Thank you for the submission. As usual, it is up to COSLA's high standard. My one concern is that its emphasis is on increasing taxation. Is there any suggestion that COSLA will review the appropriateness of current expenditure by councils and examine whether there are savings within the so-called excellent settlement that was recently announced by the minister and welcomed by COSLA?
COSLA welcomed the overall settlement when it was announced in September and the system changes that were introduced. We had some concern once the detail emerged on the level of central direction. I will preface my comments with that remark.
I may have misread your submission, but you mention considering new taxes, returning business rates to councils and new bandings, which means additional taxation within the system. The emphasis of the submission is on tax increases. I do not think that that would go down too well in the current climate, after the recent council tax increases.
The proposals need to be developed in considering the paper; it is a matter of whether the interpretation places emphasis on new supplementary taxes to generate more spend or new supplementary taxes to introduce a better balance between central and local government funding. In my drafting of the paper, I meant the latter.
Should there be a revaluation of council tax bandings?
Yes.
How often should that take place? Should it be at the same interval as non-domestic rates?
In England, the green paper calls for a revaluation every five years.
The committee would agree with that.
This is a framework paper: we will set up task groups to develop and promote a more detailed case than is given in our paper. The case for a refinement of the tax system and a revaluation is set out in about half a dozen lines in the paper. We would want to develop that case to assist the committee.
That would be helpful.
I will take you back to the section in your submission on the balance between central and local funding. What is the net effect of earmarked financing on basic freedom under the current system? What changes are required?
What do you mean by the net effect?
What is its impact on local services?
The annexe to our submission tries to emphasise that. We prepared the annexe last summer, so some of the references might be out of date. However, the principles that are outlined in the examples are still relevant.
On the final page of your submission before the annexe, there is an interesting paragraph on pooling resources. You mention differing structures and accountability arrangements that act as constraints throughout the public sector and you refer to the joint paper from COSLA and the Accounts Commission for Scotland, "Following the Public Pound". Indeed, you state:
Excuse me, can I interrupt? You have put your microphone down and you are not being recorded properly. You are looking the wrong way or something. Start from "Whilst developments".
Sorry.
I sound like a teacher.
Gee, thanks.
One of the important pieces of work that was done last year involved the joint future group, which concentrated on the care of older people and the initiatives that could be developed between local authorities and the health services. During that period, we recognised that we were coming up against a number of barriers, both financial and statutory, that hindered the social work services and health services in working together.
Of course, that is joined-up government. Although I realise that you speak only for local government, is there a time scale for trying to extend that philosophy across the public sector?
My personal view is that when the community planning frameworks begin to take effect—we have the settlement for the next three-year period, so that is not a long-term time scale—a number of those programmes should be implemented. The joint future group recommendations are on a tight time scale—from memory, I think that the time scale is the next 18 months or so. We hope that, within the current three-year planning period, such recommendations will be made across the public sector in the community planning frameworks that are being developed at the moment.
You wrote in your submission:
The response that we have received from the Executive confirms what you have said. However, we do not want to let the matter rest at that; we are intent on continuing to take it up with the Executive.
What positive effect would the abolition of set-aside have on local government? Would there be any negative aspects to it?
Abolition would mean that the decision was open to local government either to repay the debt or to use the money in investment. At the moment, local authorities do not have that option. Set-aside was introduced when, generally speaking, there was a decline in consents. Under the capital arrangements that we are suggesting, which are based on best value, local authorities would have the freedom to decide whether to invest or to repay debt.
So this is about the Executive trusting local government and about local government being responsible and making its own choices.
That is true, yes.
You said that you thought 50 per cent would be a good balance. Have you had any forays into Europe? I do not think that we will have any.
Gil's passport is gathering cobwebs as we speak.
We have figures on the different elements and proportions in different parts of Europe. However, we do not have a quality measurement. Is there a correlation between accountability, the level of local tax and the quality of service delivery? In other words, is there a tendency for better service delivery where people are more accountable?
We do not have any conclusive evidence of that—I cannot imagine that I will be allowed to traipse round Europe to find out.
That makes two of us.
It is worth investigating whether any research has been undertaken on the relationship between the level of services and accountability. As we mention in our document, local taxation is higher in most countries than it is in the UK.
I have had a quick word with the convener, who said that we will have you back again—that is just to get you forearmed.
My first question is on non-domestic rates. You mention various options in your submission, the second of which is:
I will deal with the first point and Oonagh Aitken will come in on best value.
The second point was on best value.
I want to say a quick word on Europe before I answer the question on best value. One of the problems with making comparisons with other countries in Europe is that different countries have different tiers of local government that administer different local government services—there are different degrees of centralisation. That is why it can be difficult to compare Scotland—especially since reorganisation and the creation of the 32 unitary authorities—with other countries in Europe. I guess that there will be some research that we can delve into on that.
Efficiency gains are good, to an extent. We do not want waste. However, we have heard councils say time after time that they have reached the point at which such efficiency gains are not being made and that the service is worse or not as good as it should be. They are struggling to review services to provide a better-quality service in line with the new culture that you described. Does the system need more resources before we can get to grips with the new culture of best value?
In some areas, there is no doubt that the system needs more resources. That goes back to some of the points that were made about hypothecation, ring fencing and challenge funding. We argue that some of that money could go straight into front-line services, rather than being ring-fenced for special initiatives.
Is it fair to say that that is the modernisation agenda?
Yes.
I have a couple of questions on the topics that Sylvia Jackson has raised. I do not think that anyone would be against continuous improvement towards best value, but concern has been expressed—I think that it was when the convener, Sylvia and I visited North Lanarkshire Council—that if authorities made big efficiency savings in year 1 and reached an optimum level of service delivery, they would still be expected to make a 2 per cent efficiency saving, which would reduce the quality of services. All committee members would be concerned about that.
I have two comments on that. You are absolutely right about staff resources. We would argue that local authorities must be trusted to examine the areas that they feel are appropriate, where they recognise a necessity to reconsider the design and delivery of their services. It must not become a kind of tick-box exercise in which authorities say: "We have done that this year. We will now move on to the next thing." It should be about community planning and the way in which the councils deliver their priority services for the people in their areas.
So you would like an independent audit. The Executive might impose a 2 per cent efficiency saving, but a local authority could argue that it is as efficient as it can be, given the resources that it has. Is there a need for a referee in such circumstances? We have taken umbrage with Audit Scotland on a number of occasions over some of its measurements. Audit Scotland seems to believe in permanent revolution. Do you think that there is room for a referee who is not tilted one way more than another?
I do not recognise the need for that. We are as regulated, inspected and scrutinised as we need to be, given the number of agencies in the Executive that are undertaking that work. We have established the joint scrutiny forum with the Executive, which brings together all the inspection and regulation processes. That has gone some way towards people understanding each other and each other's agendas. We would not support the imposition of a 2 per cent efficiency saving, but if it must be imposed, the money should be used for reinvestment.
Is there a danger of not being able to see the wood for the trees because there is so much scrutiny and accountability? Is there not an overwhelming sense of regulation rather than sufficient focus on what the efficiency savings might mean for the man or woman in the street?
I would use the phrase that you used earlier. As long as the process is joined up and there is no duplication of regulation, inspection or audit, it will work. Local authorities must be accountable and are happy to be accountable. However, we must ensure that resources are not being wasted by auditing the same factors internally and externally.
On the subject of non-domestic rates, you write:
That area would need consideration. In my introductory remarks, I said that one of the key considerations would be resource equalisation. That would clearly come into the scenario. We would effectively be back to the situation that we had before rate pooling came in—I think that was in 1989. In that scenario, there was an equalisation adjustment in the calculations to recognise the different capacities of individual councils to generate income from non-domestic rates.
Obviously, you are well aware of the reasoning that the Government of the day gave for introducing rate pooling. It was concerned that the number of ratepayers was relatively small and that a local authority that did not have a pro-business agenda could easily put rates up to such an extent that those rates drove businesses out of the local authority's area and, indeed, into bankruptcy. How would you prevent such a situation?
That comes back to the concerns that were mentioned earlier about the need to recognise the perceptions of the non-domestic rates practice that was in place in the past and to build constructive relationships and consultation arrangements between the business sector and local communities.
Would you want to lock that into any discussion on rates, for example, so that there would be full consultation with the people who have to pay them?
There needs to be consultation, yes. One of the things that I hope we will develop is some kind of guidance for councils that will set out arrangements that they could follow when discussing issues with local businesses.
What I am getting at is not just the possibility that a local authority could skyrocket the rates, but that another local authority could plummet the rates in order to attract more investment at the cost of front-line services. Do you think that there would have to be parameters within which councils would have to operate? Do you think that councils should have the ability to move rates up or down a certain level annually or triennially, or do you think that that should be completely up to the local authorities?
That is covered in the submission, midway through the section on non-domestic rates.
I know. Unfortunately, your submission does not go into the Official Report. That is why we have to quote from it extensively to get it into the Official Report and get your views out to a wider audience.
A couple of possibilities—and they are only possibilities—immediately spring to mind. The first is to link rates to the inflation index. That would effectively just be to continue the current arrangements, uprating by the retail prices index. The second, and perhaps more favourable, route would be to give some kind of guarantee or safeguard to the local ratepayers. The level of increase in rates could be linked to the level of increase in council tax and some kind of upper and lower thresholds could be set. There would be margins only at the edges of those thresholds. That would safeguard against the concerns about rates rocketing or plummeting depending on the circumstances, as Mr Gibson said.
I point out that the submission is on the Parliament's website and therefore in the public domain.
That raises a number of issues. The grant distribution as it exists worked fairly well in the pre-reorganisation scenario of nine large regions that were able to swing money within their areas. It does not sit neatly with the 32 diverse local authorities and has been a difficulty since reorganisation in 1996. It now has to be addressed. There have been various transitional mismatch arrangements to try to overcome the difficulties, but the fundamental issue has not been addressed. Now is the time to sit down, address that and come up with something that is far simpler and far more transparent. In the system as it is, there is a significant blur in the formula between statistically driven distribution and distribution driven by judgment—perhaps political judgment. Whatever arrangement is put in place needs to make that difference clear so that clear decisions are taken.
You said that the research on deprivation was not as full as it might have been. In what areas? Are you thinking about identifying particular pockets of deprivation, or are you thinking about types of deprivation such as rural and urban?
The research was not as full as it might have been, because the parameters that were placed on the research at the outset were largely to do with looking at redistributing money within the existing AEF system. We should open up the issue and consider all deprivation moneys across the whole assigned budget, and how they can be pooled together, instead of being separate pots of money. This goes back to the ring-fencing argument once again. If those moneys were pooled together and directed to particular areas, subject to monitoring and outcome-type arrangements, it would give local authorities more flexibility to tackle the problems on the ground.
Could you give us more information on how that could work better?
Do you mean the system itself?
Yes.
I keep coming back to the fact that our submission is a framework document. We hope to consider further the issue that you raise. The first stage is to identify the various pots of money and how they can be pooled together. The outcome of the review was a self-distribution arrangement within the existing system. There were some concerns about the interim adjustment for the current financial year. Approximately £21 million was put in to address deprivation issues.
Thank you for your contributions today. I have a couple of things to say. First, the committee is interested in the task groups that you are going to set up. Perhaps we could have some feedback on them, particularly the groups that Kenny Gibson mentioned, such as the group on local authorities' lack of powers to invest and borrow. We are interested in the answer to my question on your position vis-à-vis new taxes. Hypothecation rears its ugly head again. The Scottish Executive gave evidence before you, and there is a difference of opinion—let me put it that way—so you may need to get round the table again.