Plenary, 07 Feb 2001

Meeting date: Wednesday, February 7, 2001

Official Report 407KB pdf

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Local Government Finance (Scotland) Order 2001

I suggest that we move on to the main item of business, which is motion S1M-1598, in the name of Angus MacKay, on the Local Government Finance (Scotland) Order 2001. I have particular pleasure in inviting Angus MacKay to address the chamber.

I would not want you to think, Presiding Officer, that I am becoming at all nervous or paranoid about points of order before I rise to make a statement in the chamber.

The order that we are asking Parliament to approve is of significance to all Scottish councils and to council tax payers. The Local Government Finance (Scotland) Order 2001 provides the grant support for Scottish councils' revenue expenditure in 2001-02. Local government revenue funding accounts for more than a third of the total Scottish Executive assigned budget. I welcome the opportunity for members to comment on this vital element of the Parliament's responsibilities.

This is undoubtedly an excellent local government settlement. It follows a spending review in which we allocated an additional £1.2 billion to local authorities over the next three years. It is the best settlement for many years and was warmly welcomed by the Convention of Scottish Local Authorities and by individual councils. It enables us to announce three consecutive years of real-terms increases for all councils in Scotland for the first time in more than a decade.

The order that we are considering provides the first instalment of that £1.2 billion. It increases local authorities' revenue grant by 6.4 per cent next year, and gives every council an increase of at least twice the predicted rate of inflation. Every council, whether urban or rural, whether its population is growing or shrinking, will get at least 5 per cent more than it did this year. That is a real-terms increase in grant for every council and emphasises our commitment to investing in improving services for the Scottish people. Next year's grant increases, plus the security of guaranteed real-terms increases for the following two years, will allow councils to focus on delivering real improvements to services.

The bare figures set out in the order should be seen in the context of the genuinely radical reform of the local government finance system that has been initiated by the Executive. We have transformed the financial environment for local government in a variety of ways. We have established the stability of three-year settlements long sought by councils. We have asked councils to echo our commitment by publishing council tax levels for the coming three years. We have introduced a fairer and more stable distribution system. Underpinning all that, we have concluded the revaluation of non-domestic rates with minimum disruption to businesses.

As in previous years, the grant distribution has been established following consultation with local government, through COSLA. This year, we have given particular weight to tackling the problems associated with deprivation. We conducted a review of deprivation and, as a result, have allocated an extra £12 million in the settlement to help councils to tackle deprivation in schools. That is in addition to the 13 assessments that have been adjusted to take account of deprivation and that underpin the settlement for the next three years.

Following the special islands needs allowance review, we have extended the allowance to three more councils, which has been warmly welcomed in the areas affected. On top of that we are allocating an additional £90 million over the next three years specifically to tackle deprivation in Scotland's most deprived areas. That £90 million is in addition to the allocations set out in the order and is direct proof of our commitment to achieving social justice in Scotland.

The order is accompanied by a report, which details how the figures in the order have been calculated in consultation with COSLA. As I have said before, we value the regular contact, discussions and partnership that we have with COSLA on local government issues and firmly intend that it should continue.

I agree with what the minister has said—it is a great change from last year.

Councils still seem to be confused about what we might call the McCrone money. Will the minister confirm that councils are due to contribute the amount that a normal pay increase for teachers might have been, as agreed by COSLA, and that everything above that will come from the Executive, so they need not budget for it? I think that some councils are budgeting for it, possibly erroneously.

I am happy to confirm that the Executive has always said that it would fully fund McCrone. There is a ballot to decide the matter in the next few days and we look forward to its results—I hope—which will be an affirmation of the agreement reached. Councils will not have to make a contribution to the McCrone settlement other than that negotiated and agreed with COSLA, as the councils' representative body. I hope that that provides some comfort to the member.

Last year, we announced to Parliament details of the £25 million modernising government fund. The fund covers a two-year period and is part of the wider drive to modernise government. The fund's principal objective is to encourage innovative ways of providing services that are responsive to public need. Due to demand, I approved an increase of £1 million for the fund, bringing its total to £26 million. In December, I was able to approve the allocation of resources to 36 projects, 22 of which, with total funding of £17.5 million, will be led by Scottish councils. The projects bring together partnerships across the public sector and many involve the private sector, too.

There is good news about three-year budgeting, more money for deprived areas and modernising government. That is fine, but does the minister accept that many councils still need to find savings in their budgets? Perth and Kinross Council, for example, is looking to save £4 million from its budget and is considering reducing contributions to the area tourist board and to Perth & Kinross Society for the Blind by 15 per cent, just to stay within the confines of the Government's settlement. The reality is very different from—

Order, Mr Crawford. You may not make a speech in the middle of somebody else's contribution.

I will touch on some of the concerns that councils have about budget constraints later. I repeat that this is the most generous settlement for local government in more than a decade, encompassing real-terms increases year on year for each of the next three years. That is not to say that councils do not still have an obligation to manage their budgets—they have real choices to make. All of us—the Executive, councils and, I hope, every party in the chamber—must recognise that one cannot prioritise every single part of one's policy agenda. If national or local government wants to be responsible, decisions must be taken.

Will the minister give way?

I am sorry, but I must press on. I have lost some ground due to the interventions that I have taken.

The injection of new funds from the modernising government fund will help to deliver improvements in services to the public. The Executive will monitor project plans, progress reports and examples of good practice from each project and full details will be documented on the 21st century government website. In that way all councils will benefit from the projects. Members of the public will also be able to monitor the progress of individual projects by accessing that website.

I have covered the main points on the order. I will now address some longer-term issues and look to the future.

I said earlier that, overall, this is a very good settlement. It is an excellent start to what is a fundamental change to local government finance in Scotland. Not only has there been a commitment to three-year allocations in funding, but councils will now deliver three-year council tax charges. That stability in funding for local government will allow councils to set their budgets with a view to ensuring that the electorate can see a difference in the quality of local services. What we have done is start to put in place a system that enables local authorities to best allocate resources in their own areas to tackle local issues, and which gives them the flexibility to focus their resources on the needs of their electorate.

On 22 November I announced my intention to abolish the expenditure guideline arrangements. Devolution has allowed us to establish a new financial partnership with local government in Scotland. Whatever members may say about the level of the settlement, I hope that they agree on that point.

As well as the stability of three-year budgets we have given councils additional flexibility in setting their council tax levels, with from next year the abolition of explicit expenditure guidelines. We have retained our reserve capping powers, but we hope that we will not have to use them. Local electors will know the council tax commitments in their areas for each of the next three years.

The purpose of allocating those additional resources, and of renewing the financial partnership between central and local government, is to provide better services for the citizens of Scotland. The ultimate test of those arrangements will be whether they produce outcomes that improve the quality of people's lives. We must not lose sight of that. That is why the Executive attaches such importance to extending the partnership on financial matters into a partnership that shares ownership of the outcomes that we are seeking to achieve.

That means that we must have arrangements that secure the delivery of the national priorities supported by the Parliament, while providing the flexibility that each local authority needs to respond to local circumstances. To that end, we intend to pilot local outcome agreements between the Executive and local authorities in several key policy areas, including school standards, social justice, children's services and community care. We intend to work closely with local government on those. In that spirit of partnership, I intend to conduct a joint review with COSLA to consider further how we can introduce that new approach to reducing and ending hypothecation. If that produces the desired results, we will be able to review the need for the ring fencing of resources that we allocate to local authorities. That will come to grips with some of the issues that Bruce Crawford raised.

Those ring-fenced resources represent less than 10 per cent of the total Government grant. We have already announced our intention to review the scope and operation of the excellence fund, which forms a significant proportion of that 10 per cent. We will continue to push for further progress so that the focus of our partnership is improving services, rather than the detailed financial arrangements between us.

I welcome Angus MacKay's comments on ring fencing and hypothecation, as that is causing councils a lot of concern. Is he moving towards a position where the Scottish Executive will concentrate more on outcomes and be able to allow greater flexibility by reducing the proportion of funding—currently 10 per cent—that is ring-fenced?

As Keith Raffan knows, I focused on that when I dealt with expenditure on the drugs issue. It is no less correct to introduce that approach, as far as possible, into local government expenditure. It is the outcomes of expenditure that matter, not the inputs. That is what we want to move towards.

I will say a few words about capital allocations. As with revenue support grant, capital allocations will also receive a significant boost. By 2003-04, mainstream allocations will have increased by nearly 40 per cent. That is only part of the overall support for capital investment over the next three years; we have also delivered, for the first time, a three-year capital allocation and with it a guaranteed increase for every council of 20 per cent next year.

Everyone welcomes the extra capital allocations. Can the minister tell the chamber whether, when that increase comes through, capital allocations will be higher or lower than when the Conservatives left office?

I am afraid that I do not have the answer to that question precisely at my fingertips. I would be happy to look into the matter and come back to Mr Wilson. I am sure that he will have a view. Whether I agree with it is another matter.

As part of the on-going reform agenda, we will be looking at the way in which we deal with capital expenditure in the round. The current system of capital controls is rooted in the 1970s. What was appropriate then is not necessarily appropriate now. The state of their schools and the local road network are the measure by which communities tend to judge their councils. We want to give local authorities the opportunity to meet the expectations of their electors. We want to do that by allowing them to manage their finances in a much more flexible way, to facilitate joined-up working with other public sector agencies, and to take forward capital investment decisions on a genuinely best-value basis. We intend to work with local government to develop a system that delivers those improvements.

I have tried to cover the main points of the order and of the attached report. I have highlighted other ways in which we are already acting to assist local authorities, such as through outcome agreements and the proposed review of capital controls.

Will the member give way?

Not at this stage. I am sorry, but I am nearly finished.

I know that the Local Government Committee is reviewing local government finance issues and I look forward to working with that committee and to discussing its findings.

I want to acknowledge the absolutely central contribution that local government makes to the quality of life and opportunity available to people in Scotland. The settlement that we are inviting agreement upon today provides councils with the financial support that they require to expand and improve those services.

The partnership Executive is clearly demonstrating its commitment to the future of local government: a local government that will deliver for local people and be held democratically accountable to them. We are delivering on commitments that we have made and we will continue to do that in each of the next three years. We look forward to continuing to work together with local government to deliver for Scotland.

As someone who previously served in local government, I can confidently say that the financial environment in which we have now placed Scottish councils is unrecognisably better than the environment in which they struggled to function over the past 20 years. The partnership members were people who fought tooth and nail for many a long year to protect local government and the critical services that it delivers, first from Margaret Thatcher and then from a succession of others. Those local councils were successful not only in defending their own structures, but in continuing to deliver services upon which people depend acutely, day in and day out. We have now turned that situation round; those services will be expanded and can look forward to planned growth over the coming years.

I commend the order to the chamber and move,

That the Parliament approves the Local Government Finance (Scotland) Order 2001.

Given that the time that is available to me in this year's debate on the local government settlement order is seven minutes shorter than I had last year, I will not respond to every point that was raised by the minister, but will focus instead on a few key areas of concern for COSLA and the wider local government community. My colleagues will pick up other issues as the debate progresses.

On 22 November, the Minister for Finance and Local Government announced his intention to introduce three-year budgets for local authorities, which we welcomed. Although the details of each local authority settlement were not released until 7 December, the minister spoke of real-terms increases in spending over three years and of flexibility in spending those additional resources.

The aggregate external finance figures will front load additional resources into the first year of the settlement—coincidentally in a Westminster election year—and the most deprived local authorities will receive below average settlements, apparently in favour of local authorities that equate to marginal constituencies. We have heard condemnation of the settlement from, among others, the minister's Labour party colleagues in Glasgow. Indeed, the leader of Glasgow City Council has stated that by 2003-04 Glasgow will be £72 a head worse off in terms of grant—£45 million in that year—than when the Tories left office, despite new burdens and responsibilities having been imposed on the council since 1997. However, I will leave others—notably members on the Labour benches—to detail those specific concerns.

I am happy to answer the question that the Minister for Finance and Local Government was unable to answer. By 2003-04, the capital that will be available to local government will be approximately £188 million less than when the Conservative party left office.

Does Mr Gibson acknowledge the statement that was made by Charlie Gordon, the leader of Glasgow City Council, on 26 January in the Local Government Chronicle, in which he said:

"We now have a breathing space to maintain modest service growth and below inflation council tax rises"?

Does he also acknowledge that under this Administration` expenditure per head of population in Glasgow will be higher in real terms than it was under the Conservatives? Can he confirm exactly how much beyond this settlement the SNP would have contributed, or will contribute in future, to local government?

When the next local elections come, we will provide a fully costed manifesto that will detail all the information that the minister requires. I know that many of his Labour colleagues feel that Glasgow got a raw deal—they have spoken to me privately about the matter. However, for once I shall not quote Charlie Gordon in my speech. Instead, I shall address hypothecation and the spending pressures within the overall local government settlement.

Resources are always an issue and always will be, not only because of the amount of resources that are available, but because of the way in which they are spent in particular council areas. I was pleased that the minister touched on hypothecation. It is now clear that the extent of ring fencing and the Scottish Government's direction of the use of resources are causing significant difficulties for councils in maintaining core service provision. Those factors are also undermining efforts to introduce a more appropriate balance between central direction and local flexibility. In announcing individual councils' figures, the minister stated:

"The three-year grant allocations that I am announcing today for both revenue and capital will assist all local authorities to plan their budgets better and to provide their local electors with certainty about their tax commitments."—[Official Report, 7 December 2000; Vol 9, c 690.]

He reiterated much of that today. However, commenting on the three-year settlement, the president of the Convention of Scottish Local Authorities, Norman Murray

"warned that councils would continue to face difficult decisions in setting their budgets for the next three years."

Why should that be, given the apparent generosity to which the minister has referred repeatedly today?

Analyses of specific grants for the next three years show that, for next year in particular, although overall AEF—aggregate external finance—is to increase by 6.2 per cent, ring fencing within that total is to increase by 10.7 per cent. That restricts the resources that are available for general grants to local government. The increase in ring fencing through specific grants is at odds with the minister's statement to Parliament on 7 December. He said that there is

"an increased focus on service outcomes".—[Official Report, 7 December 2000; Vol 9, c 690.]

That is a message that he repeated today.

Ministers have indicated their willingness to examine the possibility of more flexible arrangements for specific grants for years 2 and 3 and to consider putting in place arrangements that will allow greater flexibility between capital and revenue. However, such consideration needs to be undertaken as a matter of urgency, especially in relation to the use of available excellence fund resources, which the minister touched on.

There are several facets to the problem of ring fencing. First, ring fencing is set within the context of resources that are demonstrably insufficient to meet the needs of Scotland's communities. Secondly, the process is rigid and bureaucratic. Thirdly, it is fragmentary and militates against a strategic joined-up approach. It is disingenuous to place so much focus on initiatives that raise public expectations, when the reality is that funding is being displaced from other high-priority areas. An urgent review of hypothecation in the system must therefore be undertaken.

On 7 December, when the Minister for Finance and Local Government announced individual councils' settlement figures for the next three years, significant background detail was outstanding in relation to the Executive's assumptions in its calculations. Prior to receipt of that analysis, the focus on settlement figures had been largely on the bottom-line settlement. Ministers said that the settlement took account of the existing pressures in local government and that there would be less focus on inputs.

The detail that has since been made available places in some doubt the substance of those statements. It is clear that the Executive has placed considerable direction on the use of available resources. The devil is, of course, in the detail—the detail shows that every penny of the new money has been directed by ministers. That significantly distorts the efforts that have been made in reviewing local government finance systems to introduce a more appropriate balance between central direction and local flexibility. There must be more local discretion and flexibility in the use of such resources.

Fundamentally, the lack of local flexibility that has been brought about by the Scottish Government's detailed breakdown of available settlement resources demonstrates little partnership or trust, yet that was what the minister spoke of today. There needs to be more honesty in settlement announcements; it is disingenuous of ministers to suggest that previous cutbacks and the funding of core service provision have been recognised in this settlement. Resources have been targeted largely to specific areas in education, social work, the police and the fire service. Direction of funds to those areas will mean disproportionate cuts in core service provision and in other service areas.

On top of that, different messages are coming from the centre and from service departments in the Scottish Government with unacceptable levels of hypothecation. An example of that is the recent issuing of circulars that direct and specify in a detailed manner the most appropriate use of available social work resources—an area that is already substantially under-resourced.

A further example of an area of concern that relates to the Executive's announcements is road maintenance. On 28 September 2000, the Minister for Transport stated in a press release:

"Years of neglect have left our local roads and bridges in an appalling state. To tackle the backlog of repairs I am allocating an extra £70 million to local authorities up to March 2004."

That is fine, but she continued:

"I expect councils, at the very least, to maintain this year's level of current and capital spending on roads, street lighting and bridge maintenance."

In short, she said that the new spending must be used as additional funding, not as a way to make up the existing budget. No provision has been made in the settlement calculations to assist councils in addressing and restoring much-needed on-going revenue maintenance to roads.

On a point of order. As all members have received the COSLA briefing, could we take it as read and proceed with the rest of the business?

That is not a point of order; it is a point of argument.

I thank Mr Tosh for his point of order. He is correct in saying that much of the information that I am using was received in a COSLA briefing. That is because COSLA is the organisation that speaks for local government in Scotland. I can assure members, however, that some of what I say is my own words.

Because local government has less discretion over its funding than it has over its services, it is hard to apportion responsibility for locally delivered services. As a result, there is confusion about responsibility and accountability; central Government and local government blame each other when things go wrong. To make accountability clear, local government's discretion over its funding must be closely aligned with discretion over its services. For its part, local government must play its part in helping the Government of the day to meet its objectives. Those objectives, however, are best achieved not by central direction or hypothecation, but by joint policy and the development of such policy by local government and the Executive. By definition, priorities should be limited in number and the focus should be on jointly agreed outcomes, which will allow local government to use discretion in achieving those outcomes.

Last summer, councils faced a number of new burdens and spending pressures that have still not been addressed. They include: increased employer superannuation contributions; the impact of green taxes; the demographic pressures that are caused by the increasing number of single-status elderly households; and a major funding problem in relation to police and fire service pensions. That amounts to a minimum cost of £146 million next year alone, in addition to the necessary restoration of previous cutbacks which, it would appear, have not been adequately reflected within the settlement calculations. As a result, there will be significant pressure on councils' capacity to fund existing core service provision while recognising levels of urban and rural poverty.

Other pressures that are appearing on the horizon include the impact of the award of the new trunk road contracts, the outcome of Lord Hardie's judgment in the MacGregor case and the cost of the new executive agency's regulation of housing management, which Glasgow City Council believes will cost it £8 million a year. Other hidden burdens have not been accounted for. Last Monday, for example, I was advised that the cost of service provision for autistic children has risen 700 per cent in Glasgow in six years, but there has been no recognition of that at the centre. The minister will be aware that that service to autistic children will soon receive Glasgow's COSLA affiliation fee, following Glasgow City Council's withdrawal from that organisation.

The Scottish Executive defined a new burden that will be taken into account in settlement calculations as a situation in which

"as a result of the Executive's policies a new initiative, duty or responsibility was placed specifically on local government in such a way that imposed additional costs on authorities"

or

"where there was a transfer of functions or responsibility from the Executive or other government departments to local authorities in such a way that imposes additional costs on authorities."

You must wind up now.

Indeed. I am on my last section.

In assessing the overall spending needs of local government, a more realistic account needs to be taken of all the spending pressures and inescapable costs that are faced by local government. A realistic assessment must be made of the capacity to introduce further efficiency savings for local government. The Scottish Government's narrow definition of new burdens must be expanded to recognise all spending pressures within settlement calculations.

A grant distribution system cannot solve the problems of inadequate resource levels and an inadequate tax base. The overall inadequacy of resources is at the root of the problem in attempting to consider the allocation of available settlement resources.

I am sorry, Mr Gibson, but you are running well over time.

I am just finishing.

I hope that ministers will give a strong commitment to the Local Government Committee's inquiry and that they will act promptly to effect any changes that might be proposed for the financial arrangements. The current system confuses accountability, creates dependency and includes too many central controls. Partnership between ministers and local government is essential if we are to make progress with optimum service delivery.

I am sorry to have had to interrupt you, Mr Gibson, but I point out that I have a long list of members who wish to speak. The Deputy Presiding Officer will not be able to call everybody who wants to speak unless members use less than their normal time.

I welcome the opportunity to debate again the local government settlement. I refer the Minister for Finance and Local Government to his statement of December last year. He said that

"local electors . . . will be interested in how local authorities readjust to the challenges of investing real-terms increases instead of making cuts".

Mr Iain Smith, the minister's Liberal Democrat ally, asked a question after that statement, and said:

"this is the first time that a local government settlement will be welcomed by every council in Scotland."

I hope that both the minister and Mr Smith will be able to explain to "wider Scotland"—to use Mr MacKay's words—how the settlement provides more moneys for councils, when almost all councils must cut core services and set council tax increases that are well above the level of inflation.

In opposition, Labour was always critical of the Conservative Government's dealings with councils, saying that we provided insufficient funding. That continues today—Labour says that we provided insufficient funding. We heard constant talk that there was a crisis that was damaging to services and which reduced the number of jobs.

If the Conservative Government had presented the settlement that we are debating today, COSLA would certainly have claimed that there was a huge crisis. The main problem with the settlement is that all the extra funds that many councils will receive are tied to the Executive's priorities. As a result, other services will have to be sacrificed to meet the Executive's demands—that is an erosion of local democracy. Why should anybody care about their council when elections to those councils are to be submerged by being held on the same day as the Scottish Parliament election and their decisions are all determined by the Scottish ministers?

All that comes from an Executive that is made up of two parties that squealed for years that the Tories were attacking local democracy by taking powers to the centre. The truth is that the only minister to instigate an overall relaxation in Government controls on councils in recent years was the former Secretary of State for Scotland, Michael Forsyth.

Let us get to the nub of the problem. At the end of last year, COSLA welcomed the statement, with its promise of jam today—even if it was to be spread a little thinly over the next year and the following year. In my question after that debate, I warned that there were many new burdens, and that

"the devil will be in the detail."—[Official Report, 7 December 2000; Vol 9, c 698-700.]

Despite COSLA's public welcome—to assist its members' colleagues—the comrades are less happy in private. Here are a few of the issues that were raised at the recent council leaders meeting, and which are in the briefing that COSLA provided for today's debate, which I will quote. It says:

"The tax burden is transferring to local government. Over the Spending Review period this equates to an increased pressure on the council tax of 2.6% . . . There is concern over the extent of new burdens and central direction on the use of available resources . . . Resources have largely been targeted to the services of education, social work, police and fire. Direction to those areas will mean disproportionate cuts in other service areas."

Those are telling points. However, the most devastating one is this:

"There needs to be more honesty in settlement announcements. Whilst the bottom line figures announced in September last year appeared better, it is disingenuous for Ministers to suggest that previous cutbacks and the funding of core service provision have been recognised in the settlement."

Not at the moment, thank you.

COSLA tells us:

"Ministers indicated that because of commitments already in place it may be difficult to significantly change arrangements for year 1. They are however committed to examining the possibility for more flexible arrangements for years 2 and 3."

What kind of commitment is that? It is a simple rejection of any of the problems that councils are wrestling with. I remember that there were changes and greater flexibility when councils squealed about Conservative settlements, even by the so-called dictatorial Mr Forsyth.

Much worse than that, because of the way in which the extra money for education is tied to the McCrone settlement and the excellence fund, even the Executive's priority area of education will be hit. The Edinburgh Evening News learned from insiders that there is a £5 million shortfall in education. The likely shocking result in Edinburgh is that there will be more classroom assistants from ring-fenced funds, but fewer teachers.

One of the biggest examples of the minister's soundbite politics was his announcement on 28 September that additional resources of £70 million would be made available to councils for roads maintenance. The problem is that that represents only 7 per cent of the £1 billion backlog that has grown because of the Government's cuts to councils' capital funding. That backlog will keep growing even after the minister's small injection of funds, because it is caused by a lack of revenue.

I am intrigued by Mr Harding's references to the permanent Christmas during which Michael Forsyth presided over local government—I do not recall Michael Forsyth abolishing guidelines or introducing three years of real-terms increases for local government. However, I know that Mr Harding is committed to local government and wants to support it, so I invite him to support councils' stability and forward planning by telling us what proportion of the £16 billion of cuts that the Tories propose to make if they win the general election will be implemented in Scotland, and in local government in Scotland in particular. I think that councils would welcome that knowledge so that they can have stability and plan ahead.

I know that the minister is doing his best to address local government, but if he devoted some time to reading the press he would know that the proposed cuts amount to £8 billion and that how they will be achieved has been fully explained.

The Executive has not got rid of guidelines; it has indicated that it will not use them—there is a slight difference.

Just to be helpful, I ask whether the member accepts that the first two years of damage and havoc that have been wreaked by the Labour party on local government were based on his party's spending plans from previous years.

Andrew Wilson has confirmed that it was Christmas-time when Michael Forsyth controlled Scotland.

Road repairs from revenue are likely to be hit again this year, because they are not one of the Executive's priorities. I am not alone in saying that; COSLA backs me up. Angus MacKay's so-called mammoth increase in capital is spread over three years and is likely to leave Scotland's councils short of the amount that they had in 1995.

Since Labour came to power, council tax has risen by more than 25 per cent—two and a half times the rate of inflation—but the public receives nothing in return. That is the ultimate example of Labour's all-tax-and-no-delivery attitude to government. Once again, Labour has broken its promises and has increased stealth taxation of ordinary, hard-working families.

However, I have some sympathy for the Executive, which has allocated more resources to local government, but is being blamed for service cuts that are determined by its colleagues in local councils.

Will the member give way?

Again? I will give way as long as the Presiding Officer allows for the time that has been taken up by interventions.

Yes—but we are quite tight for time.

Surely Mr Harding cannot be right. I looked for a quotation from a Conservative local government leader in Scotland but was, sadly, unable to find one. However, does Mr Harding agree with the statement that Brian Adam MSP made to The Press and Journal on 7 December, to the effect that the settlement should provide some scope for restoring services which were cut and help to keep council tax down.

Regrettably, the statement would be accurate only if we had some Conservative councils to implement it.

The current scenario will continue unless and until there is a radical culture change in councils. The recent letting of roads contracts shows what savings can be achieved. How much more is being overspent and wasted in other council services? It is time that councils sat down with blank sheets of paper, open minds and a fresh approach. They should ask themselves: "Why do we provide this service? Can someone else do it better? Are we the most cost-effective?" They should consider sharing costs with other public bodies by sharing buildings, facilities and payroll services, and through joint professional services such as personnel, legal and architectural services or management buy-outs of direct labour organisations.

I will not give way. I am in my last minute.

That culture change is a challenge that the Executive should be setting. It could not only go a long way to address the so-called budgetary difficulties, but invigorate local government and give councils a rewarding and meaningful role.

The Conservative party cannot support the settlement, because of the basis on which it has been distributed.

What a difference a year makes. Many of us will recall last year's debate on the local government settlement order—some of us will recall it in a cold sweat because of our previous lives. The situation then was certainly different from the one that we face today, because we can all broadly welcome today's local government order and the ministerial statement.

Will the member give way?

Not at the moment—I have just started.

The tone of the debate reflects the fact that the local government settlement has moved on significantly since last year. We welcome the fact that local government is getting a real-terms increase for the first time in many years. Liberal Democrats fought hard within the Executive and within the partnership Government for that increase.

We reluctantly supported—at least, the majority of us did—last year's local government settlement on the ground that it was the best that we could do in the circumstances. However, we pledged that we would fight for a better deal for local government in this and future years. I believe that this year's local government settlement reflects the better deal that the Liberal Democrats have been able to achieve within the Scottish Executive.

Iain Smith is, of course, concentrating more on constituency matters these days. Can he tell the chamber how hard he fought, given that Fife Council in his constituency has received a lower increase than the Scottish average? Does he boast about that locally?

We must consider the local government settlement in the round and the settlement is a good deal for local government as a whole. Every local authority is getting a real-terms increase of at least 5 per cent, which is good news for Fife Council as much as it is good news for authorities elsewhere.

Perhaps the SNP could answer—[Interruption.]

Order, Mr Gibson.

I will not give way to Mr Gibson at the moment.

Perhaps the SNP will advise the chamber later in the debate whether it thinks that Angus Council is getting a good deal. The SNP claims that it wants more money for Glasgow City Council in the local government settlement. However, the leader of Angus Council, Rob Murray, said:

"Angus Council is losing £891,000 in grant support as its contribution over the three year period to subsidise Glasgow."

Will the SNP support Angus Council by saying that that council should get more, or will it support Glasgow by saying that other councils should lose support in order to fund Glasgow? That is what a motion that Kenny Gibson lodged last year suggested. The SNP should answer those points, because it has never told us how it would find the extra money that it claims Glasgow should get. From which councils would it cut money in order to fund Glasgow? Perhaps SNP members could get round to answering that point later in the debate.

Will the member give way?

I am sorry—

Order. The member is not giving way, Mr Gibson.

The SNP will have plenty of opportunities, both during the debate and when summing up, to answer that point. Patricia Ferguson told me off for encouraging interventions in a previous debate—I am not going to fall for that again.

As I was saying, the Liberal Democrats broadly welcome the settlement, because it is good news for local government. During the last three years of the Conservative Government, central Government support for councils in Scotland fell by £520 million in real terms and capital grants fell by £590 million in real terms. This Executive party accepts that those cuts were not resolved immediately by the election of a Labour Government in Westminster. Only since the Scottish Executive got to grips with local government finance is local government getting a better deal.

Say that with a straight face.

I can say it with a straight face: only since the Scottish Executive came to power and got to grips with the situation, with the Liberal Democrats making their influence felt, is local government getting a better deal.

We have a number of concerns on which we would like to make progress. We do not accept yet that all is milk and honey for local government. There is a long way to go before local government is 100 per cent satisfied with the settlement—I do not think that local government will ever feel that way. For example, I welcome the minister's comments that he is willing to consider positively with local government how to reduce the amount of ring fencing and hypothecation.

Will the member give way?

I am sorry, but I wish to carry on.

COSLA raised the issues of central direction and of how the priority areas of education and social work will take up the bulk of the increase. We accept that many other services, which have been hit hardest in the past, will continue not to benefit. We accept that the settlement does not fully address leisure and recreation, community services, the voluntary sector and road repairs. However, there is a limit to the additional money that is available and it is up to local councils to prioritise that money. We must address those cross-cutting areas in future and I am confident that within the Executive, ministers, the Liberal Democrats and the Labour party will continue to examine those important issues.

A couple of big areas are not covered directly by the local government settlement and I hope that, when the minister sums up, he will address how those areas will be dealt with. I appreciate that additional money is to be provided to local government to fund the central Government aspect of the McCrone settlement, when the teachers accept the deal.

We have to be clear how that money will be distributed. My colleague, Mr Gorrie, has mentioned the concerns of some councils about that. We have to make it clear that the money will have to go to where the additional costs are. It cannot be distributed in such a way that some councils end up with a windfall gain because they receive more support than they need to pay their teachers, while others end up struggling because they have more teachers than the current grant-aided expenditure assessments suggest. Discussions must continue with COSLA and the councils about how the additional money from central Government is to be allocated. I hope that the minister will assure us that those discussions will take place.

I hope that there will also be discussions with COSLA and the councils on the consequences of the trunk roads maintenance contracts decision. Most of us recognise that there will be additional costs to local government as a result of the loss of the trunk roads contracts and that they will have some difficulty in maintaining levels of service on local roads. There will also be knock-on effects on their direct labour organisations. I hope that discussions with COSLA will quantify those costs and effects and that ways of alleviating those difficulties will be considered. The minister may reassure us in his summing up.

I welcome the minister's comments to the effect that he will work with the Local Government Committee—Trish Godman's committee—in what will be a lengthy and, I hope, comprehensive study of the future of local government finance. Many areas need to be addressed. Many members will have read the COSLA briefing on the level of control that local government has over its own revenue and on the ways in which capital is dealt with. Those issues must be addressed and I am glad that the Local Government Committee will do so.

We are having a much calmer debate this year than we did last year. I believe that this is a good settlement. I congratulate the minister on it.

We move now to open debate. Trish Godman, as convener of the Local Government Committee, will have up to five minutes; everyone else will have up to four minutes.

I suspect that I will not take five minutes. Iain Smith is right: the first debate in this Parliament after the official opening was indeed on local government and the McIntosh report. Many of us spoke in that debate.

Things have moved on apace this year: there has been action to provide firm figures for councils for the next three years; there is a more simplified and stable approach for grant allocations for years 2 and 3; revenue grants and capital allowances are significantly above the forecast rate of inflation; and expenditure guidelines have been abolished—subject, of course, to councillors' publication of council tax levels for the three years. All those announcements have been greatly welcomed. They should allow local councils to improve their service delivery.

No one can argue that there has not been a change. They may argue that there has not been enough of a change, but they cannot argue that there has not been a change. Why, then, does there appear to be some division and dissent in local government? Answers include, "Too much ring fencing and central direction" and, "Not enough local flexibility." Those comments have been made too often to be ignored—both in here and outside. The minister has partly addressed those points this afternoon.

Real gains in forward figures for three-year funding will, I believe, be achieved only if councils are given freedom and are trusted to work towards their shared priorities within that financial framework. I welcome Angus MacKay's comments on that because if we believe in subsidiarity—and I think that we do—we should trust councils. We decide the policy parameters—that is why we are here—but councils should be left to make local decisions within those parameters. If we are serious about having a genuine partnership with local government, I believe that it should be involved at a very early stage in policy development.

It was clear after the settlement announcement was made that there was a disagreement between the Executive and some councils about allowances for deprivation. That needs to be resolved. It needs to be resolved by all councils sitting round the table with the Executive. I do not mean that the Executive should say, "Let's call them in, give them half an hour and a cup of tea, and send them off." The converse of that would be the councils' saying, "We're not going because we're not going to get what we want." If councils and the Executive do not sit round the table and talk, the issue will not be resolved. If they do, I think that that will go some way towards avoiding the kind of conflict that we experienced recently over the division of the block, over the formula and over population and deprivation. I listened to both sides of those arguments. Both sides presented genuine cases. I think that there was a misunderstanding that needs to be addressed. There needs to be genuine dialogue.

When I spoke in the debate in July 1999, I said that I thought that the Scottish Executive should have an independent review of local government finance. I still believe that and so do 32 councils. We cannot all be wrong. We need a review of local government finance.

As the convener of the Local Government Committee, does the member agree with COSLA that

"Capital receipts set aside arrangements for housing should be removed with immediate effect"?

I am the convener of the Local Government Committee. Housing comes under the remit of another committee. We have not considered the matter in any depth in the Local Government Committee. I have my own opinion on the matter, but I am not prepared to express an opinion as committee convener.

The Local Government Committee has taken the decision to undertake a review of local government finance. We considered the matter yesterday and it is clear that the review will be very complex and will take until the middle of June. My hope is that the Executive will change its mind. What I do not want is for the Local Government Committee to do all the work and the Executive to take the credit by doing a wee thing afterwards.

Overall, we are on the right track. There is much to be done and many differences to be settled. There is no doubt about that. However, as Angus MacKay said, we are committed to local government delivering the services. Local government—the officials and the councillors—is doing great work and deserves credit for that. We must reinforce the commitment to local government that we made this year and the day after the Parliament opened. We must move forward with councils to resolve their difficulties.

I am extremely flattered that the minister chose to quote me. I hope that this is the start of a new relationship and that he is now going to pay heed to what I have to say. I look forward to the minister agreeing with what I shall suggest this afternoon.

I stand by my comments in The Press and Journal in reference to Aberdeen City Council and Aberdeenshire Council, the principal council areas served by that newspaper. Those comments were made when we were unaware that, in the first year, something like 10.7 per cent of the allocation was ring-fenced. The fact that the Executive has ring-fenced the money means that the scope for improving services is lost, as is the scope for cuts or below-inflation rises in council tax.

As I understand it, Aberdeen City Council is currently facing possible cuts of £1 million with a 10 per cent increase in council tax, or cuts of £8 million with a 3 per cent increase in council tax. Ring fencing will undoubtedly lead to cuts in services and above-inflation rises in council tax. That is something I regret.

I may be stepping into dangerous waters again—the minister is likely to quote or misquote me—but I should say that I recognise that progress has been made in the past year. We have taken some tentative steps towards redressing the many years of neglect of local government, but I ask the minister to examine closely the distribution formula arrangements. The formulae do not recognise factors such as population change early enough. They tend to be picked up afterwards and can cause distortions, particularly in places such as Aberdeen and several east coast authorities where populations are growing. There is a lag. The minister's predecessor was good enough to pick up the need to address deprivation, but he did not accept the advice to address population change—I hope that Angus MacKay will.

The new formula for years 2 and 3 predicts population changes. That point should have been addressed in the new distribution formula.

I welcome any change that will do that, but it is not reflected in the settlements. Aberdeenshire receives a below-average increase over the three years; if population change were recognised as an important factor in the distribution formula, the settlement would have been above average.

Will the member give way?

No, thank you. In terms of—

He is wrong.

Order.

I would welcome more clarity in the formulae that are used for working out the distribution of additional moneys. A substantial amount of the money distributed through the neighbourhood fund has gone to one council in particular. There are also formulae that apply to less than the whole of a council. European Union structural funds and assisted area status work at a ward or sub-ward level, but for some reason the neighbourhood fund seems to work at a whole- council level.

The recent distribution of moneys to local government for drugs work is very welcome but appears to be based on a population basis whereas it ought to be based on a needs basis. There should be much more clarity in the distribution formulae. Each time an announcement is made, it ought to be made on the basis of what particular formula has been applied at the time.

I appeal to the minister to remove the restrictions on capital expenditure for housing in the same way as he removed restrictions for general services last year. That would mean a major injection of finance into housing stock. Not all local authorities will go down the housing stock transfer route and such action would be a major fillip to local authority housing.

I welcome the vastly improved sums of money that are being channelled into local government. There can be little doubt among those who have been around local government in the past 20 years that the sums represent a great improvement.

In 2001-02, total revenue will increase by 6.2 per cent—more than twice the rate of inflation. More important than such bald figures, however, are the service improvements that can be delivered to the people of Scotland by that increase. Before I consider those service improvements, I would like to add my comments to what has already been said about forward planning and three-year figures. It is worth repeating that they are a positive move for local authorities. Forward planning was particularly difficult for them, especially when working in partnership with other agencies. The inability to commit to future spending was a particular problem.

Some services have been in the news of late—the police service, for example. Lothian and Borders police, which covers my part of West Lothian, has a settlement that will enable it to increase police numbers to a stable level of 2,602 next year, which is higher than it has ever been. Support staff numbers will also be stable, so there will be no backfilling of vacancies by police officers. The result will be more police on the beat in communities, offering the service the public have asked for. My constituents will be pleased by that.

I mentioned services where councils are working in partnership. West Lothian Council works closely with West Lothian Healthcare NHS Trust, particularly on older people's services. The increase in revenue and the forward allocation of three years means that such partnerships can be more meaningful. For individual constituents, that will mean fewer people being placed inappropriately in hospital beds rather than nursing homes. I am sure that better forward planning will result in better value, because spending priorities can be planned and adjustments made according to the demands on the service, rather than the time of year.

Mary Mulligan mentioned police numbers in Lothian and Borders police. Does she accept that there are fewer police on the beat in Lothian and Borders now than when the Conservatives left office? How many more police are there now? In fact, the number is less than 10, yet the population in West Lothian has increased by more than 10,000 and, since Labour came to power, the council tax has gone up by more than 37 per cent. That is the reality in her constituency.

If Andrew Wilson had listened to me, he would know that I said that the figure of 2,602 officers is higher than it has ever been. That figure was given at a recent meeting with the chief constable of Lothian and Borders police, so Andrew Wilson should take the matter up with him if he thinks it is incorrect.

While there is much to be welcomed in this budget, there is an issue—I hope that the minister will not take this badly, because I may sound like Mr Kenny Gibson—with hypothecation. The amount of hypothecation can give councils some difficulties. The Executive wants its commitments to the electorate to be fulfilled, but they could be achieved through local outcome agreements that have been agreed by local authorities and the Executive. The absence of a formal framework for joint planning can cause disruption and distortion of local planning prioritisation. It is important to distinguish between consultation and joint planning. We must recognise that joint planning implies agreement on how and when objectives are achieved and acknowledges and respects local circumstances.

I am aware that the minister and his deputy have met representatives from my local council. I hope that further discussions will take place to ensure that joint planning agreements and outcomes are agreed between the Executive and councils. Such arrangements would benefit all our constituents.

Some years have passed since I was involved in considering local authority budgets. In those years, an important qualitative change has taken place with three-year forward planning, which the Minister for Finance and Local Government outlined again today. We all recognise that as an improvement and genuine progress.

However, in many respects, the debate remains what it has always been: the Government of the day presents the story that the settlement is adequate—even generous—and the Convention of Scottish Local Authorities and councils brief the opposite, pointing to the extra burdens and costs that accompany extra money and complaining that services will have to be squeezed.

Mr Gibson comprehensively and carefully described the genuine complaints among local authorities. Bruce Crawford talked about Perth and Kinross. My local council, South Ayrshire, had to make severe, highly controversial and well- publicised cuts in its budget last year. I am well aware that it is again considering what the minister would call managing its budget—in other words, it faces significant retrenchment.

The three-year forward plan invites us to think about the reality of the situation. I think that all political parties agree that councils could spend more money than they have or will receive on maintaining schools or non-trunk roads, but the issue is deciding what the councils should do with the resources that they have. The councils' position is no different from that of the Executive and the Parliament. We are collectively coming to terms with the reality that investing more money in implementing the Sutherland report or paying teachers requires us to comb through budgets and make economies and sacrifices.

I suggest that two recent events provide an important lesson for local government. The first is the recent trunk road tendering exercise. We are likely to debate that issue next week. I appreciate that the councils make a strong argument that, had they tendered on the same base quantities as the successful contractor, they might have been able to offer the same savings—but the point of the tendering exercise was to find savings. If they are delivered, the outcome is acceptable and is an appropriate objective for the Government to set. We can argue about the detail, but the principle is sound.

The second issue is a matter for which competitive tendering is not appropriate and on which the Executive has had to move in a different direction. When challenged at question time last week about the economies that the water industry commissioner is insisting on, Sam Galbraith made the strong point that the Executive and the Parliament are custodians of public service. If there is evidence that diseconomy and waste are occurring and that money can be saved, money must be saved and redirected in the interests of consumers. We champion the consumer, not the producer.

What room do the Conservatives believe remains in local authority budgets for further efficiency savings? Will the member explain how they would work for each council—or even just for South Ayrshire?

I was building towards the point that tendering or—more suitably in the public sector—benchmarking to identify where economies might be made is appropriate.

Best value is the Executive policy. My concern about best value is not the principle, but whether it is achievable and whether the mechanisms to achieve it are in place. Since Mr Gibson has a voracious appetite for reading, I am sure that he will have seen last year's Accounts Commission review report on best value, in which it suggested that not much progress is being made.

A practical way to make progress with best value would be to work with councils to get better financial information, council by council, so that councillors, who are the best people to assess the value of services and the allocation of resources, can identify where their councils are efficient and have services that are good value for money and where efforts must be concentrated. That is a missing ingredient in the best value exercise. The Executive could give local authorities a lead on that and assist them in doing what we all have to do, which is to recognise that there is only so much we can do within assigned budgets if we are to get best value and serve our customers.

We have had four years of new Labour at Westminster and two in the Scottish Parliament. Today we must address that record in relation to local government. To do so, I will look at a typical Scottish local authority—North Ayrshire, where I live.

Last year, like many Scottish councils, North Ayrshire Council made an assessment of local people's needs for local government services and made budget proposals. Then came the curve ball. The council was notified of the level of funding that it would receive from the new Labour Scottish Government. As a result, it had to slash £6.25 million from the budget identified as meeting the needs of the people in its area. That is not new, of course. We had year after year of that from the most recent Tory Government. The difference is that whereas Labour councillors were louping up and down and baying at the Tories about the underfunding of local services then, now they just keep their mounts shut and put party loyalty above their obligations to the people they are supposed to represent.

The price North Ayrshire people pay because of new Labour Government underfunding includes North Ayrshire Council's inability to meet people's educational needs. This year alone, £1,859,000 was cut from the education budget, including more than £75,000 from special educational needs. North Ayrshire Council is unable to meet people's social services needs—more than £2.5 million has been cut from that budget. The situation for people who have been assessed as needing long-term residential or nursing care is dreadful—instead of getting that care they are added to a council waiting list where they remain until the all-too-elusive funding becomes available.

I invite the SNP to identify any councils that receive too much money. If the point is that local government as a whole needs to be better resourced, which budget should the money come from?

Kay Ullrich.

Will the member take an intervention? Is it not the case—

Mrs Ullrich is responding—are you not?

Is it not the case that if Mr Portillo's £8 billion of cuts were implemented, Scottish local authorities would suffer as much as anyone else? [Interruption.]

It is okay—she has the answer now.

Order.

I have almost forgotten the question. I was not aware that I had let Alex Neil in, but he did awfully well anyway. If it was not for the Barnett squeeze, local authorities would be able to provide the services that are needed.

Back to the important issue of people languishing as they wait for long-term care. Let us be clear what we are talking about: despite new Labour's much-vaunted money which, in October—I believe—was targeted at delayed discharge, North Ayrshire Council's cut from the additional money allowed it to move only 14 people from a waiting list of 100. I will quote from a letter sent to me by Mr Bernard Devine, the chief executive of North Ayrshire Council:

"It is quite obvious that local authorities throughout Scotland are unable to fund all persons assessed as requiring residential or nursing care".

There is no equivocation in that statement—councils simply cannot meet the needs of the people they are supposed to serve.

That was before Lord Hardie's judgment in the case of MacGregor v South Lanarkshire Council. Lord Hardie's judgment made it clear that local authorities have a duty to provide immediate nursing care for everyone who is assessed as requiring it. The Hardie judgment has not been appealed and will not be appealed. There is now no doubt that local authorities must place into nursing or residential care everyone who is on their waiting lists for placement. New Labour is dragging its feet and pretending that the Hardie judgment never happened. Well, it did. The Executive has to make available the funds to allow justice to be done for our frail and elderly citizens.

As is evidenced by North Ayrshire Council, local authorities have already had to slash services. In its briefing to members, COSLA makes it clear that it is concerned that even that reduced provision of care cannot be maintained. That is the reality.

I welcome this settlement. It is much better than last year's. It could hardly have been worse. However, the total settlement of £6.51 billion amounts to 33 per cent of the block. The minister will be aware that, two years ago, the local government settlement amounted to 36 per cent of the block and that five years ago it amounted to 40 per cent of the block. Local government revenue spending is up 7.5 per cent after inflation, but most of that is absorbed through ring-fenced initiatives. I will come to that point in more detail.

While overall spending by the Executive is up by 12 per cent, which is extremely welcome, certain areas have increases that are much higher than average: transport is up by 21 per cent; justice is up by 20 per cent; and communities—primarily housing—is up by 19.5 per cent. All that puts the settlement into context. Local government has a significantly better deal but no bonanza; indeed, its increase is less generous than in many other programme areas.

I warmly welcome the move to three-year funding, which will allow councils to plan ahead. It is widely and warmly welcomed by all five councils in my region. I ask the minister about the future. Will there be a roll-over? If so, how will it happen? Will the last year in the current three-year cycle be the first year in the next cycle, which would be similar to the comprehensive spending review? I would be grateful if the minister could respond to that point when he winds up.

The principal area of concern among the councils in my region is ring fencing, or hypothecation, which now amounts to 10 per cent of the total budget. Almost all the real increases are hypothecated for the Executive's priorities. Local authorities are left with the usual problem of managing back the other local authority services. The hypothecation concentrates on three or four main areas—including education, community care and police and fire—and specific grant areas such as drug rehabilitation.

As a result, and despite an apparently generous three-year settlement coupled with the fact that council tax throughout Scotland will rise above the rate of inflation, there is still a need for savings in many services: roads and footpaths; libraries; sport and recreation; and planning and economic development. That underlines the point I was trying to make in my intervention during the minister's speech, which is that there is a need to allow councils greater flexibility. That should become all the more feasible as the Scottish Executive moves towards outcomes.

I received an e-mail this morning from the chief executive of one of the councils in my region. He said:

"There is increasingly no room for local opinion to influence the balance of public service priorities. My view is that a lot more could be achieved if the Scottish Executive would allow local priorities to shape the budgets of various public services. There are fewer and fewer opportunities to do this as budgets are focused on Scottish Executive priorities and then delegated down the silos. It is a question about trust and whether local democracy is allowed to operate".

I hope that we can move quickly towards much greater flexibility.

I welcome the fact that, for the first time in eight years, there has been a recognition of pay inflation, although a significant proportion of it must still be absorbed by councils. There are also other burdens. As Iain Smith said, there are particular concerns in Perth and Kinross and other parts of the region about the implications of the trunk road contracts for direct labour organisations and about the additional costs to councils.

There are additional pressures from community care and the additional burdens resulting from legislation passed by this Parliament. The Finance Committee examines the financial schedules of bills. I know, as a former member of that committee, that they are sometimes extremely vague about the potential impact on local government.

We are seeing a shift from central to local taxation. In Stirling, for example, council tax raised 11.1 per cent of the budget in 1988-89; by 2003-04, it will raise 18.4 per cent. Council tax is a regressive tax. Local income tax would be much fairer. I am glad that the Local Government Committee is to carry out what sounds like an extensive and intensive inquiry into local government finance. I only wish that the Scottish Executive had initiated such an inquiry more than a year ago, as the McIntosh committee report recommended. If it had, we might be receiving a report on local government finance now, rather than being about to initiate an investigation.

I call Tommy Sheridan, to be followed by Michael McMahon.

On a number of occasions, I have accused the Executive of neglecting the city of Glasgow and, in fact, of betraying the city of Glasgow, given the loyalty that its citizens have shown to the Labour party for many years. The Local Government Finance (Scotland) Order 2001 is proof yet again that the Executive is willing to neglect the people of Glasgow. The settlement is a bad one for Glasgow.

Let us put Glasgow into context. It is the city with the highest council tax in Scotland—25 per cent higher on average than for the rest of Scotland. Council house rents in Glasgow are 20 per cent above the Scottish average, but average incomes in Glasgow are 20 per cent below the average across Scotland. According to the report on poverty in Scotland by the Westminster Select Committee on Scottish Affairs, Glasgow is the poverty capital of the United Kingdom. Glasgow has been neglected by this Parliament in relation to health, education, roads and social work; it has also been neglected in relation to this local government settlement.

The recently announced settlement includes average grant increases of 6.4 per cent, 5.1 per cent and 3.8 per cent over the next three years. By the end of year 3, grant levels for councils will have increased by 16.1 per cent. In the case of Glasgow, the total grant will increase by 6.8 per cent, 4 per cent and 3.4 per cent over the next three years. By the end of year 3, the city's grant will have increased by 14.8 per cent. In other words, Glasgow will receive an increase that is 1.3 per cent below the average increase for the whole of Scotland.

Will Mr Sheridan remind me how many times as a member of Glasgow City Council he proposed a higher increase in the council tax than any of the Labour administrations did?

Frank McAveety has asked me a question that is easier than usual to answer. The answer is none.

Will Mr Sheridan accept a further intervention?

Frank McAveety should sit down.

I am all in favour of a bigger cake to be divided out, but Glasgow's share shows that we have been sadly neglected. We have the highest average council tax in the whole of Scotland. It is 35 per cent higher than East Renfrewshire's council tax and 32 per cent higher than East Dunbartonshire's, yet those two councils received grant increases of 19.5 per cent and 19 per cent respectively—the second and the fourth highest increases in the whole of Scotland.

The minister mentioned the response of the leader of Glasgow City Council to his meeting with the First Minister. The First Minister was brought to Glasgow and was told, in no uncertain terms, that something had to give and more money had to be given because Glasgow had been utterly neglected by the settlement. Even with that extra money, the leader of the council is quoted as saying on Friday:

"Welcome though the First Minister's intervention through the better neighbourhood fund was, the fact is that even with that taken into account, Glasgow's settlement is still
. . . below the Scottish average at a time when we have more deprivation than any other council area."

Will the member give way on that point?

I hope that I will be allowed to.

Very quickly.

Does the member accept that the redistribution of wealth, important though it is, is a central Government function? Does he accept that the grant settlement is about the provision of services and that it costs more, for instance, to empty bins in rural Aberdeenshire than it does in cities? That is what the grant settlement is about; it is not about the redistribution of wealth.

I do not accept that at all. The settlement should be about the redistribution of wealth as well; it should take account of poverty and deprivation. The settlement discriminates against the city of Glasgow.

Let me finish by quoting what Glasgow City Council's chief executive said to me about the settlement in a letter only yesterday. He said that

"relative to the cash increases received by other Councils, Glasgow's settlement"—

I hope that the Glasgow members are listening—

"is one of the lowest increases of any of the mainland Councils.

The Council cannot accept that other areas of the country are in greater need of additional resources than Glasgow. To a large extent, the Council's arguments have been recognised with the allocation to Glasgow of an additional £27 million through the Better Neighbourhoods Fund which brings us within 0.5% of the average settlement in the 3 year period".

In other words, the settlement for Glasgow is 0.5 per cent below the average settlement for the rest of Scotland.

Will the member wind up, please?

Glasgow was meant to be made a special case—that is what we were told in 1997. Special case? I think not. We have continued to be neglected as we were under the Tories.

A number of members still wish to be called. I have already mentioned Michael McMahon, who will speak next. I will call Gil Paterson if both he and Mr McMahon keep to the time limits.

As a member of the Local Government Committee, I have spent a lot of time listening and talking to various individuals, trade unionists and local government representatives about these issues. Each of those groups believes in a modern, open and collaborative approach to local government, based on accountability to the people whom local government serves and supports; that is what I believe in, too. Therefore, I welcome, as does COSLA, the Scottish Executive's recent steps, outlined by the Local Government Committee's convener. In particular, I welcome the scrapping of annual spending guidelines, which will allow local authorities the autonomy to budget over three years.

The settlement will enable local authorities to make significant progress across the board. The financial support given to local government will reach record levels. The total Scottish Executive grant will greatly enhance capital investment. Without doubt, improved public services will result.

A lot has been done, but there is still a lot to do. The settlement has afforded local authorities the ability to plan ahead, allowing more flexible strategies aimed at providing stability and, I hope, a more effective budgetary map for longer.

As the member for Hamilton North and Bellshill, I am in the fortunate position of being able to liaise regularly with local authority colleagues in North Lanarkshire and South Lanarkshire. I am delighted to say that I have encountered favourable responses to the recent settlement.

Jim McCabe, the leader of North Lanarkshire Council—who, I assure members, is not a man easily impressed by local government settlements—took the view that he looked forward to improvements. He described the 16.8 per cent increase allocated to North Lanarkshire as "very encouraging", as it would allow the local authority to make the best use of available resources. He recognised that £27.5 million over three years is a substantial amount of money, which will allow the targeting of priorities such as the local economy, community safety, health, housing and social inclusion. Having listened to the needs, requests and aspirations of the people of North Lanarkshire, Jim McCabe stated that the local authority had already

"taken account of the investment needed to upgrade and improve council facilities across all services".

He added:

"this package provides the best value for all tenants".

Councillor Eddie McAvoy, Jim McCabe's counterpart in South Lanarkshire—another person who is not usually given to expressing undeserved praise—agreed that the three-year capital programme with annual spending announcements

"would enable councils to plan ahead and target investments in services".

South Lanarkshire is receiving a 15.9 per cent spending increase.

With the simplified distribution formula, three-year revenue grant settlement for each council, three-year capital allocation for each council, abolition of expenditure guidelines and the piloting of local outcome agreements, the aim of promoting stability, flexibility and simplification for efficiency and effectiveness will never have a better chance of being achieved.

Quality public services are essential in our local communities. Those services must be—and be seen to be—efficient and effective.

Michael McMahon refers to quality public services. Is not it the case that North Lanarkshire Council has privatised many of its services and engaged in one of the biggest ever private finance initiatives, which in the long term will cost the council tax payer an enormous amount of money and will probably lead to a reduction in the quality of public services?

Alex Neil is right that there has been privatisation in that area through public-private partnerships. However, his analysis of the outcome is totally wrong. The SNP wanted to see large-scale redundancies and a waste of money, but that did not happen; that is why the SNP is disappointed.

There are still problems, such as the concerns of Glasgow City Council and Dundee City Council about tax burdens and settlement levels, but I welcome the positive feedback from many local authorities. They must be reassured that the Scottish Parliament will work in partnership with them to make the new system of strategic financial planning work for everyone.

I am pleased that we in the Labour party have promised for local government and are delivering for it. We are modernising local government, listening to our communities and ensuring best value, for a more stable, fairer long-term plan.

The nation's taxpayers deserve the best possible services for their money. Through this programme, we are delivering on the shared priorities of central Government and local government—to work together to improve services across the board. I warmly welcome the measures that Angus MacKay has announced.

Local authorities are meant to work in partnership with Government to deliver local services and address local needs. However, the details that have emerged from the spending review show a lack of resources and a lack of flexibility in the relationship between local and central Government. Moreover, parts of the review appear to contradict the European Charter of Local Self-Government and go against the spirit of its principles. That is alarming, especially as the Government has already ratified the charter.

Two paragraphs of the charter stand out. The first states:

"Local authorities shall be entitled, within national economic policy, to adequate financial resources of their own, of which they may dispose freely within the framework of their powers."

Predictions show that, by 2003-04, the increase in settlement is set to slide to 3.78 per cent. The stark reality is that council tax has increased by an average of 34 per cent—not 25 per cent, as Keith Harding said—since Labour came to power. That has meant horrendous rises throughout Scotland: 43 per cent in Glasgow; 42 per cent in Aberdeen; and a whacking 46 per cent in Dumfries and Galloway. That is all because the Government, both here and elsewhere, has decided not to support local government adequately. Those figures apply even before we take into account the fact that water and sewerage charges are going through the roof.

The other paragraph of the charter that stands out states:

"As far as possible, grants to local authorities shall not be earmarked for the financing of specific projects. The provision of grants shall not remove the basic freedom of local authorities to exercise policy discretion within their own jurisdiction."

The constraints imposed by this financial settlement, in the form of ring fencing and the strict direction on the use of resources, means that the extent to which councils can respond to local needs and address local problems with local solutions is being reduced.

The result is that funding for core services is falling. Repairs and maintenance programmes have borne the brunt of reductions in funding, which has led to the all-too-evident deterioration of public assets such as roads and schools.

Greengairs in Lanarkshire provides an excellent example of that. Villagers have been campaigning for four and a half years for traffic-calming measures to deal with the heavy traffic that passes through the village to access the landfill site and the opencast mine. The local authority's response is simply that it has no money. Because of the financial constraints, the local authority has decided to target its funds at those areas with high accident numbers. Not enough people have been killed or injured in Greengairs for it to be on the local authority's list—well, not yet.

In November, I spoke about Airdrie Academy, which has been left to rot, because there is not enough money to fix it. At this stage, to build a new school would probably cost less than to repair the damage to the existing school.

Caldervale High School, which is also in Airdrie, is going the same way. Although it is not in as bad a way as Airdrie Academy is, lack of maintenance has allowed it to fall into a frankly unacceptable state of disrepair. The report that Her Majesty's inspectors produced at the end of last month highlighted water damage that has closed a maths room; unhygienic and unsatisfactory toilet facilities; and inadequate heating, lighting and ventilation. How bad does the situation have to get before something is done?

Although local authorities need the flexibility and freedom to react to local problems, they also need the financial support to deal with them effectively. Waiting for schools to fall down and accidents to happen before taking action should not be an option. I urge the Executive to reconsider.

As my colleagues have said, this year's settlement is certainly much better than last year's; all the Liberal Democrats will vote for it, which is something that I certainly did not do last time. In light of that agreement, I will make some suggestions about where the settlement could be better or clearer.

I welcome the fact that the Government will fully fund its share of implementing the McCrone recommendations. That share was agreed with COSLA, which also agreed a share from councils. However, the Government money for McCrone must be divvied up per teacher, not through some other formula, as it is related to the pay and conditions of teachers.

The good relations that the settlement and the Executive have helped to recreate with local government after last year's debacle have been severely undermined by the new debacle of the road maintenance money. The minister must make a confident statement to the local authorities that, if their financial loss is severe, the Government will provide compensation from its alleged savings through this measure.

My friend Mike Rumbles has encouraged me to assure the Parliament that Brian Adam's comments are not correct. Although Aberdeenshire did much worse than other councils last year, there has been a distinct improvement; it is doing much better than the average under this year's settlement.

We can take comfort from the fact that, yet again, where Scotland has led, England follows. The Home Office in London has announced today that the Westminster Government will pay for the English and Welsh equivalents of the Scottish Criminal Record Office checks—that is, the police checks on voluntary workers. Jim Wallace announced that the Scottish Parliament would pay for SCRO checks, an issue on which many of us have campaigned for some time, and the Home Office's decision shows that devolution has many virtues.

However, that raises the wider issue of the voluntary sector, which has particularly suffered from local government cuts over many years. We must bring the Parliament, the Executive, councils and the voluntary sector together to find a way of providing stable core funding for voluntary organisations across the board.

We must also make more progress with joined-up budgeting. We all talk about joined-up government, but it does not actually happen that much. The minister and the Government are making progress towards joined-up government and they genuinely believe in it. However, we have more work to do. Government and local government officials, who tend to operate in little boxes, must break the habits of a lifetime.

Many members are worried that there may be cuts to some councils' budgets as a consequence of the settlement, rather than economies and reasonable decisions concerning priorities. If cuts are imposed in core services, we must reconsider the settlement and improve on it next year.

I am encouraged by the minister to suggest that councils should, with Audit Scotland, take the lead in working out output and outcome measurements—councils are skilled at that. I am sure that the Executive would support them in working out more flexible settlements and in getting rid of this ghastly ring-fencing business.

I congratulate the minister. Members may think that that is an act of uncharacteristic generosity, but the fact is that he has achieved something this afternoon. He claims to have put more money into local government—indeed, he has put more money into local government—yet, simultaneously, he has managed to offend both the councillors and the council tax payers, who are paying more, while bringing about only a minimal increase in public services. That achievement cannot be boasted by many, and he is to be congratulated on it.

The reaction up and down the country to the local government settlement is interesting. Angus MacKay claimed that this was "an excellent settlement". If local government is better off, why are there increases in council taxes? Why are the councillors in Glasgow squealing like a collection of stuck pigs? Why does Councillor Charlie Gordon seem almost to be praying for the return of the Conservative Government?

Why are tax levels going up? The answer is that there is now so much ring fencing in local government expenditure that councils have less money to spend than they feel their electorate would want them to. In a thoughtful and constructive speech, Trish Godman underlined that fact. Although Kenny Gibson was excoriated for plagiarising the COSLA report, it is worth reading some of the statements that it contains—especially when COSLA underlines the fact that the extent of ring fencing and direction in the use of available resources has undermined the efforts that it is making, through the local government system, to introduce a more appropriate balance between central direction and local flexibility. It sometimes seems as though councils are being asked to act like old-time colonial administrators, following through the policies that are laid down by their high panjandrums at the Scottish Executive. That is not democracy.

What is the likely outcome of the settlement? Aberdeen City Council's settlement is likely to be above inflation. In Mike Rumbles's beloved Aberdeenshire, the council is talking of "fairly hefty" increases. I do not know whether Brian Adam or whether Mike Rumbles is correct—or whether both are—but the fact is that the council is talking about "fairly hefty" increases.

Last year, when I voted against the financial settlement, Aberdeenshire Council received 13 per cent less than the average settlement for councils. This year, it is receiving a settlement of 8 per cent above the average settlement for councils and, over the next three years, it will receive a 17 per cent increase—it is doing very well indeed out of this settlement. The important point is that more money than ever before is being provided for councils.

It is not only the arithmetic of the Liberal Democrats that concerns me. At times, they appear to live an Alice-in-Wonderland existence.

The local government settlement has been an opportunity lost. The Executive should have made sure that collection rates were increased; it should have linked grants to collection rates. It is not acceptable that in Scotland only 87 per cent of council tax is collected, whereas in England 96 per cent is collected. Of course, Glasgow's plight, which was well outlined by Tommy Sheridan, would be less if Glasgow City Council had increased its collection rates to the average.

The credibility of local government is at stake. Local government will have to think long and hard about how it is to carry out its function in the future; the Executive should have used this opportunity to nudge and guide it in the appropriate direction.

We are having an important debate this afternoon. The processes of driving power closer to the people and of devolution cannot and should not stop at Edinburgh. Unfortunately, the settlement does not help that process. As we are well aware, local government has taken a pasting for years, first under the Conservatives and then under Labour, which carried forward the Conservatives' plans.

There are elements in this announcement—and there have been elements in the past year—that it would be churlish not to welcome. My colleagues have put on record our welcome for three-year settlements, the abolition of spending guidelines and other issues. However, a range of questions is still left unanswered after today's debate.

Despite all that has been said by the minister and his colleagues, even the dogs in the streets are aware that there are cuts and dilapidation in councils across Scotland. It is a fact that services are worse and council taxes are going up. The burdens are increasing and the population in some areas is increasing, yet the grant has not been keeping pace. Councils are being asked to do more with less at their disposal. For example, the harsh reality is that local government's share of the Scottish budget has consistently fallen under Labour. As we have heard throughout today's debate, burdens have increased. The annual expenditure forecast is up by 6.2 per cent this year yet, as Kenny Gibson said, ring fencing is up 10.7 per cent.

New burdens to do with demographics, superannuation, new Government taxes, trunk roads and the Housing (Scotland) Bill are all putting a greater pressure on the councils, yet budgets are not keeping pace. All of the increase that has been applied to councils as a result of the comprehensive spending review announcements is ring-fenced and hypothecated. Councils have no extra scope for manoeuvre. That is what is going on under Labour.

Is Mr Wilson aware that, when representatives of COSLA came to the Local Government Committee and were asked to identify the figure at which the issues that Mr Wilson mentions could be taken into account and what the settlement should be for this year, they said £1.2 billion? Is he also aware that the Scottish Executive delivered in excess of £1.2 billion?

The figure of £1.2 billion that COSLA referred to is an annual figure, but Mr McMahon's figure is over three years. That means that the Executive is one third of the way towards what was asked for. Mr McMahon displays fuzzy maths of the best type.

In each of its first few years in office, Labour has spent less than the Tories did on local government when they left office. It is projected that the figure might catch up with Conservative spending by 2002. At the same time, of course, council taxes have risen exponentially. Aberdeen City Council—which, for the benefit of Mr Rumbles, I should point out is near Aberdeenshire—has had a 41.68 per cent increase. Argyll and Bute Council's council tax has risen by 45.91 per cent, Dumfries and Galloway Council's by 45.4 per cent, Highland Council's by 33.88 per cent, North Lanarkshire Council's by 21.3 per cent, Shetland Council's by 62.12, Stirling Council's by 39.38 and West Lothian Council's by 37.52.

Under Labour, taxes have risen consistently and council tax payers, through a regressive, unfair tax, have paid more to receive fewer services. After next year's council tax rises, the average family in Scotland will be paying more than £224 extra in council tax than they were when Labour came to office. That is almost half of the figure that Gordon Brown announced this week for working families tax cuts. He is giving back less than half what he has already taken away in the form of council tax rises. The Labour party will have to answer for that. Council taxes have soared under Labour throughout Scotland. Anyone who walks across Scotland with their eyes open will see that services are not keeping pace.

The state of the roads is well documented; the state of the pavements and the extent of littering are disgraceful; town centres are in a state of decay; school buildings are unacceptable for Scotland in the 21st century; cleansing departments are suffering cuts; libraries, sports centres and community facilities are being shut across the country. That is not a background of progress and growth. If Jim McCabe of North Lanarkshire Council is happy with that, that is fine for him to take to his electorate. The hard reality is that people in North Lanarkshire, as across Scotland, are not satisfied with the managed decline against the backdrop of growing taxes under the Labour party.

The minister hailed and rejoiced in the increase in the capital allocations for 2003-04. However, as Kenny Gibson pointed out, that allocation will, at the end of the comprehensive spending review period, still provide £188 million less investment than when the Conservatives left office, which will then have been seven years previously. Labour is welcoming a capital investment in the infrastructure of Scotland that will be nearly £200 million less than in 1997. Against that backdrop, the number of private finance initiatives is increasing five times faster in Scotland than in the rest of the UK. It is the mortgaging of the future of council tax payers.

In one of his most remarkable responses to an intervention—which I am sure people in Hamilton North and Bellshill will see coming to an election leaflet near them—Michael McMahon said to Alex Neil, who was talking about costs being put up and services being reduced because of privatisation, "Alex Neil is right." That will be in the Official Report, and the point will be repeated. That is the reality of Labour's privatising of services and raising council taxes, but with a reduction in the quality of services. That shows the complacency of Labour representatives across central Scotland, which has led to the seepage in their support over the past few years.

The minister consistently called for us to consider outputs, not inputs. He was absolutely correct to do so. The Labour party talks about growth in spending, but the reality on the streets is much diminished. Mary Mulligan made an excellent speech, but without answering the central point: there are fewer police officers on the streets today compared to when Labour took office. When Labour leaves office—[Interruption.] That is the reality. The figures from answers to Labour members' own parliamentary questions confirm it. The number of police will increase next year, but by how much? By less than 40 across the entire country of Scotland.

Homelessness is at a record level after four years of the Labour Government. Does that satisfy anyone on the Labour benches? Council taxes are at their highest level in history. We have the highest council taxes and the highest-taxed businesses in the UK. This is the reality of the first four years of the Labour Government: services declining and taxes up. Labour will have to pay the price for that at the ballot box. Unfortunately, people and services throughout Scotland have already had to pay too heavy a price.

This has been a good debate, with many good contributions. I will try to pick up as many points as I can. I am grateful for what I think was a genuinely warm welcome among all parties for many features not only of our announcements today but of those made in previous months, in particular the move to three-year budgets and the removal of expenditure guidelines, which gives local authorities much more freedom than they had in the recent past. Many members have acknowledged the greater level of resources that are flowing into local authorities throughout Scotland. Those are helping with what has been, for many years, a very difficult budget situation.

Even Bruce Crawford and Kenny Gibson—whose speech, although seven minutes shorter than it was last year, seemed just as long if not considerably longer—as well as Brian Adam and many other SNP members have acknowledged the fact that we are making process. Sadly, Keith Harding failed to rise to the occasion: he did not give the same welcome that Murray Tosh gave, in what I thought was a thoughtful contribution. I will return later to some of the points that he raised. Trish Godman also made a thoughtful contribution on some of the bigger issues that we still need to challenge. Even Bill Aitken acknowledged that we are making progress in a number of ways.

Andrew Wilson, however, reverted to type, promising everything without specifying for a moment where anything would come from. He argued that local government would have a lower percentage of the current Scottish budget. Given that we have a fixed budget, if he wants to give more to local authorities, he will have to take that money from somewhere else. Where would more money for local government come from? There was not a single word on that subject from Andrew Wilson. Would it come from the health budget or the transport budget? Andrew Wilson's approach was typical: there was no detail because the SNP has no policy on these matters.

Is it not the job of the Opposition to point out failures in Government policy? Does the minister agree that the local government share of the overall budget has declined under the Labour party but council taxes have increased?

When the Opposition criticises the Executive's policy, its job is to give its alternatives. Those are singularly absent from anything that the SNP says.

I will examine four of the main themes that have been raised. I will speak about what have been called cuts, and I will discuss hypothecation, deprivation and McCrone.

Some members have said that cuts are taking place across Scotland, but we should be clear about what is happening in local authorities. There are three components to the equation. First, undoubtedly, there is growth in local government services, particularly in education, but also in areas such as social care, police, fire and transport. I hope that nobody will deny that there is significant growth in key services in councils. Equally, there is a process of reprioritising in councils. They are considering which services should continue to have priority, and which should have a lower priority.

Will the minister give way?

I will finish my thesis. Equally, councils are seeking efficiency gains, using the best-value processes that every council should be using.

Murray Tosh made some useful points about the culture and atmosphere that we should adopt in all public services. It is not just a question of giving additional resources and expanding services, which the Executive is doing. Although that is valuable and worth while—it is why we are here—we have to achieve value for every pound that we spend. That requires scrutiny. In the new management structures that are being developed in local authorities, the scrutiny function will come further to the fore. If Murray Tosh was saying that that is an area that should be developed, I agree with him.

Let us not deny the fact that there is more money going into the system. There are minimum increases of 5 per cent this year, 4.3 per cent next year and 3.4 per cent in the year after that—that is a 10 per cent real-terms increase over the next three years. Capital funding will increase by a minimum of 20 per cent. There will be no spending guidelines, so councils will be free to raise tax as they see fit and be accountable to their electorates for doing so. That is the essence of local democracy. There will be no automatic capping.

The point that I was making was that if councillors are to do a good job of refining their services, they need to be able to benchmark. They need good reliable information. At the moment, the systems that are in place do not lend themselves to benchmarking. I speak from experience of trying to find costs with which to compare. The Executive has to take a lead in that area so that it can empower councillors to control and steer the councils that they run.

I agree that more benchmarking information is required. Part of the best-value process is to elicit that information from other parts of the public sector and from the private sector, both internationally and domestically. Progress is being made, but I accept that we could make more progress.

What proportion of the additional resource that is being given to councils over the next three years is being prioritised by the Executive? How much will local authorities be allowed to prioritise?

That question helpfully leads me to the issue that I wanted to address next—hypothecation, which was raised by many members. We have to be clear that there is a tension on that question that exists for the SNP and Conservatives as much as it does for the Labour party and the Liberals in the Executive.

In Scotland, we have a fixed budget. An Executive is elected to power on the basis of a manifesto that it wants to deliver: it wants to improve transport, education and a whole range of other services. However, the means to deliver those improvements is not in the Executive's hands, but in the hands of the local authorities, who are the principal deliverers of services in Scotland. It is unreal to suggest that there is no real tension in the debate between the Executive and local government. In the past, the situation has inevitably been that the Government of the day has sought to attach conditions to local government expenditure to deliver that Government's priorities and the policies to which it committed itself in the election. That creates a genuine tension.

Angus MacKay and I, and our colleagues, are clear that we want to move away wherever possible from hypothecating expenditure heavily. If we are to be able to do that and to deliver our priorities, which we were elected to deliver, we must find a new mechanism for doing so. Therefore, we must look to the outcomes of expenditure, not the inputs, and to outcome agreements. Once we have done so, we will be able to dehypothecate expenditure in a way that has not been seen in the recent past.

We are entering uncharted territory—this is a new science and no one has all the answers. We are genuine in our attempt to move forward and we will work with COSLA to try to make progress.

Will the minister give way?

I am conscious that I am running out of time.

If the minister is genuine about moving forward, will he tell us what percentage of the new money will be unhypothecated and what percentage will be hypothecated?

There is no new hypothecation in the grant settlement. Jack McConnell has made it clear that he wants to review the excellence fund. Discussions with local authorities are continuing about outcome agreements in educational attainment, which would allow us to dehypothecate in that area. No new set of expenditures in the settlement is hypothecated. I want to be clear that hypothecation is attached to only about 10 per cent of the total block of expenditure. There is huge freedom within the system.

I am conscious that time is moving on, but I wish to pick up the point that Trish Godman made on deprivation. During the current year, the deprivation factors were reviewed and local authorities were involved in the working party that undertook that review. As a result, £12 million more has been added to expenditure in teaching areas with particularly deprived communities. The better neighbourhood fund has been targeted specifically at areas with the most acute forms of deprivation, to ensure that progress is made in those areas.

We recognise that the debate on how to distribute resources must continue. As we move forward towards the next three-year settlement, we will have to form a view on how we distribute resources. We want to form that view in partnership with the local authority community, which has many good points to make to us. I say to Trish Godman that we will consider that issue in a genuine partnership with local authorities.

Presiding Officer, I am unclear about when you wish me to conclude. Am I running out of time?

You have just over one minute.

That is fine. In that case, I will pick up a couple more points.

Iain Smith and Donald Gorrie raised the issue of the distribution of McCrone money. I must be clear that the McCrone issue has yet to be settled. The unions have still to conclude their ballots and we will consider the distribution of the money once that has happened—if, indeed, agreement is reached. The order that we are discussing provides some resources for McCrone, but some are being held back for distribution at a later date.

I am conscious that, in the past few days, figures have emerged from one council in particular, which is suggesting an alternative means of distributing those resources. We considered those figures overnight and, from what we saw, we believe that they are not well founded. A degree of confusion is also beginning to emerge about the funding for McCrone and the grant distribution system as a whole. That confusion is raising further questions about how we distribute grant for all education expenditure, not just McCrone.

If we were to reconsider the entire system, we would have to deal with profound issues and would be required to consult fully the local authority community before we could implement any changes. That would begin to undermine the rationale for how we distribute certain resources at present. I am thinking in particular about the special islands needs allowance and the additional money for education spending in rural authorities.

I urge colleagues to consider that matter carefully before we push the boat out too much further. We might lose a lot, as grant distribution would take a long time to sort out. We should take some time to consider carefully the impacts of the suggestion to which I referred on local authorities.

Keith Raffan asked when we would roll forward the three-year settlement. It is our intention to revisit that point in year 2 of this settlement, with the firm intention of rolling the settlement forward for a further three-year period.

I could have picked up many other points that were made during the debate, but I must conclude. The settlement that we have debated today is good news for Scotland, for Scottish councils and for those who benefit from council services throughout Scotland. I commend the Local Government Finance (Scotland) Order 2001 to the Parliament.