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Good morning and welcome to the 12th meeting in 2009 of the Local Government and Communities Committee. I ask members and the public to turn off mobile phones and BlackBerrys.
I would like to do so.
That would be helpful. Thank you.
Thank you for giving me the opportunity to discuss equal pay with the committee.
I am sure that your comments are helpful, cabinet secretary. Thank you for your introductory remarks.
The cabinet secretary mentioned capitalisation and the role of the Treasury. Can he say any more about his plans in that area and whether he would pursue that route with other councils?
The precedent that I have to deal with is the Aberdeen City Council equal pay costs precedent. That council came to us with a proposal. Obviously, the committee will be familiar with the circumstances that that council faces with its finances.
Has the Government produced figures for what it would cost—to put it at its most simplistic—to put the problem of single status and equal pay claims right in Scotland? We have asked previous witnesses who have appeared before the committee to answer that from an employer's point of view. Have you collated such figures?
The Government has not done that, because, as I said in my introductory remarks, it is an issue for local authorities to manage within their own resources and their own financial planning. They are independent corporate bodies, and they are entitled to resolve those issues themselves.
Is that discussion specifically related to the equal pay issue, or to the wider funding issues for local government?
It is related to equal pay. The Scottish Government's capital finance working group, which involves COSLA, is essentially discussing what a capitalisation scheme proposition might look like.
Thank you for that qualification, cabinet secretary.
I am sure committee members agree that we are all frustrated that, although we sit here and take evidence from local authorities and trade unions on these issues, there appears to be no solution in the foreseeable future. That must also be frustrating for all those who are affected.
I do not accept the analysis that the Government is taking a hands-off position. We are allowing local authorities to resolve issues that are properly theirs to resolve. I imagine that, in a different scenario in which the Government was to try to resolve an issue that was properly for local authorities to resolve, we would be criticised for interfering in the proper jurisdiction of local authorities.
I accept that some progress has been made, as some settlements have taken place and some agreements have been reached. However, the evidence that we have received shows that, as those settlements are reached, other problems arise—for example, the recent pronouncements on Bainbridge. We never seem to be able to get to a situation in which we can see the end of the difficulties that are facing us.
My view on where the proper accountability and responsibility lie is clear. This is an issue for local government to resolve; it is entirely within the scope of local government. However, if the Scottish Government can be helpful by becoming involved in something that is within our scope, such as a capitalisation scheme across the country, we will engage in discussions to try to resolve the issue, at the invitation of local government.
As of this moment, is there anything beyond the capitalisation issue that you think that you need to be involved in?
No.
There seems to be some confusion—at least in my mind—about capitalisation. Is the capitalisation that is being discussed in the meeting that you have said is taking place today intended to deal with the additional costs that have arisen as a result of Bainbridge, or is it meant to address the historical picture?
It primarily concerns new liabilities that might emerge as a consequence of Bainbridge. Obviously, I am making the assumption that, in terms of the resolution of many of the previous issues, local authorities have other devices at their disposal, including the use of reserves. Fundamentally, that is an issue for local authorities to determine in terms of their financial strength.
As you know, this is the third committee to consider the issue that we are discussing. The Finance Committee considered the issue when you were on it and, at one of its meetings, you and the president of COSLA had an exchange about whether there was enough money to address the issue.
COSLA has never advanced the argument that the issue was for anyone to resolve other than local authorities, as they enact the agreement that was reached with the trade unions in 1999. The judgment about the financial resolution of the difficulties lies with local authorities, which must take a view on their financial strength.
At the Finance Committee meeting that I referred to, you said to Pat Watters:
That goes to the heart of the arrangements that we now have in place with COSLA. Since that exchange—which I think must have taken place in 2006—local government has been given a rising share of the Scottish block of public expenditure as a consequence of the decisions that I, as Cabinet Secretary for Finance and Sustainable Growth, have taken in budgets that have been supported by Parliament. I can only assume that our reversal of the declining share of expenditure that was going to local government—its share was declining when that exchange took place—has been quite helpful.
There was a debate at that time specifically about what you described as the very serious amount of money that local government was going to pay out in equal pay settlements. Then you and Mr Watters resolved the issue, and he understood clearly that money was available in the overall settlement to deal with equal pay cases.
I do not want the committee to misinterpret what I am saying. Our approach to local government finance was to say to our colleagues in local government that we would relax a number of the significant controls and impediments to the efficient use of public finance locally; we would allow local authorities to retain their efficiency savings for the first time ever; and we would give local authorities a rising share of public expenditure. Essentially, we said to local government that, within the context of that discussion, the financial pressures that had to be resolved by local government would be resolved within that financial envelope. We also said that we would be prepared to engage in a regular dialogue with local authorities about the funding pressures that they face. I cannot tell the committee on how many occasions we have had that dialogue, but we have it regularly. Out of that has come the desire for us to examine the possibility of a capitalisation scheme in relation to the costs of equal pay, which is precisely what we are examining in the discussions that are under way just now.
So, the bill for equal pay, which you described in your exchange with Mr McCabe, the minister at the time, as the most significant risk that local authorities were facing, was not discussed specifically with COSLA. It was just dealt with in the overall settlement; it was hidden away.
If you do not mind my saying so, that is a particularly pejorative way of expressing it. The issue was included in an overall discussion of all the funding pressures facing local government. The Scottish Government put in place a set of arrangements that allowed local government greater flexibility over the utilisation of its finances. The arrangements related to the removal of ring fencing to ensure the more efficient use of public money locally; allowing local authorities to retain their efficiency savings locally, which they had never been allowed to do previously; and giving local authorities a rising share of public expenditure. Those three factors have a cash benefit to local authorities. It was within that context that we resolved the issues around the financial pressures facing local government. I add a caveat: we have on-going dialogue and discussion with local government on emerging financial pressures.
I will read out part of the exchange in 2006, in which you highlighted the absurdity around all this money:
If you were to set that exchange in its proper context, you would see that that was not a point about local government; it was a point about how Audit Scotland examines the accounts of local authorities.
That is another issue.
It is not another issue—that was the context of the exchange. I am glad that you have read out that quotation, as it has reminded me of the context of the point that I was making. If my memory serves me correctly, at that time I was expressing concerns not only about the fact that Audit Scotland was probing what were relative issues in terms of the cost of service provision, which varied from one area to another, but about the fact that Audit Scotland did not seem to be expressing an opinion on how contingent liabilities such as the cost of equal pay should be treated within local authority accounts. If my memory serves me right, I was, along with Mr Brownlee, questioning that into the bargain. You are inferring from that quotation something fundamentally different from what the exchange was about.
I am confirming that you were well aware of those contingent liabilities. I am probing why those massive contingent liabilities were not discussed specifically in your discussions on the funding of local government.
The answer to that is twofold. First, it is the duty of each local authority to assess properly its financial position and liabilities and to make financial planning decisions accordingly. That is the statutory responsibility of each individual local authority, and I have every reason to believe that that is what local authorities are doing. When they do not do that, we end up in the situation that Aberdeen ended up in. The Accounts Commission had to examine the financial health of Aberdeen City Council—not specifically in relation to equal pay, but in relation to a variety of different questions—and make recommendations, which I have accepted and followed. I am glad to say that, on that basis, there is now a process of real recovery going on in Aberdeen City Council.
But you would agree that there are some outstanding questions. Last week in the chamber, you told me:
I have answered the question clearly. Local authorities have made provision; they have signed up to an agreement. I work on the assumption that authorities have made provision within their overall financial position to deal with those liabilities, and we are taking forward discussions with local authorities to examine what potential new liabilities may arise from some decisions with which we all are familiar.
New and old, I think you said.
Well, potentially, but my assumption is—
How many will require access to capitalisation?
That question will be answered in the discussions that we have with local government.
Good morning, cabinet secretary.
Good morning.
You raised an interesting point on capitalisation and the on-going discussions—including today—with the UK Government. Is capitalisation potentially part of the solution to the financial problems facing some local authorities?
I cannot answer that question today, but I am happy to write to the committee with the answer. I am not sighted on that issue.
We will await that communication.
Good morning, cabinet secretary. I found your response to a question from the convener interesting. You said that it was not for you to recommend the workload of Audit Scotland. I recall that you were not so reticent in June 2007, when you invited Audit Scotland to review a number of transport projects—an invitation that Audit Scotland accepted. Reports were made to Parliament on the projects. Do you agree that you should, in a similar vein and courteous manner, invite Audit Scotland to look at the equal pay funding pressures on local authorities?
No. It is appropriate for local authorities to take forward their statutory functions. The Government inherited those transport projects; they were our predecessor's commitments and we believed them to be fundamentally flawed. History has justified the Government's scepticism in that regard.
Yes, but on the constitutional issue, you have no qualms about making recommendations or requests to Audit Scotland from time to time on matters that it might consider in its work programme.
There is a fundamental difference between the issues. The convener invited me to speculate on whether I should ask Audit Scotland to investigate the functions that are entrusted on a statutory basis to other statutory bodies in Scotland. However, given that the transport projects were part of the policy programme that we inherited, the Government had a financial commitment, obligation and liability. It was therefore appropriate for us to ask Audit Scotland to examine the commitments that we were being asked to take forward.
That is the constitutional distinction. The present Scottish Government will therefore never invite Audit Scotland to look into any aspect of the affairs of any publicly funded body in Scotland. Is that correct?
That is not what I said. I said that—
You drew a distinction between projects for which the Government is directly responsible and matters that are the responsibility of local authorities. That was the distinction that you drew, was it not?
No, it was not. The Government has responsibility for plenty of public bodies. On occasion, I might invite Audit Scotland to examine the conduct of such bodies. That said, local authorities have the statutory power to exercise their role and responsibilities. Clearly, there is a statutory mechanism whereby if there is a concern about the financing of an individual local authority, the Accounts Commission will properly commission Audit Scotland and the Auditor General to investigate. That is exactly what happened in the case of Aberdeen City Council. As a consequence of such investigations, the Government receives recommendations. That is a pretty orderly process, and the Government should respect it.
So the Government would never recommend that such an investigation be conducted or invite someone to conduct one.
I have said what the statutory position is.
I know what the statutory position is; I am asking whether the Government would instigate such an investigation.
I cannot foresee every circumstance or scenario that we will face but, as things stand now, the Government properly and fully follows the existing statutory and investigatory position.
I will clarify a point about the concordat that arose in the evidence that we took last week. Is any aspect of equal pay one of the "exceptional funding pressures" that are referred to in the concordat that the Government concluded with COSLA?
The exceptional funding pressures were not defined. They are essentially the product of regular discussions between the Government and COSLA.
Some of the exceptional funding pressures were defined, were they not? The president of COSLA was very quick to slap local authorities down when they suggested that implementing your free school meals programme would cause them additional financial problems.
The free school meals proposal is explicitly referred to in the concordat. On page 5, there is a specific provision on the implementation of that policy commitment, so it is different.
It was a known factor.
It was a policy commitment that the Government wished to implement but could do so only in partnership and collaboration with local authorities, so it was expressly stated as a policy commitment that the Government wished to take forward.
The potentially substantial equal pay liabilities were also known factors on the table. They were part of the background against which the concordat was concluded. I am simply asking whether any aspect of the equal pay liabilities is an exceptional funding pressure as defined on page 6 of the concordat.
If my memory serves me right, when the concordat mentions exceptional funding pressures—I am just trying to find—
It is on page 6.
I have got page 6; I am just looking for exactly where.
It is paragraph 4, lines 1 to 3.
Line 3 and a half, Mr McLetchie, helpfully goes on to say:
Indeed.
That rather answers the question.
No, it does not, actually. If I may—
No, allow me. I am afraid that I will have to go over ground that I have already covered with the convener. It may sound more pleasant the second time it comes out. When we negotiated the concordat, we did not specify every single element of local authority expenditure. We said that there was a pot of expenditure that would be informed by the grant from the Scottish Government, the retention of efficiency savings, the removal of ring fencing and a rising share of the Scottish block, and that it would deal with local authority funding requirements and the contents of the concordat on specific policy commitments. We also gave a commitment that, if there were any exceptional funding pressures, we would have a discussion in due course to resolve the issues. That is exactly what happens in our dialogue with local government.
As you correctly pointed out, lines 3 and a half to 4 and a half state:
Mr McLetchie, local authorities face many financial issues in the climate in which we operate, such as wage pressures, which could not have been anticipated at the start of the process. Who could have predicted where the local government salary deal would go over the duration of the concordat?
That is a future event, Mr Swinney. Equal pay is a past event. It is an historical factor that existed when you conducted the concordat negotiation.
It is quite clear that the arrangements that we have put in place—which give local government a rising share of public expenditure, allow it to retain efficiency savings and remove ring fencing—create a greater degree of financial flexibility and financial opportunity for local authorities. That is the basis upon which the concordat was constructed.
Is the Bainbridge decision an exceptional funding pressure?
We will discuss the Bainbridge decision with local authorities as part of the work that we are taking forward on the capitalisation issue.
So the Bainbridge decision, for the purposes of paragraph 4 on page 6, can be categorised as an exceptional funding pressure.
It could be.
Good. That is a development since we started the inquiry.
The group was already established—it was not set up for the purpose—and it meets to discuss capital issues. We started our discussion of the issue back in February 2008 and we have had subsequent discussions. The group is now examining the questions.
I think that you said that a scheme exists in England. Will you give us an idea of the scale of the scheme and how much money councils in England have been authorised to borrow for the purposes of settling their equal pay liabilities?
The value of capitalisation direction limits in England up to and including 2008-09 is £1.1 billion.
That is the sum that the Treasury has authorised councils to borrow for the purposes of meeting these historical liabilities. Is that broadly correct?
I am not certain, but I assume that it must for historical issues.
In relation to the Scottish position and what might emerge from it, the evidence that we have received suggests that Bainbridge, which we now learn is an exceptional funding pressure—
Before Mr McLetchie gets carried away and rewrites history, I said that it could be classed as an exceptional funding pressure. That would be determined only after a discussion between the Scottish Government and local authorities.
But use of the phrase "could be" is an advance, because prior to its use equal pay was always included in the concordat, full stop, because it was historical. So the use of the phrase "could be" and the establishment of a working group to examine capitalisation to fund settlements are developments on the position that existed at the start. That is why I welcome the change in language in relation to equal pay and funding under the concordat.
First, it is far too early to be able to give a definitive answer on any aspect of that question. I cannot begin to see how one could reliably estimate the implications of Bainbridge. There is a Court of Appeal view that undermines the effectiveness of Bainbridge, and I cannot understand how one could definitively estimate the results of Bainbridge for Scottish local authorities. As a consequence, it is impossible to define a figure.
I am slightly puzzled. It could be an exceptional pressure, yet we now have to decide whether it may be an emerging pressure—unless there is any doubt among the witnesses from the councils that it is a substantial funding pressure. That is self-evident.
Yes, but we have to determine the extent to which the implications of Bainbridge are a product of decisions that were taken previously, as part of the core settlement of equal pay and single status. We have a question that we must answer, and we will do so only after discussions with local authorities.
What is the Government's view?
The Government will take forward the discussion with local authorities. That is why I am saying to you that there could be a financial pressure, as defined in the concordat.
The only thing that we have learned is that nothing is ever defined under the concordat. I ask you whether something is an exceptional funding pressure or not; you say, "It may be," or, "It could be." You say, "We are taking it forward in discussions." I say, "What is the Government's view?" and you say, "We are going to discuss it." In other words, you do not have a view.
Let me give Mr McLetchie an example of an exceptional funding pressure. A judgment was made—it was an actuarial revaluation—about the fire and police pension schemes, which had an implication for Scotland. That actuarial revaluation changed the commutation factors for police and fire pensions and resulted in a one-off cost of—if my memory serves me right—£40 million in Scotland. The Government accepted that that was an exceptional financial pressure. We engaged in a discussion with local authorities, and we agreed a financial mechanism to resolve the issue.
But Bainbridge was, in a sense, under the control of local authorities. It arose from the pay protection schemes that local authorities were responsible for negotiating. Perhaps they did not appreciate the consequences of that, but, nonetheless, Bainbridge was a legal decision that arose from actions that authorities had taken. It therefore does not fall into the same category as the actuarial decision that you mention, because that decision was not a matter over which local authorities had control, unlike the contract negotiations that gave rise to the adverse Bainbridge decision. Those are two different things, cabinet secretary.
I actually agree that they are two different things, and I will explain exactly why. Mr McLetchie's explanation might be an argument for the Government not to take the view that any implications of Bainbridge represent an exceptional financial pressure.
Indeed. I am just trying to establish what your position is. That is what we have been doing for the past 20 minutes.
With the greatest of respect, the position involves a degree of dialogue and discussion with local government, which I will carry out, as the concordat expects me to do. That is exactly how the Government will proceed. I cited the example of the commutation factors for police and fire pensions to make the point that it is possible to resolve emerging financial issues and pressures within the Government's relationship with local government perfectly amicably and satisfactorily, and to the benefit of the governance of Scotland.
I want to take us a few years into the future. One thing that is certain about equal pay and single status is the complete chaos and uncertainty in the past 10 years. However, assuming that we reach a resolution on equal pay and deal with single status, we have heard in evidence that the issues could echo again in local authorities because, as they create new jobs and new job remits, the authorities will have to review the single status arrangements. There will be a cyclical process, with reviews every five or 10 years or whatever.
The process of implementing single status and equal pay provisions is about ensuring that we have a robust and reliable arrangement for determining the role and remuneration of individuals in local authorities in Scotland. Given the lengths that have been gone to in creating the basis, it is important that we stick rigidly to its application for new roles and responsibilities. The scenario that Mr Doris sets out can be avoided if local authorities operate within the scope of the agreements that they have made and ensure that staff are identified and placed appropriately within salary structures to reflect their roles and responsibilities.
Have you worked with COSLA to consider best practice guidelines that local authorities could use to equality proof future staffing issues?
I am sure that, in the discussions that go on within local government, the approach of ensuring that such issues are avoided will be taken forward. We are happy to have discussions with COSLA on that question to ensure that the advice that we have is made available to local government. However, I return to my central point that the issue is in essence a responsibility for local government.
I agree with that, but the committee has become increasingly frustrated about who has the leadership on all the aspects, including the historical issues, the Bainbridge decision or looking to the future.
On the question of leadership, the agreement was formulated in 1999 between COSLA and the trade unions. Leadership responsibility for taking the issue forward lies firmly with COSLA.
I am encouraged by the idea of the Scottish Government working with COSLA and local authorities to deal with any cost spikes that could happen as a result of Bainbridge liabilities and so on. In the committee's discussions with the unions and COSLA, I suggested that another way of spreading the pain of equal pay liabilities, single status and Bainbridge would be to offer payments to individual employees over a three-to-five-year period rather than a one-year period, and to pay those liabilities in instalments. Other than the cost spike and the capitalisation, have you discussed with COSLA any alternative, imaginative approaches to financing single status and equal pay?
The issue that we are considering with COSLA is the capitalisation scheme. Obviously, if other suggestions are made, the Government will consider whether they are appropriate.
As I am sure that the cabinet secretary understands, committee members are frustrated that equal pay has been talked about in local government for almost 10 years. We are trying to find a way through the maze in which previous Governments and local authorities have found themselves.
There would have to be a clearly articulated business case—as there was in the case of Aberdeen—that determined that that was a justifiable way of proceeding. That business case would have to consider the local authority's overall financial position. Obviously, we have a significant amount of information that would inform our judgment about whether the business case in that context would be justified. That is the process of scrutiny that would be applied.
My exchange with COSLA last week clearly expressed my frustration that it has taken so long to get to where we are on equal pay and single status. Many workers who would have been entitled to payments or increases under equal pay may have lost out because of the time that the process has taken.
We should take some encouragement from the fact that progress has been made in recent years. There was a dearth of progress for a significant period, but more progress has been made recently. That is an encouraging sign that we are moving in the right direction. In the discussions that I have with local authorities, they tell me that they are anxious to resolve this issue, because it is consuming a tremendous amount of energy and activity.
If capitalisation were to be allowed, what would be the long-term financial impact on local authorities, particularly in relation to their selling assets in the current financial climate?
Obviously the current market is a major consideration for anyone in the public sector who is disposing of assets. Careful judgments would have to be made about whether this was the right time to dispose of assets, bearing in mind the condition of the property market, and about what benefit to the public purse might be realisable. As Patricia Ferguson knows, such matters are well marshalled in the "Scottish Public Finance Manual", which provides guidance on such questions.
I am sure that you have gathered that the committee feels frustration about this issue. I know that that frustration is shared by COSLA, the trade unions and, most important, the workers who are directly affected. The reason for my question is to try to ensure that if some new mechanism is put in place with the intention of trying to help resolve the situation, it will not result in local authorities stoking up problems for themselves into the future.
It is a completely fair point that careful judgment would have to be made about disposing of assets in the market, given the current market circumstances, which we can all see. That all fits into the essential prudential judgment that has to underpin each local authority's financial arrangements. What happened in Aberdeen, and what the Accounts Commission properly examined and highlighted, was that such an approach had not been taken for a number of years; as a consequence, the current council administration faced an unsustainable financial position, which it is working extremely hard to rectify, at my requirement. There is no escaping the central point that Patricia Ferguson advances in her question, which is that there must be wise prudential management of finances by every local authority. The implications of a capitalisation scheme would have to be another element of that consideration.
Do you have in mind a timescale for the conclusion of the discussions with COSLA over this issue?
I cannot give the committee a timescale just now. Those discussions are under way and we will try to resolve them as soon as we can.
We have concentrated a great deal on the mechanisms. It may be important to get a statement on the record about how you feel about the women who are caught in this situation. I think that you agreed with the statement that equal pay is essentially about taking women out of poverty. Do you agree with that statement?
I do, convener. I have responded to the committee's concerns about the various issues, but at the heart of what I have said to the committee—I mentioned it in my opening remarks—is the fact that equal pay has taken too long to implement. It was the right thing to do. Equal pay legislation has been in existence for the best part of 40 years, but slow progress has been made. I accept that, and the discussions that I expect local authorities to have are designed to resolve that. We will try to be as helpful as possible.
I am sure that you will also accept the committee's view that we are asking neither local authorities nor the Scottish Government for a blank cheque. We expect them to look after the public purse and, where cases can be defended in the public interest, they should be. Nevertheless, we heard in evidence last week about a serious issue. I do not know whether any of the discussions that are taking place involving the business case of the capitalisation or in your dialogue with local government have touched on this. Last week, we heard from COSLA that there is a rigorous evaluation of the claims and that that is what it expects—cases need to be taken through the courts and they need to be evaluated.
Judgments must be arrived at on whether individual cases are sustainable. When equal pay deals were put in place, they must have been put in place with a sense that they were justifiable and sustainable. If that is the case, those cases should be entirely robust. However, if judgments question whether that could be reliably taken as a robust position, authorities must reflect on that. I would certainly want authorities to resolve matters as quickly and efficiently as possible.
Thank you for your evidence, cabinet secretary.