Local Government Finance Settlement
The next item of business is a statement by Andy Kerr on the local government finance settlement. The minister will take questions at the end of his statement and there should therefore be no interventions.
I crave the indulgence of the chamber to give the very good news of the birth last night of a baby daughter Phoebe to Angus and Sheila MacKay. Angus is the former well-respected Scottish Executive Minister for Finance and Local Government. [Applause.]
I am pleased to announce today the local government finance settlement for 2004-05 and 2005-06. Three key principles underpin the provisional figures: confirmation of the funding increases that I announced last December in the three-year settlement for 2004-05 and 2005-06; inclusion of additional money for a number of new initiatives and improvements; and the strengthening of our commitment to working in partnership with local government. I will also announce the provisional business rate poundage for 2004-05 and the provisional small business rate relief supplement.
The Executive is committed to local government and to the effective and efficient delivery of local services at a local level. As the minister who has responsibility for public services and local government, I am determined that investment will continue to flow to improve public services across Scotland. We all know that, when public services fail, the impact on a life can last for ever. I am thinking of the life chances of the child that are damaged when the child is failed by the education service or the added misery for the victim who is let down by our justice system. When our public services work well, however, the impact for good can be life enhancing and—quite literally—life saving.
We will continue to work to improve public service delivery. We have devoted historic levels of resources to public services and, together with our commitment to reform, we have secured significant and real improvements. This statement is underpinned by a commitment to improving service quality, accessibility and relevance. We will do that by meeting the needs of users; agreeing national standards; devolving decision making; improving conditions and working practices; and searching out best value.
The figures that I am announcing today are based on the provisional figures for 2004-05 and 2005-06 that I announced this time last year. Those figures guaranteed every local authority an above-inflation increase in revenue grant for that period. To those increases, we are adding money over and above the 2003-04 allocation to fund the additional services and improvements that have been announced since last December. We will also continue to work with the Convention of Scottish Local Authorities to ensure that needs—from the partnership agreement commitments, for example—will be fully funded.
Today's announcement gives no Scottish local authority any reason to increase council tax beyond the plans that have already been published for this three-year period. This year's average increase was 3.9 per cent, which can be compared with the 12.9 per cent increase in England and the 9.8 per cent increase in Wales. The published plans show that the increases will remain below 5 per cent for the next two years, which is where they have been for the past six years.
In Scotland, we have not experienced the increases that some councils in England have—some English council tax payers have faced increases as high as 45 per cent. I welcome the prudence and good management that our councils have shown. That has been achieved through councils and the Executive working in partnership. My Cabinet colleagues and I have regular and full discussions with local government on the widest range of issues that face us. That dialogue is invaluable and it has delivered.
The dialogue has resulted in major changes to the environment in which local government plans and delivers its services. We ended compulsory competitive tendering and introduced best value; placed local government at the heart of community planning; ended capping and guidelines; and introduced the first three-year settlement for revenue and capital. Moreover, there is the prudential regime, which will begin next year, and the reality of the power of well-being. COSLA has been involved in positive discussions on all the funds within the statement.
The additional services and improvements that have been announced since last December include £49 million for the next three years to provide more teachers and reduce class sizes; £62.5 million to provide fresh fruit and more nutritious school meals for our children; £9 million to support free school meals; £600,000 to support Gaelic education in schools; £8 million to support youth justice teams; £2.2 million to protect consumers and businesses from rogue traders through the stop now orders; and £1.3 million to provide support for care home fees. I stress that those figures are for the three-year period.
This year we are also simplifying the settlement through two transfers of responsibility. First, £86 million is transferring in from the Treasury, so that local authorities can fully fund teachers' pensions. Secondly, we have agreed with the Department for Work and Pensions that it will fully fund housing and council tax benefits in future, so we have removed from the settlement the amount that each council would have spent on those benefits. Councils with higher benefit expenditure transfer more, but in future the DWP will pay their costs pound for pound, so the initiative will be cost neutral. The proposals were developed by the DWP with the full co-operation of COSLA and other stakeholders and they represent a welcome simplification of the system.
The figures that I announced last year guaranteed every local authority an above-inflation increase in revenue grant in 2004-05 and 2005-06. We have added funding for the new services and improvements that have been announced since last December and we have taken account of transfers into and out of revenue grant. As a result of the net increase, Scottish Executive revenue grant support to councils will total £7.667 billion next year, which represents an increase of £382 million over the current year. In 2005-06, the revenue grant allocations will increase by a further £324 million, to nearly £8 billion. Those figures represent year-on-year increases of 5.2 per cent and 4.2 per cent respectively—well above the current inflation rate. The increases maintain our record levels of support for local government as part of our increased investment in public services. Of course, the figures would be even higher but for the transfer to the DWP; before the transfer is taken into account, the increase over the current year is 6.5 per cent.
Local government is now in the best possible position to meet the challenges ahead. Details of the allocations for individual councils are set out in the finance circular that is being issued today to all local authorities. A summary of those allocations is available at the back of the chamber, on the Scottish Parliament information centre table, and copies of the full circular have been placed with SPICe.
I am pleased to confirm that the new prudential regime for capital funding will come online from April 2004. Councils have long argued for such a system, which is more flexible and gives councils more freedom to choose both the level of their investment according to what they can afford and the allocation of that investment—for example, to schools, libraries, community centres, sports facilities and transport.
We have also put in place arrangements for the previously ring-fenced capital allocations to become specific capital grants. Those grants amount to almost £580 million over the next two years and include support for vital capital investment in, for example, police and fire services, flood prevention measures and key transport projects.
I come now to the provisional poundage rate. Businesses have told us that they are looking for investment in Scotland's infrastructure and for the skills that are necessary to build Scotland's economy for the future. We are committed to rail links to Glasgow and Edinburgh airports and to completing the central Scotland motorway network. We are starting to close the remaining gaps in Scotland's infrastructure. We are helping business and ensuring that there are better links to the global market. We are working with businesses to ensure that we increase investment in research and development, promote enterprise in schools and extend broadband connectivity across Scotland.
We are therefore already delivering a range of policies to strengthen Scotland's economy, but I am pleased to announce today a below-inflation increase in the poundage rate in 2004-05—on top of this year's poundage freeze—at a cost to the Executive of £11 million per annum. That is further evidence that we are listening to businesses. The poundage rate for 2004-05 will be 48.8p, which represents a rise of 2.1 per cent—well below the retail prices index increase of 2.8 per cent. That more than meets our partnership agreement commitment to limit increases to no more than the rate of inflation for the next two years.
This year, we also introduced a small business rate relief scheme, which gives rate relief of between 5 per cent and 50 per cent for up to 70 per cent of business rate payers. That is paid for by a small supplement for larger businesses—in 2004-05, the small business rate relief scheme supplement will be 0.3p in the pound.
Overall, those measures mean that business rate payers are paying less in real terms than they paid in 1995. The measures, along with the many other initiatives that we are taking to assist business, are a clear demonstration of our commitment to improving Scottish economic growth.
The settlement that I have announced today builds on the sound financial platform that we have delivered for local government. The year-on-year, real-terms increases ensure that local authorities have the resources and the flexibility to do their jobs. As a result, local government services are improving throughout Scotland. Through reform and modernisation, we are continuing to ensure that we get best value for every public pound that is spent. We will continue to seek best value, service effectiveness and innovation.
The settlement enables local authorities to play their part by taking forward their work with other agencies and partners to plan, deliver and continuously improve public services for the benefit of all the people of Scotland. I commend the settlement to the chamber.
The minister will now take questions on the issues raised in his statement. I propose to allow up to 20 minutes for questions, after which we will move to the next item of business.
I welcome the minister's statement. Will he tell us specifically what in his statement indicates that the needs of Scotland's cities are being met?
In the discussions about the cities review and through the £90 million that we put into the cities growth fund, the Executive has sought to recognise the critical importance that our cities have as metropolitan centres and, in the wider city region, the importance of arrangements with neighbouring authorities and partners, which have, happily, now been made in most cases.
The Executive's strategy is to ensure that we recognise the critical role that cities play in art and culture, business, tourism, employment—in the cities and beyond—housing and other social issues. In addition, we recognise that cities have a greater role to play in punching above their weight and beyond their boundaries. The city-region partnerships that are developing will ensure that the money that we have put into the system through the cities growth fund will not only be well spent in cities, but make our cities more accessible and deliver greater improvements in public transport. That money will also ensure investment in the local economy, in tourism and other such related matters. As a result of the funding to the city authorities through the settlement and through additional work that we have undertaken with the cities growth fund, the future of our cities looks bright. On the visits that I undertook in the summer, I saw some work that points convincingly to a healthy future for all our cities.
I should have called a Scottish National Party member to ask the first question, but the names were late coming up on the screen for technical and other reasons.
I thank the minister for giving us advance notice of the statement this afternoon.
The minister has patted himself on the back for providing £11 million to deal with the business rates issue. However, does he accept that there has been a £500 million business rates windfall this year, in that there has been £500 million more than the estimated yield? Why has he not returned that money, which has come from businesses, back to businesses? What possible advantage does he feel that there is for businesses in Scotland in having a business rate that is 10 per cent higher than that south of the border? Will he say whether the figures in table 10.03 on page 173 of the draft budget document for 2004-05 have been revised upwards? If so, what is the additional windfall?
Finally, does the minister accept that there is widespread public concern about whether the money is being spent effectively—whether it is £500,000 on hedgehogs or £401 million on Holyrood? There is an increasing lack of confidence in the Executive's stewardship.
I am glad that Fergus Ewing has joined us. I have seen him often on television in another place doing another thing and I am pleased that he is here today to repeat some of the nonsense that he usually says on such occasions.
The support that we are giving the business community is reflected in the money that he talks about—in the record levels of investment that we are making in transport and higher and further education and in the work that we are doing with the enterprise agencies throughout Scotland. Let us put the issue in context: businesses are paying the same business rates as they paid in 1995. We are doing our utmost to give support not only through the tax environment in which businesses work with regard to business rates, but through the other work that we are doing in relation to transport, skills and the agenda outlined in "A Smart, Successful Scotland". Moreover, Fergus Ewing made no mention of the small business rates relief scheme, which benefits 70 per cent of Scottish businesses and is working effectively in relation to the skilled work force.
The other aspect of the matter is the overall tax environment for businesses in Scotland, on which I refer members to the survey that the Executive carried out. The survey, which is widely respected by the business community, shows that Scotland is very much at the lower end of business taxation in Europe and indeed the world—it is second only to Ireland and the United States of America in taxation levels. I therefore suggest that, although some people might want to focus on the 2 per cent of gross domestic product that business rates make up, we should focus on the big picture. The big picture is that businesses in Scotland and in the UK as a whole are paying less in business taxation than many of their European and worldwide competitors.
Fergus Ewing mentioned hedgehogs and other matters. Clearly, what I and the Executive seek to do—and what we seek to do through Parliament and the committees of the Parliament—is to ensure that the expenditure of public money is accountable. I have never made any bones about that. We have set milestones and targets and we carry out scrutiny to ensure that we get value for money—when we do not get value for money, we take corrective action to ensure that we will do in future.
The important point is that the Scottish Executive operates a wide-open, transparent budget. Every committee of the Parliament—as is correct—has the right to examine the Scottish Executive budget and scrutinise what we do. As the Minister for Finance and Public Services, I have the job of ensuring that my colleagues in the ministerial team get value for every public pound that is spent. That is what I do and what I seek to do.
The minister's statement must be seen in the context of significant increases in council tax over recent years. Council tax has risen by about 42 per cent since Labour came to power, which does not include the figures for water rates—and we know how much they, too, have gone up. That has been accompanied by a sluggish economy that underperforms and lags behind comparable economies in the rest of the United Kingdom. There are some areas of growth, however, most notably in the public sector and in the taxes that pay for it.
Today, the minister had the chance to be Father Christmas to the hard-pressed Scottish taxpayer, but instead he has decided to be the Grinch, to declare that there will be no Christmas and to take away from the good citizens of Scotland the possibility of the present of tax cuts that he had the chance to deliver.
In that context, I ask the minister the following questions. He has given figures that suggest that there will be additional funding for local authorities. Does any of that funding come from the £47 million that Gordon Brown announced recently in his pre-budget statement? If not, why is that money not being used to reduce taxes, as will happen in England?
Secondly, the minister has lifted, removed and abolished the freeze on business rates—they are now going up. At the rate of increase that he has announced, it will take 13 years before we achieve a uniform business rate—a level playing field with the rest of the UK. If the minister accepts the argument for cutting business rates, why does he not go the whole way and achieve a UBR at a single stroke?
The comments about Father Christmas and the Grinch were pre-rehearsed; I worked that one out a long time ago.
The average real-terms council tax increase for a band D property from 1997 to 2003-04 has been 11.1 per cent and the increase from 1999-2000 has been 8.4 per cent. Therefore, the figure that Mr Monteith mentions is well off the mark.
We should put the level of council tax into context. In my statement, I referred to council tax increases in England and Wales. We do not face the same problem in Scotland. Let us make no bones about it: council taxes are a burden in our communities—no one likes paying taxes. However, the point is that we are not Wandsworth, where there have been council tax increases of 45 per cent. We are not even experiencing the average council tax increase in England of 12.9 per cent. The average increase in council tax in Scotland is 3.9 per cent. For the past four years, we have had a below-inflation increase in many authorities and the average increase has been less than 5 per cent. For the next two years, we will also have increases of less than 5 per cent. Let us not cloud the issue and import difficulties that relate to council tax in England and Wales.
The money that the Chancellor of the Exchequer announced is very welcome, in that it gives us the ability in Scotland to spend more on public services. I will link what Fergus Ewing said to Brian Monteith's question. Money that was announced a matter of days ago will not be spent days later by the Executive. The Executive takes care of our resources. We will cautiously and with intent ensure that we spend the money wisely. It is the daftest thing in the world to say that when there is money one week, we should spend it the next week. We want to ensure that every public pound that is spent matters—that is not done in the course of seven days. I do not need to address the problems of council tax levels in England and Wales that the Chancellor of the Exchequer sought to address, because we are not in that situation.
The tax burden of business rates in Scotland is exactly the same as that in England. Brian Monteith knows well that the issue arises from the fact that England had revaluations that we did not have, which means that there is a difference in the rate poundage. However, the tax take is precisely the same and there is no difference on the effect on competitiveness north and south of the border.
We must look at the big picture. As I said, in talking about business rates, we are arguing about 2 per cent of GDP. Let us look at 100 per cent of GDP and consider how the Scottish and UK economies have one of the lowest taxes on business among our worldwide competitors. That is the real issue about business taxation. We seek to create that environment, but not only through the tax-cutting agenda that Brian Monteith advocates. A tax-cutting agenda would mean no completion of the central Scotland motorway network, no railway links to airports in Scotland, no investment in our science and skills strategy and no development of intermediary technology institutes. Reducing the business tax to the level that the Tories want would cost at least £120 million per annum. That would shut down ITIs and local enterprise networks and take away support from small businesses; it would not deliver for Scotland's business.
I would be grateful if both answers and questions were shorter, otherwise we will not get through all the members who want to ask a question.
I welcome the minister's statement. Will he confirm that the settlement will enable local authorities to play their part in delivering the commitments in the partnership agreement to cut class sizes, to maintain record numbers of police and to improve transport networks and our environment? In considering how to spend the consequentials from the recent pre-budget statement, will the minister consider giving money to local authorities to help support prudential funding of capital works to enable authorities to do even more to cut the backlog of capital repairs that the Government inherited from the Conservatives many years ago?
We have agreed with COSLA many of the details of the support that has been announced today, including the support for the initiatives on fresh fruit and nutritious school meals, modernising the teaching profession, free school meals, Gaelic education and youth crime. I share Mr Smith's view that the funding that we will put into the system will yet again allow local authorities to deliver for their local communities. We also have the initiative on quality of life—on a visit to Mr Smith's constituency, I saw some of the work that his local council does through that initiative. We will ensure that the money is mainlined in the system to allow local authorities to continue to spend on priorities. That is extremely important for our work on local delivery.
I will reflect with Cabinet colleagues on how we can best spend the resources from the chancellor. The member can rest assured that COSLA and individual local authorities have not been slow off the mark in producing ideas for how the money can best be spent, which I will consider in due course.
I have two questions. First, the minister knows from his previous employment that the city of Glasgow has a concentration of severe poverty and deprivation. In that light, we might have expected the Executive to award an above-average grant settlement to help the city of Glasgow to deal with that problem. Why, then, does the settlement represent yet again a short-changing of the city of Glasgow? If Glasgow had received the average grant settlement—not above it—we would have secured an extra £9 million for next year and £6.5 million for the year after that. In other words, we are being short-changed to the tune of £15.5 million. Why is the minister withholding that money from Glasgow?
Secondly, the minister said that the settlement is underpinned by a commitment to national standards. Does the settlement contain enough money to meet the national pay and grading claim of Scotland's nursery nurses? Is there enough to meet that national claim in order to maintain national standards and meet the Executive's national targets, or does the minister believe that nursery nurses in one part of Scotland should be paid more or less than nursery nurses in other parts of Scotland? If the money for a national claim exists, will the minister identify it?
First, I need to correct the complete inaccuracy that the Executive's treatment of Glasgow City Council short-changes the city. Support of more than £1.1 billion is not short-changing. It is the highest per capita support of the Scottish mainland authorities, amounting to £1,863 per person in Glasgow. We are providing assistance of £26.3 million to ensure that Glasgow is not punished in terms of Executive support because of its falling population. More than £23 million of quality-of-life money has gone into Glasgow and £40 million has gone into Glasgow and neighbouring authorities through the cities growth fund. Our support through the better neighbourhood services fund and social inclusion partnerships—as well as all the other support that goes to Glasgow—makes a real difference to the work that Glasgow City Council carries out in partnership with the Executive.
I will not comment on the nursery nurses dispute, because it is on-going and is a matter for the employers to sort out. However, I make the following comment. Tommy Sheridan comes to the chamber all the time and talks about wanting a Scottish service tax, a higher national minimum wage and a 35-hour working week, which would cost more than £1 billion of public expenditure right now. Who would pay the price for that? The poor and hard-working families would, of course, because £1 billion cannot be taken out of the Scottish Executive budget without either drastically cutting services or increasing taxation. Of course, nobody will pay more under the Scottish service tax—
You will.
In relative terms, not just I, but doctors and nurses—of whom we are trying to attract more to Scotland—teachers and people on the national minimum wage would pay substantially more under Tommy Sheridan's system.
Nonsense.
It is a fact, as I have proved in correspondence with Mr Sheridan—people will pay more under that tax. We want to increase expenditure by £1.1 billion.
Will the Executive work with local government to maintain the low council tax increases that we have seen in recent years, which contrast sharply with the double-digit increases that we saw in the last two years of the Conservative Administration, as Andy Kerr and I remember all too well? In particular, will the Executive recognise the pressures on those local authorities that have to address high levels of deprivation? I am thinking not just of Glasgow City Council, but of West Dunbartonshire Council, Dundee City Council and a series of other authorities across Scotland. Those authorities, which are trying to deliver effective services, require partnership with the Executive to take the agenda forward in relation not just to finance, but to delivery. Will the Executive assist in that respect?
As ever, the calculation formula for local government—in which I, Des McNulty and others are well educated—tries to reflect some of the difficulties that those authorities face. Obviously, the Executive also has a number of other funds and resources for local government to address deprivation. We want to do more and we can do more. I am in discussions with many local authority leaders on those matters. We recognise that deprivation is a big issue, so, through some of our schemes, we direct resources to those local authorities that are most in need.
Last week, Gordon Brown announced a minimum 80 per cent council tax relief for community amateur sports clubs. Will that be extended to Scotland?
I am currently examining that matter, on which I will correspond with Dennis Canavan in due course.
Will the minister clarify for me the issue of prudential borrowing relative to council housing? Will prudential borrowing be extended to housing revenue accounts? Does he intend to scrap the 75 per cent clawback that currently applies to capital receipts for council housing?
I am carrying out detailed work on the impact of the actions to which the member referred. In due course, I will announce to the chamber—in partnership with Margaret Curran, who is the minister with responsibility for the area—what the Executive will do. As I have said, the Executive needs to be prudent and careful, so we are assessing the impact of the measures by working with local authority colleagues to ensure that the public sector budget in Scotland is not damaged elsewhere.
I thank the minister for his statement and for the many measures that he outlined, which will help businesses and constituents in Stirling and elsewhere. Will he assure me that, once we have the raft of figures for 2004 from the Society of Chief Officers of Transportation in Scotland survey, he will consider in his continuing good dialogue with COSLA and local authorities generally a long-term plan for non-trunk road maintenance to support local authorities in dealing with the large backlog of work that continues to grow?
Yes, indeed. I am aware of the impact of the SCOTS survey. However, I want to ensure that, when we allocate money and resources to local government, local authorities have a vast amount of freedom to prioritise local expenditure. Although we have previously made additional funds available for the local road network, it is certainly the case that some local authorities do not spend up to their perceived grant-aided expenditure allocation and that others spend more than that allocation.
I acknowledge the significant infrastructure problem that the local roads network represents. I am constantly discussing the matter with leaders of local authorities through COSLA and we seek to ensure that we protect the current infrastructure. Some renewal schemes that have been the subject of consideration for many years must be addressed and the Minister for Transport and I are examining that matter. However, as I have said, when we allocate resources under that budget heading, some authorities make up the difference whereas others do not choose to spend their resources in that way.
Although I very much welcome the above-average increase announced today for Aberdeenshire, is the minister aware of Aberdeenshire Council's fair share campaign, which highlights the fact that, per head of population, the funding for the council is still some 11 per cent below average? Does he believe that the independent review of local government finance that the Executive has proposed will find that Aberdeenshire's case has merit? Moreover, when will the consultation with COSLA close and when will the review commence?
The leader of Aberdeenshire Council has made me well aware of the council's case for resources. However, I do not believe in simplifying the allocation of local funding to a per capita basis. That represents only one measure of our investment and, if we applied it to other local authority areas in Scotland, some would be very badly off. As a result, we try to offer a range of support to meet a range of needs within local authorities.
However, Aberdeenshire Council has a strong case and, as I said, the leader has indicated to me her view that the authority is underfunded. I do not think that the per capita approach is the best way of allocating funding, but that is clearly the subject of discussions with COSLA. I am not in a position to give a precise answer to Mr Rumbles's question, because I need to have further discussions with COSLA before we can reach a conclusion. After all, we want to work in partnership on the review of local government finance. However, I am absolutely certain that the member's views will be considered in the process.
I have two quick questions. First, why does the Executive allow the schools fund allocation to councils to be used to underpin the annual private finance initiative charge but not to fund prudential borrowing? Why has that distinction been made?
Secondly, on page 175 of the draft budget document for 2004-05, under the heading "Statement of priorities", the minister says that his first priority will be to maximise
"the benefit for Scotland of the First Minister's chairmanship of the group of EU regions with legislative power (REG-LEG)".
How much money will we put into Regleg and what benefits will Scotland receive?
In answer to the second question, we will receive considerable benefits. Alex Neil's point is a bit rich. When we do not go to Europe, the nationalists say, "Why weren't you representing Scotland's interests in Europe?" However, when Scotland takes the chair of a large and influential organisation in Europe, we are criticised over the costs. I will deal with the detail of that point later.
Alex Neil's point about the schools fund allocation has been raised with me by a number of local authorities. However, we should first recognise the massive positive impact that the new schools are making in our communities through the provision of good-quality learning spaces for our young people. I have agreed with a number of local authority officials and leaders to reconsider the matter. I have not completely closed down my view on it and I will correspond with the member once I have reached a decision.
I thank the minister for his statement, although I give him fair warning that I will check tonight whether the allocation announced for Fife will allow the council to keep its promise—which, indeed, I made last year—to keep council tax rises to under 5 per cent.
Does the minister have any figures on the impact of the Scottish Socialist Party's local taxation plans on the average family in my central Fife constituency and across the rest of Scotland?
The member can rest assured that the funding for Fife Council should make a difference when the council comes to calculate future council tax increases. I am sure that many local authorities—including, I presume, Fife Council—will share my view on that matter.
On the second question, a family of two people earning the average wage would pay more under the Scottish service tax. The average band D council tax bill is £1,009, whereas the Scottish service tax bill would be £1,098, which is a 9 per cent increase. Of course, there are other exemplars. A general practitioner and a part-time teacher in a band G property in the Highlands would face an increase of 273 per cent on their current council tax under the Scottish service tax. It is always easy to announce a change to the taxation system, but a closer look reveals that many people will have to pay for that privilege.