Local Government Finance Settlement 2009-10
The next item of business is a statement by John Swinney on the local government finance settlement 2009-10. There should be no interventions or interruptions during the statement, as it will be followed by a subject debate on the matter.
The Government came to power with the aim of establishing a new relationship between national and local government, which was delivered by the concordat that we signed just over a year ago. The concordat put local government at the centre of governance in Scotland, working alongside national Government as an equal partner.
Under the concordat, we have invested record levels of funding, halted the downward trend in the proportion of the Scottish Government's overall budget that goes to local government, removed unnecessary and restrictive ring fencing around funding streams, given councils greater freedom and flexibility to do their jobs, and stepped back from micromanaging local government. We have seen a year of significant progress in that relationship.
Today I am pleased to announce the provisional funding allocations to local government for 2009-10, which are significantly higher than the indicative amounts that I set out last year for the coming financial year. Copies of summary tables containing the key information in my statement are available at the back of the chamber.
All the decisions that we take on funding must take account of the current economic and financial circumstances that we face. When we signed the concordat a year ago, none of us could have envisaged the ferocity of the economic storm that has since engulfed not just Scotland but the global economy, nor could we have foreseen some of its ramifications. Scotland's communities are feeling the effects of that storm. The Scottish Government remains firmly on the side of businesses and households that are facing the prospect of tougher times and is using all the levers at its disposal to address the current economic conditions. We have already announced our economic recovery plan, which builds on the earlier steps that we have taken to support the Scottish economy. The Government's focus remains on increasing sustainable economic growth. Our recovery plan will help to maintain investment and development in the economy, while targeting support at households and businesses.
We know that to achieve progress and to support Scotland into a speedy recovery we need to work in partnership and to draw together all aspects of government. If the economic recovery is to work at both national and local levels, it must involve local government in order to ensure that we are using all the powers and resources at our joint disposal. That is why we have discussed with local government the actions that councils can take to assist economic recovery. I welcome the steps that authorities plan to take in that respect.
We know that councils are having to deal with lower than expected income, for example as a result of adverse market conditions impacting on projected capital receipts. There may also be greater demand for their services over time. At least inflation, which has been higher than expected, is falling and is predicted to fall further.
Under the concordat, both national and local government are already working jointly towards agreed outcomes under a single national purpose. The current economic challenges have given that joint working added urgency. Last week we debated some of the measures that we are taking to bolster economic recovery and to support families and businesses, which include bringing forward £100 million of capital spending to invest in affordable housing. Local government played its part in that and is a key player in the measures that I announced last week to bring forward substantial investment from 2010-11 into this and the next financial years. Councils have made it clear to me that they are positive about the contribution that they can make and that they will be able to bring forward substantial programmes of capital investment. We are continuing to discuss with local government the detail of those programmes.
I have given just two examples of how Scotland is benefiting from a better and more constructive relationship between national and local government in Scotland—a relationship that was enshrined in the concordat and which is still developing. In 2008-09, we agreed to fund a council tax freeze and made available an extra £70 million to councils to support it. All 32 councils accepted that support and either froze or reduced their council tax, which meant that an extra £70 million went directly into the pockets of hard-pressed taxpayers just as the economic downturn was starting to bite. We—the Scottish Government—will invest in that commitment again in 2009-10 by making a further £70 million of new money available to councils. I hope that all councils will agree to extend the council tax freeze for a second year in order to give further support to those who are most in need.
Through the small business bonus scheme, which is another element of the concordat, we have also cut or removed business rates for small businesses, which is helping those businesses better to weather the current economic difficulties. The second stage of the programme of business rate cuts, which will implement the scheme in full from 1 April 2009, will be taken forward as a consequence of the Government's budget for next year—subject, of course, to parliamentary support.
Through the concordat, we are seeing fundamental new ways of developing policies. Yesterday, the Scottish Government and the Convention of Scottish Local Authorities together launched an early years framework. We developed the policy together so that we can give children the best possible start in life. Two weeks ago, I met a broad cross-section of public sector leaders in Edinburgh and was able to reflect the greater scope and flexibility that Scotland's local authorities now have to plan and act in a way that prioritises their local concerns and the communities that they serve. That is good news for local government and for the communities and people of Scotland.
One very public consequence of the credit crunch has been the difficulties that a number of Icelandic banks have experienced. That has in turn impacted on a number of Scottish local authorities that had deposits in those banks. There is still uncertainty about what the situation will mean for those councils as they prepare their budgets for 2009-10. We are in touch with COSLA and the United Kingdom Government to ensure that we are doing all that is possible to support those councils. I can announce that, in the meantime, and following discussion with COSLA, I will shortly introduce statutory guidance that will allow councils, exceptionally, not to make provision in their 2009-10 budgets for any potential loss on those investments. The measure will give councils time to adjust their medium-term financial plans once the position on recovering their money is clearer, and it will mean that their budgets or council tax will not be affected in the short term.
That brings me to the detail of the 2009-10 settlement for local government. Last year, despite receiving one of the tightest settlements since devolution, we chose to increase the proportion of the Scottish Government's overall spending that went to local government to an indicative total of £11.6 billion for 2009-10. I am pleased to announce that the figure has now risen to £11.7 billion. That figure, which includes capital and revenue funding, represents an increase in funding to local government of 5.1 per cent on 2008-09 levels.
The additional sums that I am confirming today have been agreed and discussed with COSLA. They include £40 million in response to the report of Lord Sutherland's review of free personal care; £42 million to meet the commitments on police and fire and rescue service pensions; £18 million to support local government with an increase above that which was forecast in employers' pension contributions for teachers; and £12.2 million as local government takes on some of the powers for local regeneration. As a result of those changes, revenue funding for 2009-10 will now total £10.8 billion, which is an increase of 5.4 per cent on funding for the current financial year. That includes the funding that we included last year for an increase in police officer numbers.
The capital funding element amounts to £945.6 million for 2009-10. When we announced the three-year settlement last year, we front-loaded our capital investment in the first year and maintained the increase throughout the period. There are a number of offsetting adjustments to the capital funding to local government in 2009-10, which I should explain in a bit more detail. First, as I have already noted, local government has agreed to release £20 million in this financial year and in the next one to support the programme of accelerated capital investment in affordable housing that we announced in the summer. Those amounts will be returned to local government in 2010-11. Secondly, following discussion with COSLA, we have agreed to swap £20 million of capital for £20 million of revenue in 2009-10 and in 2010-11 to support existing school investment programmes. Thirdly, we have agreed that £6.9 million will be transferred from police budgets to the Scottish Police Services Authority to meet the costs of centralising police information and communications technology support.
I do not propose to list every single change that has been made. A full list will be published in the circular that we are issuing to local authorities and COSLA today as part of our normal consultation on the provisional allocations. However, to summarise, all the various elements taken together result in a 5.1 per cent increase in the overall funding to local government compared with 2008-09. Taking this and the next financial year together, that means that, under the concordat, local government will see a 9.9 per cent increase on the allocation for 2007-08.
Despite Scotland receiving the tightest settlement since devolution, this substantial increase in funding will allow councils to sustain the essential services that they provide to communities, and to progress delivery of the commitments that we have jointly agreed in the concordat, including improving the fabric of education through reducing class sizes; increasing nursery pupils' access to teachers; expanding pre-school provision to three and four-year-olds; extending free school meals to pupils of families in receipt of maximum child tax credit and maximum working tax credit; continuing to work in partnership with colleges and local employers to give pupils more vocational education opportunities; treating kinship carers of looked-after children on an equivalent basis to foster carers; improving care home quality; offering more respite weeks for carers; reducing business rates for small businesses; and putting more police on the streets.
Those are just some of the positive measures that are being taken forward by local and national Government together and which are made possible through the funding that is being invested in councils by the Scottish Government and by the new supportive ways of working that were agreed through our joint concordat.
When I presented my draft budget for 2008-09 to Parliament last year, I indicated that I would look at the case for additional financial support for the City of Edinburgh Council to meet the unique additional costs that it incurs as Scotland's capital city. I asked the council to submit a business case. It has done so, and I am considering that evidence. I am not in a position today to announce my decision, but I will confirm the decision in good time before the local government finance order for 2009-10 is brought before Parliament for approval at the start of next year. Whatever amount I may decide for the capital city supplement will be additional to the funding that I am announcing today for local government as a whole. In other words, the capital city supplement will not result in any decrease in the provisional allocations to other councils that I am announcing today.
Business rates are an important element in the income of local authorities. As part of our economic strategy, we committed to not allowing the poundage rate for business rates to rise above what it is England during this session of this Parliament. I can therefore confirm that the rate for 2009-10 will remain in line with that in England, at 48.1p. The modest poundage supplement that larger businesses pay on properties with a rateable value of over £29,000 will be set at 0.4p, which is also in line with the supplement that has been set for England. That confirms that, as far as the business rates poundage is concerned, Scottish business that must pay business rates will be on a level playing field with comparable businesses south of the border. Of course, many businesses will pay no business rates after April 1 2009.
One measure in the Chancellor of the Exchequer's pre-budget report has caused us particular difficulty—the UK Government's decision to impose an additional £5 billion in efficiency savings for 2010-11. That decision directly threatens not only the Scottish budget but the delivery of services to the people throughout Scotland because it will mean a proportionate cut—potentially around £500 million in 2010-11—in the money that Scotland is due to receive from the UK Government. We cannot reinvest that money because the Treasury will hold it back. We will not know until the chancellor gives his budget statement in spring next year by exactly how much our funding will be reduced. When we are given that information, we will then need to consider where the cut that will be imposed by the UK Government will fall, and to discuss the implications fully with our partners before we reach any decisions. I have therefore decided, having consulted our local government partners, not to publish indicative figures for 2010-11 at this time. Were I to have done so before we know more about the precise impact, and before we have had an opportunity to consider how we can accommodate it, the figures would have been at best artificial and at worst misleading.
In conclusion, the provisional allocations that I have indicated to Parliament today will further increase the share of the Government's overall budget that goes to local government. The allocations will continue our record investment in local government, build on the positive relationship and progress that we enshrined last year in the concordat and continue our positive and constructive manner of working. The resources will support our work in looking forward to tackling the important challenges ahead. We will work together to continue our focus on sustainable economic growth and on providing a solid foundation for Scotland.
Today marks the start of the normal consultation period with local government on the provisional allocations. I will bring the final figures to Parliament as part of the local government finance order in February, once the budget bill has been passed.