The next item of business is a statement by John Swinney on the local government finance settlement 2015-16 and the autumn statement. The Deputy First Minister will take questions at the end of his statement. There should, therefore, be no interventions or interruptions.
16:24
I am grateful for the opportunity today to respond to the United Kingdom Government’s autumn statement of 3 December, and to update Parliament on non-domestic rates in Scotland and the terms of the provisional local government settlement for 2015-16.
Summary tables containing the key financial information on the local government settlement are available at the back of the chamber.
The Scottish economy has performed strongly this year with output now above pre-recession levels. The most recent labour market statistics show Scotland outperforming the other nations of the UK on unemployment, employment and economic activity.
That success reflects our approach to growing the economy, and this Government will continue to focus on securing economic growth, protecting our public services and tackling inequality.
However, the UK Government’s approach to austerity harmed the recovery, and the growth we are now seeing follows years of underperformance.
By the end of 2015, the UK economy is forecast to be almost 4 per cent smaller than was projected in 2010 when the Chancellor of the Exchequer first entered office. Real wages also remain subdued. As a result, borrowing this year will be £50 billion higher than the chancellor predicted in 2010.
Looking forward, the Office for Budget Responsibility forecasts that 60 per cent of the UK Government’s cuts are still to come. They will reduce UK spending on public services to the lowest level as a share of our economy since the 1930s.
Since 2010, the Scottish Government has taken steps to mitigate the impact of those cuts, by protecting the health budget, increasing the provision of free nursery education, investing more than £1.7 billion in housing and addressing the impact of welfare reform. However, we are not immune from the UK Government’s austerity agenda. Scotland’s share of the cumulative real-terms cut that is planned for the next five years is estimated to be around £15 billion.
There are measures in the autumn statement that I welcome, including the abolition of employers’ national insurance contributions for young apprentices. I can also confirm that the Scottish Government will pass on the £127 million Barnett consequentials arising from increased Department of Health expenditure to the national health service in Scotland. The Government will take decisions about other consequentials in due course.
Other announcements were disappointing. The chancellor confirmed that Northern Ireland will have the ability to vary corporation tax, but the UK Government continues to block devolving that power to Scotland, which continues to deprive us of key job-creating powers. However, devolved taxation is clearly good for the chancellor: despite ample opportunity to redesign the outdated and distortive slab structure of stamp duty land tax, the chancellor waited to copy the reforms that this Parliament has introduced.
The rates and bands for the land and buildings transaction tax that were proposed in October by the Scottish Government were designed for the Scottish housing market, where the average house price is £100,000 lower than the average price across the UK and only one third of the average house price in London. The rates that were originally proposed would benefit 90 per cent of home buyers in Scotland and take 5,000 transactions out of tax at the bottom end of the market, helping first-time buyers directly.
The chancellor might have moved the goalposts but, with our proposals continuing to ensure that 80 per cent of taxpayers in Scotland will pay either no tax or less tax than they would under the new UK regime that was announced last week, our scheme continues to support first-time buyers and to be relevant to the Scottish housing market.
Parliament has been advised of the delay in reaching agreement on the block grant adjustment that comes with the devolution of tax powers. I have spoken to the Chief Secretary to the Treasury about this issue and I am anxious to resolve that before Christmas. That factor is, of course, material to my consideration of the changes that the chancellor has made.
Our proposals also replaced the distortive slab system with a progressive rate structure for non-residential property transactions, ensuring that Scotland remains a competitive and attractive location for business investment.
The Scottish Government has a clear commitment to the most competitive package of business taxation in the UK. At the heart of our approach is the small business bonus scheme. Recent statistics show more than 96,000—or two in five—rateable properties benefiting this year, which is a record high. Eligible businesses will this year be up to £3,140 better off than competitors that are located in England, even allowing for the temporary extension to the chancellor’s equivalent scheme.
I take the opportunity today to reiterate my previous confirmation that the public health supplement will conclude at the end of this financial year.
I am also pleased to announce that agreement has been reached with the Convention of Scottish Local Authorities on a revised business rates incentivisation scheme that is more tightly focused on rewarding growth in the underlying tax base. Full details of the scheme and the agreed targets that come into effect in 2014-15 are set out in the local government finance circular, which is published today.
In addition, our Community Empowerment (Scotland) Bill, which is currently before Parliament, contains provision for local authorities to offer targeted rates relief to stimulate economic growth in their localities. In 2012-13, we began our review of the rates system ahead of the next revaluation in 2017. Our consultation in 2012-13 led to a 20-point action plan that included a review of the appeals system, and I am pleased to publish our consultation paper on the future of the appeals system today.
I can confirm that, in 2015-16, to maintain our competitive position, we will continue to match English poundage rates, in contrast to previous Administrations, which imposed higher rates and put Scottish businesses at a competitive disadvantage for years. Our overall package of rates reliefs provides increasing support to businesses that is estimated at £618 million for 2015-16. Scotland remains the most competitive business tax environment in the United Kingdom.
Non-domestic rates are a key component of the funding package that we provide to local authorities through the local government finance settlement. In 2015-16, we will provide a total package of resource and capital funding of almost £10.85 billion in support of local authorities’ services. That settlement is set against the challenging fiscal environment and the austerity measures that are set to continue, with further damaging cuts to public services from Westminster. Despite that context, the offer to local government continues to represent a very fair settlement.
Local government and the essential services that it delivers are an integral part of the overall good governance of Scotland, and local authorities continue to be critical partners in the Scottish Government’s transformative programme of public service reform. The settlement builds on our joint priorities and is focused on growing the economy, protecting front-line services and supporting the most vulnerable in our society.
The local government settlement maintains funding on a like-for-like basis in both 2014-15 and 2015-16, with the allocation of additional money for new responsibilities. The 2015-16 revenue allocations have been increased by £241 million since the draft budget 2014-15 was set out, with £54 million to give all children in primary 1 to P3 access to a free school meal; £44 million to fund extended pre-school entitlement; £38 million for the Scottish welfare fund; £35 million to fully mitigate the impact of the bedroom tax; and £6.5 million to support the administration costs of the council tax reduction scheme. The 2015-16 capital allocations have increased by £39 million to support the extended pre-school entitlement.
In 2014-15, the main additional sums are a further £18.5 million for early learning and childcare resulting from the Children and Young People (Scotland) Act 2014; almost £16.5 million for the delivery of free school meals to children in P1 to P3; £15 million to allow us to fully mitigate the impact of the bedroom tax; £12 million to cover the cost of the enterprise areas business rates relief scheme; £5 million to provide additional teachers’ support resulting from the new national qualifications; and £2 million to help local authorities to fund the teachers’ pay award. I can confirm that, following agreement with COSLA earlier this year, the needs-based formula has again been applied in its entirety to the settlement for 2015-16.
In return for that package of resources, local authorities will be required to deliver a council tax freeze for the eighth consecutive year and secure places for all probationer teachers who require one under the teacher induction scheme. The Scottish Government and COSLA have also agreed to work together with others towards reaching an in-principle agreement on an educational outcomes-based approach. That approach will consider a broad range of indicators of educational improvement and should include teacher numbers as an important contributory factor. The process will be inclusive and will engage other parties, notably trade unions, parent bodies and others with an interest in educational outcomes, and it must be satisfactory to both the Scottish Government and local government.
In addition, national health service boards and local authorities are working to deliver integration of the adult health and social care system. We have also committed additional funding to tackle child poverty and will work with COSLA to extend financial support to kinship carers. The Government is also supporting the Glasgow and Clyde Valley city deal with £15 million of Scottish Government funding from 2015-16, the first part of our £500 million contribution to a £1 billion package over 20 years that has been agreed with the UK Government.
We are supporting our capital city, using our new growth accelerator model to support an £850 million investment in the St James quarter in Edinburgh city centre with just under £100 million from the Scottish Government over a 25-year period, and we remain interested in proposals from all our cities for how they can be helped to grow and develop.
My statement today marks the start of the consultation process with local government on the provisional 2015-16 revenue allocations. Once those are confirmed, I will bring the final figures to Parliament early in the new year.
The Deputy First Minister will now take questions on the issues that were raised in his statement. I intend to allow until 5 pm for questions, after which we will move to decision time. It would be helpful if members who wish to ask a question of the Deputy First Minister were to press their request-to-speak buttons now.
This year, there is no sign of a flat-cash settlement, and several local authorities have received cuts. Will the Deputy First Minister admit that when he says that he will work to achieve an educational-outcomes-based approach, that is code for dropping the commitment on teacher numbers and class sizes? What does he have to say to the Educational Institute of Scotland, which has described that as a “betrayal”? What does he have to say to Unison, which has predicted that a further 40,000 jobs will be lost as a result of the settlement that has been announced today?
Given the cost rises for local authorities of 10 per cent since 2007, the fact that the Scottish Government now controls 82 per cent of local authority budgets, and the fact that people on lower incomes in disadvantaged areas are hit hardest by cuts to local government services, will the Deputy First Minister agree to widen the scope of the cross-party talks that he has proposed on what will come after the council tax—as recommended by the Local Government and Regeneration Committee—to include local government finance more widely and to enable more financial flexibility for local authorities to be considered?
On the first part of Sarah Boyack’s question, about the pattern of local authority expenditure, the table that I have made available to members indicates that in 2014-15, with a number of factors removed to ensure a like-with-like comparison, total local authority expenditure will be £9.435 billion. It is estimated that in 2015-16, it will be £9.5 billion. That indicates the strength of the local government finance settlement that we have put in place.
On teachers, I set out in my statement the contents of the approach that we are taking with local government to consider how we can concentrate and develop a model that is designed to improve educational outcomes. That should, after all, be the focus of our education investment and our education policy. Fundamental to that is the involvement of our education trade union partners, including the Educational Institute of Scotland, and of parents, who clearly have a significant interest in the whole issue.
On the wider question that Sarah Boyack asked about Unison’s perspective on the impact of the local authority settlement on employment, I acknowledge that employment in local authorities has fallen, and that employment in the public sector has faced acute challenges as a consequence of the general financial climate in which we are operating. If the Scottish Government’s budget has gone down in real terms by 10 per cent since the United Kingdom Government was elected in 2010, it is little surprise that there are financial strains, as a consequence. Some of those are being dealt with by the Scottish Government directly and some of them are, inevitably, being dealt with by our local authorities, but we address those issues in the spirit of partnership in order to achieve the most that we can achieve from the resources that are available to us in the climate of austerity.
On Sarah Boyack’s final point about the cross-party discussions that have been encouraged by the Local Government and Regeneration Committee—which was the subject of debate in Parliament earlier this afternoon—the Government has not fixed the remit of that process. We have had a number of discussions with COSLA about those questions, and we are very anxious to progress the inquiry in a spirit of partnership with our local authority partners. We have invited all political parties to be involved in the process, as the First Minister emphasised when she set out the programme for government, and we are certainly open to considering the relevant issues as we address what I acknowledge to be a significant issue for local authorities in Scotland.
I thank the Deputy First Minister for advance sight of his statement and I apologise to him and Parliament for missing the opening minute.
I have a couple of questions. First, how much of the autumn statement’s consequentials come from measures related to business rates?
Secondly, I give a cautious welcome to the Deputy First Minister’s announcement on the business rates incentivisation scheme, although obviously I want to see the detail. He mentioned that targets have been set for 2014-15 onwards, but will he say what happened to financial year 2013-14?
The Deputy First Minister talked about local government having expenditure of £10.85 billion next year, whereas the draft budget says £10.75 billion. Will he explain the difference between those two figures?
Finally, the Deputy First Minister normally mentions the local government share of Scottish Government spending. Has the share for 2015-16 gone down from that in 2014-15, has it gone up or has it remained the same?
The consequentials from business rates are about £63 million, if my mental arithmetic has not deserted me this afternoon.
On the business rates incentivisation scheme, the Government has put in place the arrangements for 2014-15 and 2015-16, which I announced today. We acknowledged that there was a difficulty with the operation of the previous scheme that we conceived. The one that we have moved to is focused intently on business rate growth: on core economic growth, as opposed to the other factors that were skewing the earlier business rates incentivisation scheme. We have a stronger foundation for that approach and I am very pleased that we have secured agreement with local government on that question.
Local government’s share of the Scottish Government budget stands at 36.7 per cent in 2014-15 and stands at 36.4 per cent for 2015-16. Obviously a factor that has an effect on the share of the budget that is allocated to local government is the fact that we are passing on a real-terms increase to the health service, which I know is a policy position of which Gavin Brown has been supportive.
In the context of the acute financial pressures with which we are wrestling, we are delivering a strong financial settlement to local government, which commands a greater share of the Scottish Government’s budget—the resources that we have at our disposal—than it did when this Government came to office.
I welcome the cabinet secretary’s statement.
A difficulty that emerged from the recession, which was highlighted by both the Office for Budget Responsibility and the Institute for Fiscal Studies, is that productivity in the UK has unexpectedly stagnated in recent years, which has placed a major drag on economic growth. What steps is the cabinet secretary taking to raise productivity in the Scottish economy and enhance our competitiveness?
The Government is taking measures in its wider agenda to advance many of the priorities in the remit of the new Cabinet Secretary for Fair Work, Skills and Training, Roseanna Cunningham, through which we will concentrate on improving the remuneration and quality of employment that is available to members of the public in Scotland. That will be a product of the investment that we make in skills and learning, and of our encouragement of measures such as payment of the living wage.
Yesterday the Government held the 14th meeting of the national economic forum, which brings together a variety of private sector, public sector, third sector and trade union leaders to focus on shared priorities that are very much at the heart of Ms Cunningham’s remit. One of the employers who spoke at yesterday’s event, at which our focus was on improving the quality of work and on issues of productivity, had as part of his preparation for it examined and explored the implications for his company of paying the living wage. He announced at the national economic forum that he is going to go ahead and do that, because he is concerned that, as an employer, he has not responded positively on the issue when it has been raised with him. That is a great example of how employers can lead by example. The living wage is central to the process.
I highlight the emphasis in the Government’s existing economic strategy, which will also be central to the new economic strategy that we set out in the spring, on delivering an ever-greater focus on innovation and how it can—if it is applied right across our economy—enhance the quality of employment and, as a consequence, improve productivity.
I thank the Deputy First Minister for the advance copy of his statement and for his recognition of the UK economic recovery, which is based on the UK Government’s economic plan. That is welcome.
John Swinney indicated that the extra funds from the Barnett consequentials will go directly to the NHS. Would he be willing to consider further investment in nursery education, for which I have argued for some time, so that we can at last catch up with England on two-year-olds?
Will the funding that Aberdeen City Council receives this year reach the 85 per cent threshold, or will this year be like every other year, when there has been a failure to meet it?
On Mr Rennie’s first point about the UK economic recovery, it is undoubtedly the case that progress is being made on the UK economy, but we are recovering from highly significant difficulties and, as I indicated in my statement, the level of growth falls significantly short of what the chancellor predicted in 2010 would be the case. The practical consequence of that, in financial terms, is that £50 billion extra is having to be borrowed in this financial year compared with what the chancellor estimated back in 2010 would be necessary back.
The fact that the chancellor went out of his way to praise the level of employment growth in Scotland must vindicate my economic strategy, which I know that Mr Rennie has long been waiting to applaud, celebrate, compliment and shower with the volume of rose petals that he always deploys in the chamber. There is a lot to be confident about as far as recovery is concerned, but let us not underestimate the significance of the economic impact that we face.
The Scottish Government has invested significantly in nursery education. We have expanded provision to the extent that the volume of provision in Scotland is more significant than is the case south of the border, and the provision that I have made in the Government’s overall budget and in the local authority settlement reflects that.
In 2014-15, Aberdeen City Council had at its disposal £318 million in Government grant; in 2015-16, it will have at its disposal £328 million, which is an increase of £10 million—or £9.637 million, to be absolutely precise. That represents a 3.02 per cent year-on-year change. The 85 per cent threshold has been applied in relation to the funding for Aberdeen City Council, and it will deliver significant benefit to the city.
Can the cabinet secretary confirm that the local authority distribution formula is the one that was agreed by COSLA last year as a result of its internal deliberations on that matter?
Local government agreed to apply the distribution formula as previously set out, and that has been applied to the information that is before Parliament this afternoon.
I welcome the confirmation that, on this occasion at least, the cabinet secretary has allocated all health consequentials to the NHS. In his statement, he also mentioned the role of the NHS in the delivery of integrated health and social care. What steps will he take to make sure that that additional funding ensures that the NHS plays a greater role in the delivery of health and social care in order to turn the tide of the growing bedblocking crisis?
On the first point, the Government has fulfilled, utterly, its commitment to pass on the Barnett consequentials to the health service. We said in 2011 that we would do that and we have fulfilled that commitment every year since then.
On the second point, health and social care integration is being taken forward jointly by the national health service and local government. There is an intense level of co-operation between health boards and local authorities locally, and the health secretary and the social justice secretary are very much involved in ensuring that that takes its course.
Mr Gray is of course correct to say that there is a direct relationship with delayed discharge, given the opportunities to resolve many such questions through health and social care integration. I assure him that the issues have significant attention at ministerial level. The Government will work in partnership with local authorities and health boards to ensure that that important part of our public sector reform programme is delivered timeously and effectively, so that members of the public receive appropriate care and support.
At a recent meeting of the Local Government and Regeneration Committee, I asked the Deputy First Minister about the use of local authority reserves to invest in preventative spend and transformation of services. Given that commentary after the autumn statement warns of colossal cuts to come as part of the continued austerity agenda, does the cabinet secretary agree that local authorities that are holding substantial reserves, such as Aberdeen City Council, which has £116 million in cash reserves, should use them in such a fashion?
On the substantive point about shifting the emphasis in public services much more to a preventative model, such an approach is central to the Government’s public services reform agenda. Indeed, at the heart of the approach to health and social care integration are attempts to anticipate and predict demand on public services and to find ways of meeting demand in a less costly setting, rather than through more expensive support.
A strong example of the approach is the drive to ensure that more vulnerable elderly people in our community are properly supported and equipped in their homes, so that we do not face some of the difficulties with emergency admission to hospital, which is a much more expensive care setting and where demand is much stronger. The shift to more preventative interventions lies at the heart of the Government’s agenda, and our local authority partners and the health service are jointly focused on how to deliver the approach. The substance of that agenda is something that I encourage.
On utilisation of reserves, local authorities have a prudential responsibility to exercise control over reserves that they hold. Audit Scotland gives guidance to local authorities on what is an appropriate level of general reserve to carry to meet particular circumstances, and I make assumptions about local authority reserves, for example in the application of the Bellwin formula, when I anticipate that local authorities have certain reserves to deal with emergencies.
Notwithstanding the identification of purposes for reserves or the Audit Scotland direction on holding sustainable levels of reserves, it is valid for local authorities to consider using reserves to facilitate and finance service transformation that will bring about a more preventative approach to the delivery of public services. That is to be welcomed and encouraged.
Parents in East Renfrewshire and throughout Scotland who face drastic cuts to their children’s school budgets will be particularly anxious about the line in the cabinet secretary’s statement in which he referred to
“teacher numbers as an important contributory factor”
in our children’s education. Will he confirm that that means that he has officially abandoned his commitment to maintain teacher numbers, which he has singularly failed to meet in any event?
No. I will not confirm what Mr Macintosh said, because that is not the Government’s position.
The City of Edinburgh Council has committed 7 per cent of its transport budget to cycling. With that in mind, may I invite the Deputy First Minister to match that ambition and allocate some of the funds that are coming to Scotland under the Barnett formula to cycling, so that the Government is in the strongest possible position to meet its vision of 10 per cent of all journeys being made by bicycle by 2020, to meet our ambitious climate change targets and to make people healthier? What better return on investment could there be than that?
I acknowledge the sustained approach that Mr Eadie has taken to encourage the Government to invest more in cycling infrastructure. I am interested in the points that he raises about the approaches that are being taken in the city of Edinburgh. I set out in the budget the resources that will be available to support cycling, walking and sustainable travel. I would be happy to meet him again to discuss the issues in the new year, if he would like to put those points to me.
I know that, on these occasions, there is always a bit of local pleading, but I point out that Glasgow and Edinburgh will both have significant reductions in their funding against an overall increase for local government. Other than the councils in our two biggest cities, almost every other council will have at least some increase. Will the Deputy First Minister explain for my constituents why the figures for Glasgow and Edinburgh stand out so starkly?
The figures are derived by the application of the distribution formula, which has been agreed by local government. For example, the consequences of changes in population in a local authority area have a significant bearing on the calculation and the impact of the distribution formula. A number of factors have an impact on the resources that are available.
In my statement, I made clear the sustained support that the Government is providing to both our major cities—in Edinburgh, through the growth accelerator model and in Glasgow, through the city deal—to ensure that they can rely on sustained investment to assist with realising their ambitions.
The statement confirms that the public health supplement will conclude at the end of the current financial year. Does the Scottish Government still plan to introduce a social responsibility levy and, if so, when? I understand that it was previously said that such a levy would be introduced in 2015 at the earliest.
There were no announcements in my statement on any social responsibility levy. Obviously, if ministers come to a conclusion on that, they will advise Parliament accordingly.
Will the Deputy First Minister say what the average household has saved as a result of the council tax freeze? Is he aware of the recent report by researchers at the Scottish public health observatory that states that the policy will have a positive impact on health?
The council tax freeze has been a significant benefit to individuals in our society. The impact is an average saving of around £1,200 for households as a consequence of the application of the council tax freeze between 2008 and 2015. I point out that the council tax freeze has had a significant impact on lower-income households, as the amount saved as a consequence of the application of the freeze represents a greater proportion of household income. [Interruption.]
It is not progressive.
Order.
I should also point out that the council tax freeze has been applied and decided on by every single local authority in the country. Despite the muttering on the Labour benches, I was always led to believe that the Labour Party was a great supporter of the council tax freeze.
I listened carefully to the Deputy First Minister’s reply to Mr Rennie. Will he confirm that the new level of funding that he mentioned for Aberdeen City Council leaves its per capita revenue support at less than 81 per cent of the Scottish average, which in turn means that the revenue support for the council falls more than £17 million short of the 85 per cent target that the Deputy First Minister has set?
As Mr Macdonald knows, and as Mr Rennie certainly knows because I have been round the houses with him on the question several times, we applied the 85 per cent formula at the start of the spending review in 2011. We do not reopen the basis on which we make that application for the duration of the spending review, so it has been applied in full.
I would have thought that Mr Macdonald would welcome the fact that, in the statement, the funding available to Aberdeen City Council has increased from £319 million to £329 million—an increase of £9.637 million. Can he not welcome some good news for Aberdeen when it is set out to Parliament?