Plenary, 19 Jun 2002

Meeting date: Wednesday, June 19, 2002

Official Report 405KB pdf

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Local Government Finance

Our main item of business this afternoon is the debate on motion S1M-3206, in the name of Trish Godman, on behalf of the Local Government Committee, on the Local Government Committee's report on local government finance. It would be enormously helpful if members who wish to take part in the debate would indicate that now, as we have to fit in the debate on the Sewel motion and I must work out the timings.

One of my favourite songs, "The Long and Winding Road", was written by Paul McCartney. On the long road to producing our report, I have often thought that, even with his great talents, Paul McCartney could not have set to music the long and tortuous road that is local government finance. However, we have arrived and I am sure that the debate will be stimulating.

I thank all committee members, past and present, and those who left us, suffered withdrawals and came back. In particular, I thank Sylvia Jackson, who is the deputy convener of the Local Government Committee, and Johann Lamont, who is a past deputy convener and who has been very supportive to me during all the committee's sessions, especially those on local government finance. I give special thanks to the clerk Eugene Windsor and his team, without whom we would not have survived.

Our major and robust inquiry, which lasted for more than 18 months, was undertaken alongside other committee business. It is one of the longest and most comprehensive inquiries to have been held by any of the parliamentary committees. The Executive has recognised the task that the committee set itself and welcomed the scale and breadth of the evidence that we took. It has also recognised the vital role that local authorities play in the delivery of services—something that we are not able to say very often in the Parliament.

Over the past two years, while our inquiry was in progress, the Executive has continued to work with the Convention of Scottish Local Authorities. The result of that has been the move towards three-year funding and the abolition of spending guidelines. Those initiatives would have been recommended by the committee today if those processes had not continued to take place.

However, there is a fundamental difference between the committee and the Executive over the balance of funding. The committee believes that the balance should be as near as possible to 50:50, but the Executive does not agree. At present, around 20 per cent of council spending is raised locally. The remaining 80 per cent comes in grants from the Executive and from non-domestic rates.

We believe that such an imbalance blurs local accountability. With such a large proportion of funding coming from the Government, the public are uncertain about who is responsible for local services. The arrangement also means that councils are very vulnerable to changes in grant distribution. Most important of all, the gearing effect means that, on average, a 1 per cent change in council spending leads to a 5 per cent increase in council tax. That sends misleading signals about spending decisions to the local electorate and to council tax payers.

The Executive argued that a large part of the 80 per cent central funding is unhypothecated grant and that local authorities can therefore establish their priorities along with their local electors. The Executive believes that there is no need for a 50:50 balance. We were unconvinced by that argument. Our evidence showed that there is tight control from the centre and those arguments will be discussed by other committee members as the debate progresses. If we were to accept the Executive's position on the 80:20 balance, we would agree that the Executive's response to our report is reasonable, although not wholly satisfactory. Given the fact that we do not accept the Executive's premise, the question arises as to how the committee would get nearer to 50:50.

We first considered the council tax, which is a sound tax, but we believe that it needs to be reassessed if it is to remain so. We commissioned research from Heriot-Watt University, which recommended rebanding and revaluation. Five out of every 10 homes in Scotland are in the two lowest council tax bands. The rest are spread across the other six bands, but only one in every 10 homes falls into one of the top three bands.

The message is loud and clear: people who live in the lowest-value homes in Scotland and who do not qualify for benefits pay too much, while those who live in the highest-value homes pay too little. Although the Executive is not inclined to consider a review at this time, it has said that it will undertake a detailed analysis of the implications of a change. The committee will watch for progress with interest.

Does the member agree that a property tax such as the council tax is unfair? Many retired people are on incomes that are far less than what they earned when they were on a salary, but they still live in houses that are at the higher end of the tax band. The council tax is not related to people's ability to pay.

I agree that taxes should be related to people's ability to pay.

The committee also considered second homes. We believe that, in the interests of equity, the full council tax should be levied on second homes. It is clear that some councils could be disadvantaged by the fact that they have a high proportion of second homes in their area.

The committee also considered non-domestic business rates. We recommended that they should be returned, with safeguards, to local authorities. We know that such a recommendation is controversial, but safeguards would mean that councils could not load any tax increases on to business rate payers—or, indeed, on to council tax payers. I am disappointed that the Executive has ruled out our proposal without giving it further consideration.

The Executive is wrong to say that control over business rates would not make local authorities more accountable. Businesses do not have a vote, but that is not the issue. Returning business rates to council control would enable the local electorate to see a much more direct link between a council's policies and the levels of taxation across the business and domestic sectors. Hence, electors could make a much more meaningful choice at election time.

The Confederation of British Industry Scotland could not give us any evidence—oral or written—that businesses located, or relocated, based on business rates only. The Forum of Private Business stated in evidence that it was opposed to the return of control to local authorities because experience had shown that some councils behaved responsibly and some had not. The committee's safeguards address those concerns.

The Executive is clear that it will not return control of non-domestic business rates to local authorities and some members of the committee are quite delighted about that—Keith Harding for one. If the minister will not return that control, will he consider a compromise? Cities such as Glasgow, Aberdeen, Dundee and Edinburgh, which encourage retailers into their city centres to provide shopping opportunities, and which encourage tourism and other ways of bringing people into the cities, have to commit to the infrastructure to support that. Would it be possible to return even a slightly higher proportion of the business rates to those cities—without losing sight of other council areas where, clearly, it is not possible, or would be very difficult, for businesses to locate?

I turn now to grant distribution. Presiding Officer, these speeches are always difficult, and it is usually anoraks who get enthusiastic about them. Earlier, a member of your staff—who shall be nameless—said that they would try to keep their eyes open and be wide awake while I was speaking. I will not tell you who it was, but so far they have managed.

Grant distribution has the aim of providing an equitable allocation of central funding to ensure that all councils are able to meet the needs of their communities. That seems fair. However, the committee recommended that the

"grant distribution formula should reflect, on a service-by-service basis, the effects of deprivation on the costs of provision."

Deprivation has to be taken into account when grant distribution is being considered.

On local authorities' capital funding, the Executive has agreed to our recommendation of a prudential system that would give councils more flexibility in borrowing for capital investment decisions.

I will speak briefly on local income tax—Iain Smith will speak more about it later. The committee recommended that the Executive should—in the longer term—explore the possibility of a local income tax. That would have advantages, in that the burden of funding councils would be spread over a wider spectrum of taxes. One disadvantage of the council tax is that people may be on low incomes and be ineligible for benefit, and yet be liable to pay council tax, which takes up a large proportion of their income. A local income tax could take into account such circumstances and therefore be fairer. Again I am disappointed, because the Executive has thrown out a radical idea without further consideration.

The Executive has agreed that public-private partnerships and private finance initiatives are not the only game in town. At the Local Government Committee, the Minister for Finance and Public Services said:

"The Finance Committee is investigating PFI/PPP. It is doing a lot of hard work and I am interested in the findings. Part of that work is on public sector trusts. Some models are being developed, but the information is not yet available, because the trusts have not hit the streets. I am happy to consider such ideas.

Unlike some, I am not hide-bound to a delivery tool politically or by the way in which the Scottish Executive operates. If a tool works, we should use it. If it works to the benefit of our communities, we should use it. Work should be undertaken on deciding which services are included in PFIs, such as the soft services as they are classically defined in some PFI/PPP arrangements."—[Official Report, Local Government Committee, 29 January 2002; c 2751.]

The Executive should consider developing alternatives: it is not the responsibility only of councils to do that. However, there is no doubt that community investment trusts, based on prudential rules, would offer improvements on conventional PPP and PFI.

The Local Government Committee is leading through the parliamentary system the Local Government in Scotland Bill. We are considering best value in councils and it is incumbent on us to consider PPP and PFI with our best-value hats on. That is what we are asking councils to do; that is what we should be doing—not only in the short term, but in the long term. On behalf of the Local Government Committee, I ask members to support the motion.

I move,

That the Parliament notes the 6th Report 2002 of the Local Government Committee, Inquiry into Local Government Finance (SP Paper 551) and calls upon the Scottish Executive to consider the report's recommendations.

I, too, travel the long and winding road of local government finance—it seems that I travel it every day.

I congratulate the Local Government Committee on its work. As the convener pointed out, the members have made a strenuous effort to raise debate on the committee's comprehensive report and on the topical and difficult issue of local government finance. The committee set itself a significant task, which was to look across the breadth of local government finance and taxation issues and to take evidence from a wide range of interested parties. That evidence came from local government, business representatives, professional bodies and academics and demonstrates the diversity of views and opinions on the thorny issue of local government finance. We welcome the committee's inquiry and report for raising debate on those matters. It was essential that, throughout the period of the review, the Executive should continue to engage with local government to review the system of local government finance. The convener of the Local Government Committee mentioned some of the improvements that have been made.

Our response—published last week—to the committee's report reflects our commitment to delivering high-quality public services for the people of Scotland. After all, we work in partnership with local authorities to achieve that end and we share that top priority with local government. The system of local government finance is an integral part of our ability to deliver. Over the current spending review period there has been a massive shift in resources—an additional £1.5 billion over the three-year period.

We are delivering that improvement at local level and that has been recognised in our communities. The investment is delivering improvement in our schools—in the quality of education that they provide, in the physical environment in which our children learn and in the teachers who teach them. It is providing vulnerable older people in our community with free personal and nursing care. It is providing record levels of support for police and fire services and it is providing more investment in the road network and in the concessionary travel scheme that is coming on stream. All those features of our work with local government underpin the value that we place on the delivery of high-quality local services.

Does the minister agree that housing receipts that have been set aside by councils that have very low historic housing debt would be better used to create and improve housing stock as a service for the people?

As Andrew Welsh knows, we have consulted on the non-housing aspects of local government capital spend and we are considering that policy. Several things are happening in housing—including housing stock transfer discussions and new housing legislation—and we will review the matter in the light of that work. I am sure that Margaret Curran will discuss those matters with the Parliament in future. We are not willing to endorse Mr Welsh's proposal at the current time because of the context of overall change within housing.

Will the minister give way?

I would like to proceed, because I have a lot of ground to cover, although I will try to take more interventions.

We need to learn the language of the so-called new burdens on local government, which are achievements that deliver real improvements to services for local citizens. Alongside that investment rests the issue of local government finances and, as Trish Godman mentioned, three-year stability for councils in Scotland, which is not available elsewhere in the United Kingdom. We have abolished spending guidelines, which gives councils flexibility in setting their council tax levels. We have reduced ring-fenced controls on local government spend. Ring fencing remains a concern of the Parliament and the leaders of local authorities and I continue discussions on the matter. However, we want to move on to more productive territory and to discuss local outcome agreements with our local authority partners.

We have introduced the Local Government in Scotland Bill, which addresses best value, community planning and other innovations that all seek better services for the public. The bill includes provisions that will give councils a general power to improve the well-being of their areas, including flexibility in raising income from fees and charges. In the context of those welcome developments, the Executive will continue to work in partnership with local authorities.

On capital funding, which is an alternative to some delivery mechanisms such as PFI and PPP, local authority capital investment has increased by 40 per cent over the current three-year settlement period. The new prudential system, alongside other flexibilities that are proposed in the Local Government in Scotland Bill, should open up more options for local authorities in spending much-needed resources and in making their capital investment decisions. I hope that that addresses some of the issues that have been raised by the committee.

Grant distribution was a thorny issue for everybody during the report's formulation. We will never get it perfect. It is difficult to do so because of the diverse nature of our local authorities. We accept the committee's recommendations on that issue and we will continue to work with COSLA and local government to ensure that the distribution system is one that we can respect and which delivers for our local communities.

Grant distribution takes account of deprivation, population dispersion, island costs and diseconomies of scale, but it does not take account of growth. The current formula is not sensitive enough to the rapid growth that exists in some communities but not in others. I hope that the minister will take that into consideration.

Growth in many ways determines population, which is taken into consideration as part of the grant-aided expenditure process. I caution members against playing around with the assessment that is made through the complex GAE relationship. In the past seven years, 32 reviews have taken place, but there has been only a marginal shift. The greatest shift was 0.6 per cent in funding for an individual authority. When changes work through the system, all sorts of counterbalances come into play. Much effort, time and commitment has gone into reviewing the GAE, but to little effect. At least 12 authorities have seen no change in GAE. Most authorities have seen a 0.1 per cent change, and there was a slightly greater change for one authority. We are in fairly sterile territory, but that is not to say that we do not want to continue our discussions with local government on how to make the situation better.

The convener of the Local Government Committee highlighted the aim of achieving a 50:50 balance in local government funding, which clearly is a big issue for the committee. The available options are: first, to reduce the number of services for which local government is responsible; secondly, to return business rates to local control; and thirdly, to increase the level of local taxation.

On the first option, we made clear to local government our commitment to ensuring that it retains the essential role of delivering national initiatives locally and responding to local priorities. Therefore we share the Local Government Committee's view that councils should retain responsibility for a wide range of services. Councils cope well with a diverse range of services and responsibilities, and we see no reason to change that.

The second option concerns the thorny issue of business rates, control of which the Local Government Committee feels should be returned to local government. I believe, as does the Executive, that businesses and local authorities benefit from the stability of the current arrangements. Businesses have the consistency and relative stability that arise from a national rate poundage, which compares well throughout Scotland and the UK, and councils and businesses are protected from fluctuations in the income from rates.

The minister suggests that the business rate in Scotland compares well with the situation in the UK. It did five years ago, but currently it exceeds the UK rate by 10 per cent. Why does he suggest that we compare well?

We compare well because revaluation took place down south, which we have taken account of, therefore there is a nil effect in Scotland. There is no lack of competition with regard to the business rate here in Scotland.

Presiding Officer, I need to proceed. I caution members who wish to intervene, because I have much ground to cover.

I dispute the democratic aspects of returning business rates to local control, which many members have raised. Returning business rates to local control would not increase local accountability. Indeed, the Local Government Committee's proposal to limit increases in business rates and council tax might actually reduce local councils' flexibility to raise income locally, therefore we do not accept—

Will the minister give way?

I have not taken an intervention from my colleague, therefore I will do so.

Does the minister agree that the key issue in relation to business rates is not the setting of the rate, but the fact that in a city such as Glasgow we see poverty among plenty? There is huge frustration because although Glasgow supports economic regeneration and creates wealth, that wealth is distributed throughout Scotland. We do not feel that we get back a fair share when the distribution factors do not recognise deprivation sufficiently in determining the moneys that go from the Scottish Executive to local authorities.

The role that deprivation plays in the indicators is agreed with local authorities and the distribution formula is agreed throughout Scotland. Our difficulty with losing the stability that the uniform business rate gives us is that we need to provide a level playing field throughout Scotland. Of course, Glasgow is compensated in many other ways, given the resources that go into Glasgow to support local and national initiatives.

Another matter is the fluctuations that might occur in business rate income. The national scheme protects councils from such fluctuation and the possibility of reduced income.

The Executive's view of some of the innovations that the committee proposed, such as business improvement districts, is more positive. We accept the committee's recommendation on them and we will make proposals to consult local authorities, business and others on arrangements to allow local authorities and business to choose whether to introduce business improvement districts. I am sure that that will play a significant part in Glasgow's thinking.

We must examine how that model would work in rural areas. We must allow local authorities flexibility. Some of that flexibility exists already in the form of rural rate relief, which we propose to extend under the Local Government in Scotland Bill. Local authorities also have flexibility to offer relief for businesses that face hardship, as they did during the foot-and-mouth outbreak.

The final option for changing the balance between central and local funding—the 50:50 issue—was to increase the relative burden of local taxation. The committee recommended that consideration should be given to an additional income tax, but its report did not provide great detail on how that might operate. Without discussing the merits of a local income tax per se, we do not accept that there is a strong case for an additional local tax. It would add complexity to the current arrangements, so we do not accept that recommendation.

The committee also referred to the 80:20 balance in council tax income and the gearing effect, with which I was very familiar when I worked in local government. The money that we provide through the GAE is allocated under the formula. Local authorities decide how GAE and assessed income are spent. The strength of the three-year settlement is that a council tax contribution is no longer assumed towards the cost of national initiatives, which are fully funded. Therefore, the so-called gearing effect is not caused by national implementation of policy, because the Executive has provided and continues to provide full central grant for those central initiatives.

Will the minister give way?

I am afraid that I need to close. We will pick up further interventions in Peter Peacock's closing speech.

We have made provision to deal with local authority pay and price inflation, which is a step forward. We have introduced the minimum grant floor, which council tax levels reflect.

On accountability, although 80 per cent of councils' expenditure is funded from the grant, 20 per cent is raised locally, which allows flexibility in delivery of local priorities. Even if councils raised 100 per cent of their income locally, the Executive and the Parliament would want to ensure acceptable standards of delivery. National priorities are also delivered locally. I am not sure how all that balances out in the debate about the relationship between central and local government.

The committee's report raised the big issue of council tax revaluation. Although the argument has merit, we must examine the issue more. The technical aspects of performing a revaluation beyond 2005 are difficult, because a business rate revaluation is being undertaken, so the ability to conduct such a process would be limited. The bands were designed to absorb property price changes, so they continue to have some credibility. We will examine through our research the work that the committee has undertaken and the work that the Executive will do on the impact of bands, the relationships between the bands and the impact of property price changes.

I will move swiftly to my conclusion; perhaps I will pick up on other issues during the debate. We have published our response to the committee's report in order to allow members to understand fully the Executive's position. We have been sympathetic to and welcome many of the innovations in the report. We differ on some matters, but they will be part of the continuing discussion not only between the Executive and the committee, but between the Executive and our colleagues in local government. I congratulate the committee on its thorough and wide-ranging review.

I congratulate the members of the Local Government Committee and the committee's clerks on their work in compiling the report. I pay particular tribute to Trish Godman—the convener—to Sylvia Jackson and to all members who have belonged to the committee since it started. The inquiry was long and, as other members know, I was a member of the committee for a short time while the inquiry was being conducted and the work load was considerable.

The Parliament should commend the committee and others who carried that work load for such a long time. The McIntosh report of 1999 recommended that an independent inquiry into local government finance should be instituted immediately. The Executive refused to do so, which is why the Local Government Committee undertook the work on behalf of the Parliament. Again, I commend the committee for doing so.

The committee took evidence from many organisations and individuals and its report highlights several areas of concern. The SNP does not, however, agree with all the report's recommendations. We do not, for example, support the return of business rates to local authority control. We are not persuaded by arguments that the return of business rates to local authority control would increase business opportunities and expansion, nor do we agree that doing so would increase revenue to local authorities. It is more than likely that the Executive would give with one hand and take away with the other. The end result would be that local government finance would remain in the chaotic position that it is in at the moment.

Local government finance is in chaos. There is a lack of transparency and a lack of agreement between local authorities and the Executive about how much money should go into local government and how much should be ring fenced. We spend so much time arguing about local government finance that there is no time to reach a baseline agreement on a definition of local government finance and of how much money is involved. However, the argument about that is sterile. We should instead concentrate on delivering the public services that we all need. The Executive and the Convention of Scottish Local Authorities disagree about the percentage and the amount of funds that should be ring fenced. Their disagreement is silly and needs to be sorted out as soon as possible. Such disagreements damage the good work of local government.

The lack of transparency in local government finance between the money that is raised and the services that are provided leaves local residents confused about who delivers what. If we, as citizens, are asked to come out and vote in local council elections, the least that politicians can do is ensure that local council finances are conducted openly and transparently. All councils are financially responsible and accountable to the electorate.

The Scottish Executive made a substantial sum available recently to local authorities for urgent repairs to local road systems. Does Tricia Marwick disapprove of that kind of ring fencing or is it right that the Scottish Executive should provide money at times for specific projects?

I will come to ring fencing in a moment.

The Local Government Committee became sidelined into discussing restructuring of council tax bands. To do that was merely to tinker around the edges of local government finance instead of making the root-and-branch reform that is required.

As I said, the notion of restoring business rates to local government control should be opposed. The business community firmly opposes such a move and the SNP will not sanction penalisation of local businesses in order to overcome the inadequacies of central funding to councils.

The Executive should consider a local income tax that is based on ability to pay, which the SNP has advocated in the past. The introduction of a local income tax would bring accountability and fairness to local funding. That proposal is supported by various organisations and it is recommended in the Local Government Committee's report. I agree with Trish Godman that the proposal for local income tax is radical and I am extremely disappointed that the Executive has not accepted the committee's recommendation to consider local income tax in the short and medium-term. There is agreement throughout the chamber that there should be examination of how we raise the money for local government. The proposal for a local income tax has much to commend it. I, along with the members of the Local Government Committee, commend that proposal to the Executive; I hope that the Executive will reconsider its rejection of that proposal.

Ring fencing of funding erodes the financial responsibility and freedom of local authorities. It is rigid and bureaucratic and it weakens co-ordination of services. It creates pressure to ring fence other services and can sometimes generate an almost perverse outcome. No one denies that, in some circumstances, ring fencing should be accepted; however, the problem is that neither COSLA nor the Executive can agree about the level of local government finance that is ring fenced. Until that is sorted out, we will find it difficult to track the amount of local government spending that is available for core services and the amount that is available for ring fencing. Council services are no longer being addressed by core services. COSLA believes that almost 30 per cent of local authority funding is either ring fenced or centrally directed. If that is the case, such a situation is untenable.

Andy Kerr shakes his head. That is precisely the problem: the Executive and COSLA—

I tried to intervene earlier on the subject.

Oh, go on then.

I should point out that I continue to meet COSLA to discuss ring fencing. However, will the member confirm that, during the care homes crisis, her front-bench colleagues advocated ring fencing of care home funding?

I said that I am not opposed to ring fencing. The problem is that there is no agreement between COSLA, which represents most of the local authorities, and the Executive about the amount of funding that is ring fenced.

I want to move on to PFI. We heard much evidence on that subject, particularly from Dougald Middleton from Ernst & Young. PFI should not and must not be used for local government capital projects. As the evidence shows time and again, such projects are costly to the public purse, do not deliver value for money and are now being rejected by councils such as West Dunbartonshire Council in favour of not-for-profit trusts. We must give local authorities the ability to establish projects such as new schools that deliver true value for money and core services for the community.

In its written evidence, Ernst & Young pointed out that developing such trusts would

"deliver tangible benefits in terms of empowering the procuring authority",

and went on to say that local trusts would

"deliver enhanced value for money".

The committee report recommends that the Executive should work to develop alternatives to conventional PFI/PPP schemes and that that must be implemented as a priority. As the Executive has accepted that recommendation, I hope that it will work towards the establishment of not-for-profit trusts. From the evidence that I heard at the Local Government Committee, it is clear that PFI is neither transparent nor does it offer value for money, and that it does not provide the kind of services that we need.

When we ask ourselves what local government is for, and what the whole debate is about, the answer is delivery of high-quality public services. It is important that we do not overlook that. Local government must be financed in an open, transparent and publicly accountable way and it must deliver core services. An inordinate amount of time and hard work has been spent preparing the report, so I hope that the Executive translates that time and hard work into action, resolves the confusion, addresses the imbalance, removes some of the ring fencing and abolishes PFI. It is time for the Executive to act. It is time to give our councils resources in a clear and simple way. Indeed, it is time to deliver high-value public services for the people of Scotland.

Before I call the next speaker, it might help members to know that we are quite relaxed about timing this afternoon. Many members have indicated that they have a lot to say, so back benchers will be allowed five or six minutes instead of the usual four.

I pay tribute to Eugene Windsor, the Local Government Committee clerk, and his staff, who guided us through the long but interesting investigation into local government finance.

As my colleagues on the Local Government Committee know, the report records my dissent on 12 separate areas. Now that the minister has responded to the committee, I see that I am no longer alone on a large number of the wilder suggestions that my colleagues made in their attempt to promote a tax-and-spend agenda at the expense of Scotland's people and businesses. The only bodies that were pleased by the report were COSLA, councils and others with vested interests. Great concern was caused to council tax payers and businesses. In responding, I am pleased that the minister has approached the Conservative position. Perhaps Peter Mandelson is correct: we are all Thatcherites now.

I should explain why I opposed so many of my committee colleagues' ideas. Unlike the minister, I can be open, as I do not have to fear upsetting back benchers in my party.

The first issue is the balance between central and local funding. I agree with the committee's view on proportions, but not with the method of getting there. My colleagues rejected removing services, but I proposed doing so precisely because we could bring about genuine devolution to local communities rather than to politicians. That would bring innovation, commitment and flexibility that monopoly, statutory provision and central direction cannot deliver.

In education, our policies would give parents real choice by devolving responsibility for managing schools to local groups of schools within their communities. That would improve standards, increase diversity and provide the flexibility to meet local needs in respect of employment and community development. It would also bring much clearer accountability. There would no longer be arguments between central and local government about funding responsibilities and who is to blame when systems fail. Schools would be funded by block grants from the Executive, based on pupil numbers, other criteria and assessed capital needs. A stifling tier of bureaucracy would be removed.

By devolving power further from councils, we could remove the financial burden of schools and many other services and drastically change the nature of local government for the better. That would give us a huge opportunity to increase accountability and make the public's decision at council elections directly relevant through the impact on finance. Local authorities would be responsible for raising a higher percentage of their own budgets and consequently would have greater independence. Every member of the committee wanted that.

Giving education grants directly to local school boards to use as they see fit could reduce council grant by the net costs of that provision. Councils would be able to maintain spending on their remaining services at the current level that is allowed by guidelines. However, the key issue is that council tax income as a proportion of council spending would be far higher; it would approach 40 per cent or more as council tax income became a far bigger part of the smaller pot required for fewer services. Education has the largest impact in that respect, as it is one of the big two spenders, but other services could also be devolved to community councils, for example. Over time, the proportion of tax that is raised locally through council tax could be increased still further by the gradual reduction of central Government grant, which has happened since 1997. We would aim for a 50:50 split and perhaps phase that in over a five or 10-year period.

That is a coherent approach across a number of policy areas that the Scottish Conservatives have drawn together. On their own, the proposals are not dramatic, but our approach is cross-cutting and would bring about real change and genuine devolution of power to communities throughout Scotland rather than to politicians. Services would improve and councils could concentrate on what have always been their core services—those services that the public associate with councils and their reason for being. Most people think that education is the Government's problem anyway. Councils could concentrate on services that people constantly tell me are being neglected but that have a huge impact on quality of life. I refer to services such as road and pavement repairs, street lighting, litter collection and the maintenance of parks and public spaces—I could add dealing with dog fouling. Once again, people could be proud of truly autonomous local government that meets their needs.

The second major issue is the nature of the council tax. The committee agrees that the principle that the previous Conservative Government put in place is sound, so why does it call for a revaluation? The minister said in response to the committee:

"Although the current valuations are based on levels at 1st April 1991, the system of council tax bands was designed specifically to allow for quite significant movements in house prices without the need for early or frequent revaluations."

The memory of rates revaluations, which led to a clamour for a change from rates in the first place, brought about that system.

The bands are about relative levels, not precise values, and I see no need for change. A revaluation coupled with more bands, as the committee suggests, would return us to the worst days of the rates. Although it might be politically helpful to my party if the minister did that, I have no doubt that it would be a disaster for home owners. Far from being fairer, as the socialists of all colours suggest, the measure is inspired by the politics of envy. It is proposed simply to fleece the small number of people who already pay large amounts to their council through income tax and council tax, but who get little in return and even less by way of accountability at the ballot box. Council taxes have risen. The average band D council tax has risen 37 per cent in cash terms since Labour came to power. What would proposals for more and higher bands and a revaluation do here in Edinburgh? Even small flats would be revalued into bands around the current band D or above, for which increases of 60 per cent to 100 per cent are proposed in some of the plans that the committee supports. Members who have flats, bought with taxpayers' support, should perhaps talk to their neighbours before they think further on the matter.

Will Keith Harding give way?

Iain Smith will have plenty of time.

Increasing the number of bands and reducing the amount paid at the lower end will result only in Scotland giving a windfall to Gordon Brown. All those peculiarly Scottish tax increases would only drive our brightest people south, but not nearly as much as the committee's proposals on business rates would. A return to locally controlled business rates would see businesses move south across the border, taking jobs and money generation with them. What would locally controlled business rates do for new business start-ups? The start-up rate is already low. Remember that, relative to profit and turnover, small businesses pay 10 times more in business rates than larger businesses do. Under our current version of the UBR, Scotland's businesses already pay about 10 per cent more than their English counterparts do. The minister was wise to reject that ridiculous proposal.

As if the double whammy of business rates and council tax increases were not enough, the really wild ideas came out when the committee came to its conclusions on local income tax. What were committee members thinking of? Was it a sop to the Liberal Democrats? Even the people who have proposed local income tax in the past have said that it should be instead of, not as well as, council tax. Not even Tommy Sheridan has proposed two taxes.

The Minister for Finance and Public Services is a master of understatement when he says in his reply that there is no

"strong case or support for … an additional local tax".

He bases that assertion on complexity, but he should just have made it clear to the back benchers in both Executive parties, who are no doubt supported by the tartan socialists in the SNP, that the proposal is electoral suicide.

Talking about the Scottish nationalists—I am sorry that Tricia Marwick has not remained to hear me speak—I welcome their conversion on the retention of business rates centrally, but they cannot escape the fact that in the committee they voted for the return of business rates to councils.

Is it Conservative party policy that all its members on a committee should always vote according to a party whip? What does that say about the Conservative's commitment to the committee system?

No, that is not our policy, but I guarantee that every one of our members will stand by the manifesto. The SNP manifesto stated that business rates would be retained at the centre. Conservative members would not make such a silly mistake.

The final tax plan is one that the minister did not reject—business improvement districts. That is a laudable concept in principle and one that I might support, but not if it is an additional tax burden on business. In the United States, from where the idea came, there is a low tax regime for both businesses and individuals. That makes semi-voluntary taxation much more attractive, especially if it is for particular time-limited projects. Here it would end up being an additional burden on hard-pressed businesses. It is economic madness to suggest the idea in a report that encourages various other tax increases. If we cut business rates first, the plan might get some support. In the meantime, let us tell businesses the truth. Those that support BIDs probably think that money for BIDs would be instead of other tax and that BIDs would allow them involvement. With taxes increasing, those businesses will be far less keen to take part.

Far be it from me to be negative about the whole report. I have often called in the chamber for a reduction in ring fencing and I support all the committee's views in that regard. I am even pleased that the minister has accepted some of the committee's proposals. It is a shame, but not unexpected, that he is so grudging, given that each year under Labour and the Liberal Democrats the local government financial settlement has concentrated spending on particular priority areas. The Executive forces its priorities on to councils, attacking local democracy by stifling their ability to provide services and to spend in line with local priorities. Services such as road repairs, recreation and cleansing are neglected. Let us fix that misery. Cannot the minister be a bit more generous for the sake of local democracy and accountability? A large proportion of the reduced ring fencing has been achieved only by mainstreaming existing funding of services that are deemed to be a priority by the Executive. In effect, local government finance is still ring fenced.

I also support the work to free up councils on capital spending consents and I am glad that the minister agrees. It was also good to see that the distribution grant formula is to be addressed. I blame COSLA for the lack of action on that matter, as those who gain under the present formula often block moves for change. That happened under the previous Conservative Government and, regrettably, I believe that it still happens today, despite ministerial willingness to change. I urge COSLA to get its house in order and to fix the situation soon, in order to solve the problems with funding the McCrone settlement and concessionary travel and with the longer-term general mismatches that were identified by numerous councils. The councils that lobby us in Parliament on that issue should be clear that they must solve the problems with their colleagues if an acceptable solution is to be found. On that note, I am glad that the minister agreed to make funding provision and spending assumptions clearer in future settlements.

My philosophy is that councils should be freed up and enabled to do as they please, although that must be done with the consent of the local electorate. The problem is that there is little or no accountability in local government. Until we achieve that accountability, we cannot make progress towards genuinely autonomous local government. I oppose the committee's tax-and-spend assertions because they will not solve those problems or fit those criteria.

I am glad that the minister is closer to me than he is to his back benchers on this subject, and I urge him to go further. If he were to accept the Scottish Conservatives' proposals for local government finance, he would have a coherent plan for achieving greater financial accountability and more community involvement without horrendous tax increases. That plan would be welcomed by the people of Scotland.

I call Iain Smith to open the debate for the Liberal Democrats. Mr Smith, you have been offered unlimited time by Mr Harding and I will try to be reasonably flexible.

Thank you, Presiding Officer.

Follow that, as they say. Unlike some other speakers, I am willing to take interventions.

When I joined the Local Government Committee in January 2001, it had already commenced its inquiry into local government finance. A substantial volume of written evidence had been garnered, but the committee had not yet commenced its oral evidence-taking sessions, which were to stretch out over 13 committee meetings in the next year.

Although members have a concise and precise committee report before them today, they should not underestimate the considerable amount of work by everyone involved, including the clerks, those who gave oral or written evidence and the committee's adviser, Rita Hale. The report should be seen as a reflection of the clear and consistent message that the committee received about the significant problems that our local government finance system faces.

It is also worth noting that, with the exception of Keith Harding, there was consensus in the committee on all the key recommendations in the report, including those on revaluation and rebanding of council tax, local income tax and returning non-domestic rates to local control. Let me tell Keith Harding and the Conservatives that a revaluation and rebanding exercise would not increase the burden of council tax—it would change how council tax is collected but it would not increase the global sum collected. That is an important point. I think that the press got rather overexcited about council tax revaluation and rebanding processes, as they picked up one table from an academic report that illustrated the effect of various proposals—it was not a table on which one should base decisions. The committee made no recommendations about any of the illustrations. The key point is that if a revaluation and rebanding exercise takes place, its purpose will be to make the system fairer without increasing the global sum that is collected from council tax.

The inquiry into local government finance was set up in response to the long-standing demand, which was supported by the McIntosh commission, for an independent inquiry into local government finance in Scotland. The calls for an independent inquiry were the result of two decades of attacks on local government by central Government, most of which took place during the days of the Conservative Government. From guidelines to clawbacks, capping, the removal of non-domestic rates, ring fencing and the poll tax, local government has been under siege. Its autonomy has been emasculated and its ability to respond to local needs has been destroyed.

Local government has been required to do more and more with less and less. In the five years following local government reorganisation, there were significant real cuts in funding to local councils, which resulted in real cuts in local services. Years of underinvestment in capital have also resulted in a huge backlog of repairs to our schools, roads and community facilities. Thankfully, the Liberal Democrat and Labour partnership Executive has begun to address that fundamental underfunding problem with real increases in both revenue and capital funding to every council in Scotland.

Nonetheless, some of the underlying structural defects in the local government finance system remain, and it is those that the committee has tried to address in its report. At the heart of the report is the need to establish a robust system of local government finance that can help to support strong local government and enhance local democracy and accountability. That is why the first recommendation of the committee is to change the balance between central and local funding from 80:20 to as near to 50:50 as possible. As a Liberal Democrat, I believe that, as a democratic principle, we should be striving to achieve, over time, a system where each tier of government is responsible for raising the revenue that it requires to spend on the services that it provides. Each tier of government should be accountable to its electors for the decisions that it takes on the level and quality of services that it will provide and the costs of those services in taxation.

The member is suggesting that an additional income tax should be collected by local authorities. Given the shambles that councils frequently get into with respect to council charge collection—especially when benefits are involved—what system of administration does the member recommend for the implementation of an additional layer of income tax? How will it benefit the council tax payer?

I will come to the income tax proposal in more detail later. There would not be an additional layer of income tax, but a transfer of income tax from national income tax to local income tax. The proposed tax would be collected through the income tax collection system, as happens in other countries that use the system. It is much less complicated to administer than systems that require benefits to solve the problems.

Will the member take a supplementary?

It is not supplementary—it is a change to the taxation system. It does not affect the global sum of income that is raised; it just changes the way in which that income is raised. It is important to remember that.

On a point of clarification, if that is the case, which body will be responsible for splitting off that income tax? Will it be the local authority or the national revenue-gathering bodies?

I am not going to go into the details of the income tax collection system. There are various ways in which it could be done. One suggestion is to have a system in which national, fixed rates are collected by the Inland Revenue after which, at the end of the year, an assessment is carried out. If the local income tax was less than the national rate, the taxpayer would get a rebate from the Inland Revenue; if the local income tax was higher than the national rate, the taxpayer would have to pay a supplementary sum to the Inland Revenue. That is clear and specific. People would see clearly what was happening. That would be one solution, but there are others and that is why we have asked for a feasibility study. I will address income tax in more detail later, but I want to talk a little more about accountability.

The role of central funding in a system in which the taxation is collected at each layer would be redistributive and to ensure that, broadly speaking, the same level of services could be provided for the same level of tax. The problem for local government is that, increasingly, the decisions on how much it spends on services are made not on the basis of local needs or desires, but on the amount of money that central Government allows it.

When I first entered local government in 1982, setting the council budget and the rates was one of the key debates of the year. There were real choices on the level of service and the level of local taxation. However, by the time I left local government to become an MSP in 1999, the total of a council's spending and the level of local taxation were effectively determined by central Government. Local decisions were at the margins, within the limits set by central Government. There was no debate, no choice and no local accountability on the level of council tax.

That was not the fault of the Conservative Government.

It was the Government in 1997 that put the present system in place.

Public interest in what the councils did was diminished as a result and that has contributed to the decline in turnout for local elections. Fortunately, council tax capping has now been removed and councils again have flexibility at the margins on the level of council tax and local services that they provide.

Nevertheless, the imbalance between central and local funding means that decisions of central Government still have more impact than the decisions of the councils. The gearing effect, which Trish Godman mentioned, means that, if a council wishes to increase local spending by 1 per cent, it must increase the council tax by 5 per cent. It also means that changes in central Government funding can have more impact on council tax levels than local decisions do. For example, a 1 per cent cut in central Government funding to a council will require that council, through no decision of its own, to cut services by about 1 per cent or increase its council tax by 4 per cent to cover the loss of revenue. That is neither democratic nor accountable, which is why we must redress the balance.

Local government must be responsible for raising more of its own revenue, so that it can be held properly accountable for the decisions that it takes.

I follow the logic of Iain Smith's argument and I heard what he said about every tier of government being able to raise the revenue that it needs. I take it that he accepts that all his arguments on the relationship between local government and the Scottish Parliament apply in spades to the relationship between the Scottish Parliament and the Westminster Parliament.

I have already made that point. Each tier should, over time, become more responsible for raising its revenue. That is clear Liberal Democrat policy.

Dealing with the balance between central and local funding is an essential part of restoring the democratic link between councils and their electors, which has declined so dramatically in recent years.

The committee recommended that a 50:50 split of funding should be achieved by returning the non-domestic rate to local government control, subject to certain safeguards. From the Liberal Democrat point of view, one of those safeguards should be the introduction of proportional representation for local government. I ask the minister to reconsider the Scottish Executive's rejection of that recommendation. The case was never made for removing business rates from local councils when the Conservatives did it and the case has not been made for retaining centralised control now. The argument that centralised control should be retained because local businesses do not have a vote is absurd, because they do not have a vote in national elections either.

It is interesting—but not surprising—that the SNP, which supported the recommendation in the committee, is now distancing itself from it. If Fergus Ewing's website is to be believed, the SNP is responsible for removing tax powers from councils—he claims credit for the uniform business rate. The SNP wants to go further: it wants the UBR to be set by Westminster, not in Scotland. That exposes the inherent hypocrisy of the SNP. It wants a 50:50 split or more powers for local government but will not tell us how it would achieve that.

The Tories, on the other hand, are at least honest and tell us how they would restore the balance. They would remove major services such as social services and education from local councils and hand them to quangos. For the Conservatives, decisions on whether to close a rural primary school or build a new secondary school should be taken not locally by locally elected councillors but by civil servants in the Scottish Executive.

The Liberal Democrats are committed to strong, autonomous local government. The recommendations in the report are a step in the right direction. Taken with the other reforms of local government—including those in the Local Government in Scotland Bill relating to best value, community planning and the power of well-being—the recommendations will help to bring about the oft-mentioned parity of esteem between central and local government.

In the longer term, the Liberal Democrats would go further by introducing local income tax. I welcome the committee's support for a feasibility study on local income tax. I hope that the Executive will reconsider that too, as it has misunderstood that recommendation. The purpose of a feasibility study is to examine the feasibility of a proposal. Many issues—including the costs of collection, the implications for national income tax and the relationship between local income tax and existing local taxation, such as the council tax—need to be examined more fully before policy decisions can be made.

The introduction of local income tax is not about increasing the overall burden of taxation—neither are revaluation and rebanding of the council tax—but about shifting the burden from one form of taxation to another. It is about shifting the burden from national taxation to local taxation, perhaps by replacing council tax in whole or part or by transferring national income tax to local taxation with a consequential reduction in revenue support grant and national income tax.

I welcome the Scottish Executive's support for the majority of the recommendations in the report. I hope that the Executive will not close its mind to the other recommendations but will listen to the debate in the chamber and beyond. Local government in Scotland needs a reformed and robust system of local government finance. Effective local democracy requires it.

I congratulate the Local Government Committee on its report on a subject that affects the daily essential services to every man, woman and child in Scotland. The end product of the debate will determine the quality of life in communities throughout the nation. For the past 25 years, I have listened to the same debate and the same plea for adequate funding and financing of local government. Past and present settlements have simply been an exercise in juggling funds between one budget heading and another—robbing Peter to pay Paul. The truth is that the total sum available is not adequate to fund the services that local government has been asked to deliver.

In many ways we now simply have local administration—we no longer have local government per se—and I find that deeply regrettable. Central Government has a stranglehold over local authorities. It controls capital and revenue expenditure and leaves local authorities with a limited ability to raise local finance. The imposition of new burden after new burden, without the provision of the necessary resources, continues.

I have observed that process for decades. I was in local government as was the Minister for Finance and Public Services, who I see wishes to intervene. His current message is very different from the one that he used to deliver when the Conservatives were in power. He may have loosened the corsets a little, but he has not solved the problem.

When I was in local government, I looked forward to the power to advance well-being, to best value, to the end of compulsory competitive tendering and to stable financing through three-year settlements, which we now have.

Could Mr Welsh please provide for me the figure that he thinks represents the real value of local government and tell me how he will he pay for it? Knowing that figure would be of interest to the Parliament. SNP members are always coming to the chamber and making spending commitments. There is never a number behind them, but the SNP says that it will do more. Where will the SNP get the money and how much will it be?

It is quite clear that if we want local government to provide the services, they have to be adequately funded. What I can tell the minister is that the Executive has not funded them adequately so far.

How much?

Quite simply, we know what the minister is offering and we know that it is not enough. That is the point from which we would start to consider how we would properly fund local government. The current Administration has just continued a very long tradition. The Conservatives were at it and Labour has been at it. Mr Peacock said some very different things when he represented COSLA compared with what he is saying now, and it has not been stated what we want local government to do.

There were two major periods of local government service expansion. The first period, from 1880 to 1900, was financed from within local authorities and brought true civic pride in Scotland. People provided services locally and communities competed to ensure that their areas had the proper services of which they could be proud. The second period of expansion came after 1945 and was funded by central Government. Therein lies the key to the problem: central Government's stranglehold on expenditure and its demands on what local authorities should do have turned our local government system into a local administration system.

I look to models elsewhere in the world, which, if adopted here, would allow local governments the freedom democratically to follow through policies and meet the needs of their local communities. That has not happened yet. As I said, the Executive is simply following a long tradition. The minister can try his debating tricks, but the reality is that local government is underfunded for the task that the Government has given to it—that is the real problem.

More than two years ago, the Local Government Committee took it upon itself to address that issue, and I commend it for so doing. The committee has produced a first-class report, the recommendations of which, if implemented, would go a long way to meeting the needs of local government. I notice that the Executive is not implementing the committee's proposals in full. Today's debate is not so much about the good work of the Local Government Committee as it is about the Government's failure to grasp this opportunity and implement real changes in local government finance.

There are measures that I welcome, such as the Executive's agreement to consult on the committee's recommendation that a business improvement district system be developed in Scotland. The Executive's decisions to undertake a review of the grant distribution system, to relax ring fencing and to introduce a new prudential capital finance system should be welcomed in local government circles. However, the minister has ducked the real issues that would help local government. The Government's rejection of the proposal to move the central-local funding balance from the current 80:20 ratio to 50:50 marks a failure to recognise the major problem with local government finance.

Will Mr Welsh give way?

I would like to continue, if Iain Smith does not mind.

If local government is to be truly accountable and responsive to the local electorate, a higher proportion of council income requires to be generated locally. At the minute, authorities have a very limited scope for that because of the current system. The local taxation base is too low. At issue is how it should be expanded, not whether that should happen. The Government has rejected any possibility of introducing a local income tax, which would adjust the balance in funding between central Government and local government. Even suggestions to improve the current council tax system have been rejected.

The use of top-slicing and hold-back arrangements is pernicious and unfair to councils. Such arrangements encourage disputes, dissension and unfairness, as councils scramble in competition for ever scarcer resources. Policy on housing receipt set-aside blatantly discriminates against prudent councils with low historic debt. Set-aside for receipts was abolished some time ago for projects other than housing. That measure should be extended to housing, so that council house sales receipts can be put to the service of improving council stock and conditions for council tenants.

I am disappointed with the answer that the minister gave on that issue. There was an opportunity to give local authorities a better deal. Instead, the Government has sanctioned the continuation of a system that underfunds and undervalues local government. The real losers are the people of Scotland, who will face the worst of all possible worlds: higher council taxes and cuts in essential daily services. That is the reality of what the Government is delivering.

In her opening speech, Trish Godman referred to the long and winding road of the Local Government Committee's deliberations. However, to make the debate sparkle we require the services of the man at the end of the yellow brick road—the wizard of Oz. To hope to make local government finance interesting is to dream the impossible dream. The Local Government Committee is to be praised for its efforts, as it is obvious that it has taken a great deal of time and effort to arrive at its conclusions, much as we disagree with them.

I congratulate the committee on giving us much food for thought. Unfortunately—as Mr Harding has made clear—we find that food particularly indigestible. Many of the committee's proposals are simply unworkable. Others are a regurgitation of the socialist thinking that most of us thought went out of fashion in the 1970s. As Keith Harding said, we are all Thatcherites now.

In his efforts to guide the Local Government Committee along the straight and narrow path of financial rectitude, Keith Harding made a number of very valid points. I am sure that he felt vindicated by the minister's speech. It is clear that Keith and the minister are more ad idem than Keith and the committee. That demonstrates something, although I am not sure what. It certainly demonstrates that Keith Harding has managed to persuade Andy Kerr to support him, at least for the time being. Unfortunately, Mr Kerr seems unable to persuade many of his colleagues to do the same.

I will now deal with the issues that the report raises. Throughout his speech and in his contributions to the committee's deliberations, Keith Harding highlighted the very important principles of local government. Local government is about accountability and the provision of local services. Keith Harding was right to point out that recently the distinction between central Government and local government has become blurred. To a great extent, the Executive is responsible for that, as it has devalued local government in every possible respect. First, it has sought to fiddle the electoral system so that the local government and Scottish Parliament elections take place on the same day. Secondly, by ring fencing council expenditure it has sought to impose the Executive's views on local authorities. It disregards completely the views that Labour-controlled councils put forward through COSLA.

Quite properly, Keith Harding described how that process can be reversed. It can be done by reducing the ratio of central Government grant to local government tax raising to approximately 50:50, although it is a little optimistic to suggest that that can be done within five years.

Will the member give us just one example of something that the Conservatives did in 17 years in government—and one example of a policy that they have now—to enhance the value of local government in Scotland?

During the years that the Conservatives were in government, we controlled a number of authorities. I recall that Stirling Council was one of them. The control of those authorities was conducted in an exemplary manner and all the authorities carried out their business in a manner of which the local populations were extremely proud. That is an obvious manifestation—

Does Bill Aitken agree that one of the most substantive moves forward was the sale of council houses that the Conservatives introduced?

As ever, Mr Young speaks profound common sense on this matter in stark contrast to the contribution that Iain Smith made.

Other aspects of the report concern me deeply. First, despite acknowledging the fact that the Conservative Government got banding about right, the report talks of revaluation. That comes simultaneously with the threat to increase the number of council tax bands. I want to be serious about this. Let us consider the effect that that would have on Glasgow. Glasgow is a city in which fewer and fewer people have to supply the finance for council services. The few are now subsidising the many. There might be arguments about how that has come to be, but the situation is highly unsatisfactory, with a large-scale haemorrhage of the population to the suburbs. If the revaluation were to happen, that haemorrhage would increase and the situation would be serious.

On another occasion we might spend more time debating the local income tax argument, which the Liberal Democrats have long advanced. However, introducing local income tax, on top of council tax, is the economics of the madhouse. It is ludicrous for the committee to suggest that it be considered. Other points might be worthy of more consideration. The business improvement districts concept might be advanced further, but it has to be viewed against the background of a low-tax economy, which is not what we have. If we had a low-tax economy, the concept could catch on and could be effective and positive, but we have to consider the situation that we have.

In conclusion, I congratulate the committee on the long, hard and committed efforts that it has made. It is just a pity that, at the end of the day, it could not have made a few more sensible proposals. We should be grateful to Keith Harding for his attempting to mitigate the damage that the committee might have caused.

Liberal Democrat MSPs were elected to the Parliament on a manifesto that committed us to proposing a new system of council finance to ensure that more council revenue is raised locally and that taxes relate more closely to people's ability to pay them. In the short term, we wanted council tax to be reviewed to make it fairer.

I was disappointed when our radical proposals for a local income tax to replace the council tax were not incorporated in the programme for government—you win some, you lose some. It was disappointing that Executive ministers were unwilling to be radical, so I was delighted when the Local Government Committee decided to embark on its investigation.

Local government is reeling from many years of underinvestment, especially in the 18 Tory years. I need not remind colleagues that Aberdeenshire, which is a large rural authority, has huge extra costs that are associated with delivering services in small rural settlements. It receives 11 per cent less funding per head of population than the average council. In real terms, Aberdeenshire is losing more than £30 million of central funding every year.

Does the member acknowledge that that is not the responsibility of the Government, as COSLA allocates the funds in agreement with all local authorities?

I disagree entirely with that statement. The responsibility for the allocation of funds lies with the Minister for Finance and Public Services and the Parliament.

Although the Local Government Committee has examined revenue grant distribution and recommends that the Executive should review the issue as a matter of urgency, its report seems to concentrate more on ring fencing and the impact on deprivation of the delivery of services than on the main issue of ensuring that councils have sufficient resources to deliver basic services, especially in rural Scotland. In my view, that is the main issue. The report represents a huge missed opportunity for highlighting the fundamental issue of equity in service delivery. The Executive does not wish to address the issue, nor, it appears, does the Local Government Committee.

It is all very well to argue that a new grant distribution system should be formula based, but we have such a system now and it does not work. The evidence from Angus Council indicated that 89 different assessments are used in the process. No one seems to be able to identify all the assessments, although Peter Peacock is nodding his head, so perhaps he can. The assessments are as cloudy as the witches' brew in "Macbeth".

I cannot accept the committee's conclusion that the council tax is a sound tax. It is clear that it is not. Property values bear little relation to people's ability to pay. Retired people, whose pensions often fall short of the salaries that they were earning when they purchased their home, are the hardest hit.

The Scottish Executive's rejection of the committee's proposal to introduce an additional tax as well as to keep a property tax is one of the few comments in the Executive's response to the report with which I agree. The committee recommends that the Executive should examine the feasibility of introducing a local income tax in Scotland and reducing the councils' dependence on Government grants or the amount that is raised by the council tax. There is little merit in being radical and introducing a fair tax, such as local income tax, while keeping an unjust tax on property. I could not disagree more with the committee on that.

Everyone seems to agree on the proposal to levy the full council tax on second homes, but let us not pretend that that will have any great effect on freeing up more homes in rural areas. There is no evidence to show that that would be the case—it would not be the case. Council tax from second homes is another funding stream for our hard-pressed councils to access and we should be up front about it.

I am disappointed that the two-year inquiry into council finance has not come out in favour of a radical shift to a fair form of local taxation. A tax on income is the fairest form of taxation and it must be the way forward. I am also disappointed that the real issue of obtaining a fair distribution formula for our local authorities has been missed and that, yet again, we have become hung up on single issues such as deprivation indexes. Local taxes should be for local services. It is the job of central Government to address the important issues of deprivation. We should not let the Executive or the United Kingdom Government off the hook on that.

The report is most interesting. It is difficult to agree with all the recommendations, as the Executive has found. I do not agree with all the recommendations, but I commend the considerable amount of hard work that has gone into producing the report.

I want to highlight one or two areas. I agree that the current balance between central and local funding is inappropriate and I do not accept what the Minister for Finance and Public Services—he is not the First Minister yet, but I can see from the look on his face that he is hopeful—said about gearing. He tried to dismiss gearing by indicating that central Government funds all the things that it wants, at a rate of 80 per cent, and that local choice comes thereafter. However, there is a gearing effect.

Local government is about delivering local services. If the cost will be five times as much as a consequence of gearing, where is the local choice? I do not accept the point that the minister makes. The imbalance between central and local government means that local choice is severely restricted. The only choice available is either a disproportionate rise in council taxes or no development of services to reflect local wishes. It is time that we put the local back into local government instead of merely using it as an agency of central Government. That is what local government has become over the past few years.

I was interested in the committee's ideas on local government finance. For a change, I find almost nothing to disagree with in what Mr Rumbles said about the merits of local income tax. Local income tax is the route that we should go down. That has been a long-standing policy of the Scottish National Party, so we welcome all who agree with us. Among other proposals, the Local Government Committee considered tinkering around the edges of the council tax. As we do not have a local income tax at the moment—although the recommendation is that it should be considered—I would be more than happy if the banding structure were re-examined.

In particular, I want to make a plea to the minister to consider introducing a lower band, especially for non-permanent accommodation. Many mobile homes, which are certainly not permanent, do not have anything like the capital value of band A. Those who live in such homes, through choice or otherwise, do not receive the level of service that others in the same band receive. Often the parks are remote from most council services, even things such as lighting and roads. There is a reasonable case for an extension of the lower band to include non-permanent accommodation. I look forward to the minister's reply on that.

Like Mr Rumbles—it is terrible that we share so much today—I am concerned about the range of indicators that are used to determine the distribution of grant. No one suggests for one minute that deprivation is not important, but I agree with Mr Rumbles that deprivation is primarily a national issue. The problems of deprivation will not be solved by passing the responsibility for them solely to local government by providing money that is ring fenced and time limited.

I am not convinced by the minister's earlier argument that changes have taken place. The reviews that have taken place have produced only minor shifts. That is because there are so many interest groups. If we use COSLA to arrive at a solution, we will get only the lowest common denominator. We require some external and independent advice to reach a solution.

When growth in population occurs, I do not believe that the finance that is needed to service such success stories follows through as quickly as it should. Because 80 per cent of the money comes from central Government, if a significant change in population occurs—which has happened in places such as Aberdeenshire—the time lag between the increase in the population and the increase in funding means that services are poorer as a result. That issue needs to be looked at.

I welcome the proposals for prudential capital financing for local government, but I hope that that will apply to housing as well as to general services. That may run contrary to the views of the Government, which is desperate in its desire to see large-scale voluntary transfer of council houses. However, if capital controls were removed, there would be no need for large-scale transfers. The extent to which they are voluntary may also be questionable.

Will the member give way?

No. Mr Adam is in his last minute.

Sorry about that.

Such large-scale transfers are politically driven. I hope that the Executive's delay in announcing an intention to provide local authorities with that kind of funding for housing is not driven by the political imperative to shift council housing into either the private sector or housing associations.

One must acknowledge the time and effort that has been put in by the Local Government Committee and its staff; they deserve all praise.

I noticed that Mike Rumbles used the phrase

"as cloudy as the witches' brew in ‘Macbeth'".

I took that as an implied criticism of his party's coalition partners—Labour. Presiding Officer, have you ever noticed—perhaps you should take this up with Sir David Steel—that whenever Liberals such as Iain Smith stand up, they refer to "the Liberal Democrat-Labour coalition," but when Labour members stand up they refer to "the Labour-Liberal Democrat coalition"? I wonder whether, for future records, we should ask for uniformity.

I understand that, earlier this month, council leaders from Glasgow, Edinburgh, Aberdeen, Dundee and Inverness met Margaret Curran to discuss the prospect of retaining a higher percentage of the business rates. It would appear that such a move would be conditional on the money being spent on projects to improve the business environment of those cities. That would mean spending to achieve such things as better roads, traffic control and improved services for tourists. It is interesting to note that, in the past five years, Glasgow has lost something like £300 million that the council considers should have been its to keep from the business rates. In the past year, Edinburgh has lost £95 million that would have been its own had it been allowed to keep all its business rates.

We are told that of the people of the major developed countries of Europe, it is the great mass of our people who work longer hours for less pay. Under Labour, more and more taxes are levied. We learn that here in Edinburgh the council wants to bring in a £2 charge on motorists, yet in virtually every city public transport services are even less reliable than they were during the second world war.

In Andy Kerr's letter of 13 June, in response to the Local Government Committee's report on its inquiry into local government finance, we read that the Local Government in Scotland Bill proposes that councils be given new powers to increase the well-being of their areas and more flexibility to raise income through fees and charges. As has been said, Peter Mandelson has been quoted as saying, "We are all Thatcherites now." What a misquotation: he would have been nearer the mark if he had equated the Labour party to the robber barons of old.

The Labour party may not say so, but it wants to increase the number of tax bands—to hit those in the bigger, more attractive houses, despite the fact that many younger people are struggling with large mortgages and a lack of job security. Allied to that, it wants to have a revaluation and, to top it all, to bring in a local income tax. Its demands are ever increasing—the party wants more and more money.

Glasgow wants to go a stage further and expand its council boundaries at the expense of East Renfrewshire, Strathkelvin, Bearsden and Milngavie.

John Young seems unduly worried about my constituency boundaries. I inform him that I am reassured by the undertakings given by Scottish ministers that the cities review will not encompass any revisiting of discussions on local government boundaries. I am supported in that by Councillor Charles Gordon, no less—the leader of Glasgow City Council. He has made the position of the city fathers—and, indeed, mothers—obvious. They do not want to put their tanks on the lawns of my constituents. If Councillor Gordon does not seek to do that, I ask Mr Young not to seek to do it either.

That is what the Russians told the Hungarians about tanks in 1956. I was a councillor in Glasgow for 35 years. I am also a former leader of that council. I will tell Mr Fitzpatrick that Labour leader after Labour leader—the whole lot of them—said the same thing: they wanted to expand the boundary to create a greater Glasgow. Brian Fitzpatrick is being sold a fairy tale from certain quarters. Trish Godman may agree with me on that as regards Charlie Gordon, I do not know. Glasgow wants to expand its boundaries—trust me, Brian: I am a Tory, not a Labour councillor in Glasgow.

The Labour-controlled Local Government Committee has the job of dishing out the castor oil. The committee is led by two clever and charming women, in the shape of Trish Godman and Sylvia Jackson. One would hardly equate them to Queen Boadicea—although, after the shambles of the Braehead and Glasgow City Council boundary dispute, Trish Godman might indeed be equated to Queen Boadicea.

However, make no mistake—charming and clever though they may be, they are two determined women who will push through all those measures at the behest of the Executive. Nowadays, Trish Godman needs a bulletproof vest whenever she goes near Glasgow City Chambers due to the debacle of Braehead. Perhaps in the future, both ladies will need bulletproof vests if they go near council tax payers in Renfrew or Stirling. I am just giving the ladies kindly advice on the matter.

All local authorities face difficulties. Sometimes there is a common denominator and at other times the difficulties are localised. Glasgow is the largest local authority, but some of its initial problems come from decisions that were taken 50-odd years ago. Those decisions had all-party support in the council of that time and were well meant. When I first entered Glasgow Corporation I met old councillors who said that overspill was a good idea and necessary, but on reflection they felt that Glasgow would suffer as a result. Indeed, the Glasgow population, which in 1938 was 1.6 million and is now just over 500,000, is at its lowest since 1891. That has caused a decline in the council tax base.

In the election campaign, neither Labour nor the Liberal Democrats will mention local income tax but, by heavens, plenty of the rest of us will mention it. I would not be surprised—this does not include me because I am standing down next year—to see a Tory Government in the Scottish Parliament if the Executive goes ahead with local income tax.

I would like to pay tribute to the clerks and staff of the Local Government Committee for the long hours that they have put in to create the report and so on. They have done a good job and I am sure that all the committee is very thankful. I also pay tribute to Trish Godman and Sylvia Jackson for all their hard work and for the fairness and integrity that they showed to committee members from other parties.

It is a pity that there are no other Labour members here to speak on behalf of the Local Government Committee. As far as I can see, we have only Trish Godman who opened the debate and Sylvia Jackson who will close it. Given that local government finance is important to everyone, not just to councillors or to local members of Parliament, I find it disgraceful that no Labour members will speak on the subject. The contempt that Labour has shown for local government is shocking, given the amount of work that Trish Godman, members of other parties and the committee staff have put into the report. I hope that the Executive will take that on board and ask its party members why they were not here to speak in a debate that is so important to COSLA and others. I am sure that COSLA and others will not forget their absence.

As a Glasgow MSP, I am acutely aware of the problems all councils face, but I would argue that such problems are particularly acute in the Glasgow area. Like other cities, Glasgow is facing the loss of economic functions, poverty, area abandonment and the steady shift of the economically able and mobile population, which has a major impact on services such as health and education and on the remaining residents. As the base declines, social problems are concentrated while the fixed costs of service delivery remain constant. In cities such as Glasgow, where 60 per cent of residents live in regeneration areas, regeneration policies are crucial.

It is important that we address the problem of decline. Returning the right to retain the revenue that the city generates has been identified in the cities review as a key measure to aid regeneration. I am pleased that the cities review team recognised the problem and recommended that Glasgow retain a higher share of the business rates raised in the city. That would go some way to rectify the appalling situation that has led to the estimate that, over the past five years, Glasgow has lost some £300 million.

Does the member recognise that, under the current system, Glasgow receives more support—aggregate external finance support includes its part of the rates—than any other mainland council in Scotland and significantly more than average? Glasgow does not lose money because of the present system.

I disagree with Iain Smith. The problems in Glasgow are so acute that the amount of money it receives is not fair. He could argue with Charlie Gordon of Glasgow City Council until the cows come home—

May I ask another question?

I will finish my speech. I disagree completely with Iain Smith. He should examine the figures for Glasgow. If he does, he will see that the city needs more money, not less. I am surprised that the views he expresses come from a Liberal Democrat. Of course, I do not expect anything less of someone who voted against the retention of Braehead shopping centre within Glasgow's boundaries.

Glasgow relies increasingly on a poor council tax base due to a higher than average level of low-band council tax payers. Those who are on low incomes are effectively subsidising services that are used by wealthier people from outwith the city.

I will address some of the points that were raised by the Executive and the Local Government Committee. Local income tax has been touched on. I do not agree with the comments of the Tories, and I disagree slightly with those of the Executive. I am pleased that the Local Government Committee took on board the recommendation that the introduction of a local income tax should be examined. Unfortunately, it calls for it to be examined in the longer term, rather than the shorter term.

I was going to say that I am being flashed at, but that carries the wrong connotation. Am I being told to stop, Presiding Officer?

No.

The light on my microphone was flashing.

I am disappointed that the minister and the Executive have said bluntly that they will not consider a local income tax. The report is supposed to be looking at local government finance for the future. We are supposed to be taking an ambitious look at local government finance. We should not be afraid to embrace new ideas. The problem with the Executive is that it is afraid to embrace new ideas. I congratulate the Local Government Committee on proposing a local income tax.

Ring fencing has been mentioned. It is a contentious issue, not only for councils but for the electorate. We spent many hours arguing about it. Two issues that were raised constantly by COSLA and others were the requirement to match fund and the fact that the national priorities of the Executive and the Westminster Government take precedence over local priorities. Those issues must be treated seriously. We should have proper consultation with local government, so that services can be provided properly.

In conclusion, I have a question for the minister, which I would like him to answer with a yes or no in his summing up. It relates to the leak from the cities review team. The team announced that Glasgow would be allowed to keep some of its business rates. Will that be additional money, or will it be taken out of the grant, as I have been told on many occasions?

My regrets to one member who had hoped to speak in the open round, but I must now go to closing speeches.

As the cast list shows, I was an actor in the first act of the drama of this long inquiry, so I am here to take a bow along with everyone else, but I did not keep fully in touch with the plot in the second and third acts.

The Local Government Committee has worked hard and has produced some useful ideas. It is a pity that Keith Harding was absent when 12 particular items were discussed, because I am sure that his advice would have been helpful to the committee. He might have converted them to more brilliant ideas. He felt that he had to write in posthumously, as it were, to say that he disagreed with what had been agreed in his absence. It always helps to be present if one wants to persuade people.

The fundamental position that my party and I take is that council services need more funding. For many years, the Conservative party systematically destroyed local government and, regrettably, the London Labour Government did not adequately fund local government in its first two years. We are still trying to catch up.

The two main reasons why I kept trying to get into Westminster past my sell-by date were to get a Scottish Parliament and to stop the destruction of local government. We have a Scottish Parliament. I think that we have stopped the destruction of local government, but we have not started to build it up enough. A lot more remains to be done. This Parliament has the great opportunity to do that.

As Iain Smith said, the Liberal Democrat approach is that there should be a package, which would include proportional representation, so that councils are truly representative of their communities. Councils could then be given more control over their local resources. That should be done through a local income tax, but other resources could be used as well. There must be a package.

I agree with those who said that it is a pity the committee suggested adding local income tax to existing taxes. A long way back, the Layfield committee, which did good work, suggested introducing a local income tax and keeping rates. That meant that its recommendations went in the bucket. If it had recommended scrubbing rates and introducing a local income tax, it might have got somewhere. I know that our devolved status causes problems with this suggestion, but the long-term aim should be to replace council tax by a local income tax. That is fairer and buoyant and would produce more revenue.

In the meantime, I fully support revaluing properties and rebanding council tax. If property is much more valuable in Edinburgh and its value has declined in Glasgow—other examples were given—it is unfair not to recognise that in the relevant tax bases. At the top end, silly money has been paid for some houses. That should be reflected in the tax on those houses, while the tax on poorer houses could be reduced.

In accepting Mr Rumbles's comments about property tax to a degree, will Mr Gorrie expand on the matter? If someone owned multiple houses in Scotland, would they simply pay local income tax once and escape taxation on the three or four properties that they owned and left vacant?

No. As Mike Rumbles and Iain Smith said, much work must be done on the form of local income tax that, in due course, the Scottish Parliament should adopt. In the case that Phil Gallie described, the owner would be registered as a resident in the places where they owned properties and would pay local income tax in each place.

We should proceed with taxing second homes at the correct level. It is a bit timid that the Executive will merely hold another review. God knows how many reviews have been undertaken on the issue, which is fairly simple. We should just get on with it and do it.

I declare a personal enthusiasm for land value tax. Despite its difficulties, it should be pursued to the extent of some trials into how it might work. The idea is valuable and needs working up.

As for PPP, I think that we should support not-for-profit trust ideas. Local authorities should have more borrowing powers. The Executive's response goes a little further, but all Executives and all central Governments want to centralise. As members of Parliament, we must fight that and try to put more power in the hands of local communities and take it away from the centre. A few good steps have been taken in that direction, but we should take many more.

We saw a new vision—or should I say spectre—when the Liberal Democrats, who are looking for new partners, cuddled up to the SNP, albeit on one issue that they have still to thrash out.

The debate was interesting, but Labour—the so-called champion of local government—appears to have deserted the chamber. We heard two Labour speakers, who are members of the Local Government Committee, but Labour back benchers did not rush to support the debate. That raises questions about the minister's approach or the committee's approach and about back benchers' opinions. I would like Peter Peacock to explain that when he winds up.

Much of the debate has been about accountability. Nobody argues that we should not seek to obtain it; the question is over the method of achieving it. The Conservatives are often accused of putting down local government. On behalf of my party, I gave a presentation to the McIntosh commission, before the Scottish Parliament elections. I disagreed with McIntosh. I said that there is no point in undertaking a review of local government finance, because if the aim is to look for accountability we need to decide—the Parliament has singularly failed to tackle the matter—what we want local government to deliver and therefore what it should be accountable for.

Once again, we are putting the cart before the horse. It is as if the Executive does not know that something is going on out there in local government. The minister has to get a grip on the issue. If he wants people to have confidence in local government and to understand accountability, they need to know what councils are trying to deliver. Even councillors are confused. Mr Kerr may shake his head, but that is the case, especially when it seems that we do not have ring fencing any more. Instead, we are told that we have local service agreements, which are another euphemism for, "Do as we tell you or you will not get the money." That is not accountability.

If my colleagues in COSLA are looking to develop the principle of local outcome agreements, that cannot be an Executive plot; it is a better way of delivering local services. Does Mr Davidson agree?

I have had a discussion on the subject with COSLA and I cannot say that its leaders were particularly amused by the discussion about whether there is to be a review of COSLA's responsibilities.

Surely, in this modern day and age, councils need to know what they are responsible for. The Executive should get off the back of councils. It is committed to saying, "You will do only what we tell you to do—you will fulfil our ambition," but that takes away from local democracy. Labour members may say, "Tut, tut," but we have had five years of a Labour Government and the situation is getting worse.

Mike Rumbles talked about my local council area. It is true that it has had difficulties because it has a low tax base, but is it accountable for failing to look after the roads, school investment and so on? That is the fundamental issue on which the debate should be focused.

Many good speeches have been made, but the arguments about council tax banding are nonsensical. If we mess about with the banding, we are at risk of councils losing local council tax reliefs, which is of no benefit to anybody—especially local councils.

Many members have talked about finance for local service delivery. The common theme in that argument is what we want local authorities to deliver and saying that they should be given the tools and the freedom to deliver in a way that is not necessarily prescribed by the centre, but is chosen by the local electorate when they elect councillors to manage their local affairs. That is a fundamental principle and it is unfortunate that it is not what the Local Government Committee report is about.

Will the member give way?

No. Mr Davidson is in his last minute.

I am sorry, Mr Rumbles.

One or two interesting comments have been made. It appears that half of the Parliament and the Local Government Committee want local income tax as an add-on tax. We have now heard from the Liberal Democrats about an "instead of" version, which sounds extremely complicated and bureaucratic. We even heard a hint that local income tax should be settled nationally. Would we simply re-label what we get from the chancellor each year, or is the tax to evolve in Scotland? There is confusion. I hope that when the parties come to publish their manifestos, we will get clarity on where they are all coming from.

The worst thing we could do is agree that business rates should return to local government control. The essence of the uniform business rate was to give confidence to local businesses. We do not want to see migration between council areas. Tricia Marwick said that she is prepared to cherry pick; she said that the four main cities should get extra money. If that were to happen next week, I imagine that there would be a war in COSLA.

It is clear that the next fortnight is going to be fun—it looks as though we are to have three finance debates over the piece. Finance debates are becoming a bit like corporation buses—one waits for ages and they all turn up at once.

Corporation?

The joke could have been worse; it could have been about corporation trams.

Trish Godman talked about the long and winding road that we are on in respect of local government finance. The history of discussing and agonising over local government tax and expenditure is a long one. I happened to look at my bookshelf and found a report of the Scottish Valuation and Rating Committee of 1954. That was not the beginning of the debate, however: the report refers to the Royal Commission on Local Taxation of 1896. We are still agonising about the issue. The appearance of the 1954 report is interesting—obviously the trend towards glossy documents had not quite started then. Much has changed in the interim. For example, the scope of local government has substantially increased and the amount of direction of local government by central Government has also changed.

The Local Government Committee's report is certainly comprehensive and the evidence is certainly voluminous. I turn first to the argument that the balance of funding between local and national sources should be more 50:50 than 20:80. The one very real problem that underpins that stance is gearing, although I suspect that that is more to do with the level of grant settlement than the mechanism itself.

The committee argued that the 20:80 settlement blurs local accountability. I am not sure that that is exactly true, although it certainly reduces the councils' scope for manoeuvre. I suspect that the problem of accountability owes much more to local government boundaries and the fairly arbitrary way in which areas were carved up by the Conservative party in order—it hoped—to create one or two safe Tory fiefdoms. I thought that Bill Aitken had a cheek to refer to the Labour party fiddling local government. The other problem with accountability is the unfair and undemocratic electoral system. Until we change that, there is no way that fiddling about with the tax system will ever deliver accountability to local authorities.

Although in the best of all possible worlds it would be good to change the balance, we need an acceptable and credible mechanism to do so. Of course, the Tories have told us that they will move towards such a mechanism by introducing school privatisation.

Will the member give way?

No. I am in my second-last minute and I have a lot more to say.

It is not clear whether we have such a mechanism at the moment, which is why we need to consider local income tax. I am disappointed with the Executive's response, particularly given the views expressed in the 1954 Sorn report. On local income tax, the report said:

"This suggestion has been put to us from one quarter only, namely, the Scottish Council of the Labour Party."

We need a local taxation system that is linked to the ability to pay. The council tax system is clearly not, except in the most tenuous way, nor is it related to the services that are consumed. Furthermore, for a significant number of people, house values relate to previous rather than present income, which means that, for them, the tax is often regressive. Although I acknowledge that mechanisms such as rebates have been introduced to counteract the problem at the bottom end, they only increase the complexity and cost of what should be a relatively simple system. One can sympathise with the suggestion that we could improve the sensitivity of the system by increasing the number of bands. However, the problem is that such a step would increase the complexity of the system and the costs of administration.

It was interesting to hear Tory members claim that the council tax system was an improvement on the rates system, as though we had moved straight from one system to the other. They have obviously forgotten about the little interlude that came in between. Other members have longer memories.

As has been said, the SNP sees the attractions of a local income tax. Although we are not blind to its complexities or disadvantages, we believe that it merits far more investigation. As a result, I am disappointed with the Executive's response on the issue.

I welcome the committee's contribution to a long debate, which I suspect is not yet over.

Many good points have been made in the debate, but there have also been many bad ones. I will try to respond to as many of each as I can.

First, we should welcome the committee's attempts to open up the subject to debate. Local government has long been frustrated by the fact that how it is financed and all the attributes of its finance have not been subjected to adequate debate. Trish Godman and her committee are to be commended for undertaking that work.

The committee should also be commended for confirming that the Executive's broad direction of travel on local government finance is the correct one. The debate that the committee has had and the points that it has drawn to the Executive's attention, re-emphasised and resupported help to take that agenda forward.

The debate has added to measures that the Executive has tried to take early in its life without the need for an independent review. When the First Minister was the Minister for Finance, he made the point that we could seek to do a lot without an independent review. That is what the Executive has been trying to do. We wanted to make progress on, for example, three-year revenue budgets, three-year capital budgets and scrapping the guideline system that the Tories introduced, which hemmed in local government. Capping should be pushed right into the background—again, the Tories introduced that measure to prevent local authorities from expressing themselves at a local level. We wanted to abolish the need to converge budgets with grant-aided expenditure totals—another Tory objective.

As everyone has argued over many years, there should be stability in the framework of local government finance. Part of that stability lies in guaranteeing minimum increases in the grant system. Councils with a rising population should be protected, by updated formulae for taking account of increases in population. Councils with a falling population whose grant has consequently fallen should also be protected, by the introduction of new floor mechanisms of payment and minimum increases.

For the first time in many years, it has been recognised that pay and price inflation have an effect on local authority budgets. We have put money into the system for that. There have also been fully funded Executive initiatives on expanding the number of nursery schools, free personal care and concessionary fares. I say to Andrew Welsh that I argued for such things in all my years in local government; many others in the Labour party and the Liberal Democrats argued for them, too. The Executive is delivering such initiatives without the need for an independent review. Nonetheless, the committee picked up on those general themes, added to them and progressed them.

Another point that has not come out of the debate as strongly as it should have done is the committee's central recommendation on finance—to retain the council tax, which is a property tax. That system is common across the world. Whenever people have looked across the world at how local authorities are financed, they have seen that a property tax is one of the main vehicles for adequate finance.

The council tax has the virtue of being a stable form of taxation that is highly predictable year on year. Relative to other systems, it is comparatively simple and therefore comparatively easy to administer and collect. We have relatively high collection rates. With the benefit system that can be put in place alongside the council tax, it can be made much more progressive than it first appears to be. There can be a link with ability to pay.

Does the minister accept that the tax is not fair? The fairest form of taxation must be related to people's ability to pay. Those who earn enough money to be just above the benefit system—old age pensioners and young people, for example—are hit hardest by that property tax. The fairest form of tax is a local income tax.

I will deal with local income tax shortly. In any taxation system, ease of administration, predictability of tax yield and how that yield can be protected from the fluctuations in the economy—a property tax is largely protective—should be considered. It could be argued that those factors make any system less attuned to the ability to pay. Nonetheless, they are important attributes in any tax system.

I was the finance chair of a regional council and have experience of scrapping the rating system, setting up the poll tax, scrapping the poll tax within two years—as I predicted would have to happen—and moving back to a property tax. Like many, I recognise that one should never change a tax system unless one is absolutely certain that it will yield what one wants in the future. The committee has shown great maturity in maintaining that position and in rejecting the idea of a Scottish service tax in particular, which would have been the most damaging of all the proposals that were before it.

Mike Rumbles, Iain Smith, Trish Godman, Keith Harding and other members have raised the issue of a local income tax. I want to make the Executive's position clear. We have not considered the merits of an income tax per se as part of our response to the report. We do not rule out considering it at a future point, but we do not rule it in, either—we have simply not considered the merits of such a tax at this stage.

We have considered what the report says about the local income tax proposals. Any second tax—any local second tax—would need to have a very clear purpose. The main argument for taking the proposal forward is to increase the burden on local tax payers. That is to do with accountability. The committee is trying to shift the balance from the current 80:20 balance to something closer to the 50:50 balance that some people have argued for. The committee felt that the council tax could not carry that additional burden, although it did not argue that through terribly clearly in the report and it did not state specifically why that was the case.

The committee proposes an additional local tax. The new taxation system would have to carry a very heavy burden of taxation if it were to be successful in meeting the objective of moving closer to a 50:50 balance. It would have to carry almost as much as the council tax yields, if not more in some circumstances. That is a major proposition. We are not talking about a small top-up tax. What is proposed is potentially bigger than the council tax in terms of the load that it may have to carry.

Will Mr Peacock give way?

No. The minister is in his last minute; in fact, he has almost finished.

In that case, I will finish my argument.

For those reasons, we are not convinced that a case has been made for shifting away from the council tax and the benefits that it brings.

As the Presiding Officer is rushing me to a conclusion, I will rush to a conclusion. The committee report is not helpful only on those matters; it is helpful on a range of other matters. It has moved the agenda forward on business improvement districts. We are sympathetic to that proposal and will consult on it. The committee has also moved the argument forward on taxation on second homes. Again, we are sympathetic and want to consult on that. We have listened to the arguments about ring fencing; we want to take action on a case-by-case basis to reduce ring fencing. Many positive ideas have come out of the report. We have tried to respond as positively as we can to its recommendations. We look forward to taking more action over time to support local government in the important job that it does throughout Scotland.

First, I will reflect on Trish Godman's comments about "The Long and Winding Road" and on Bill Aitken's comments about the yellow brick road. As I remember it, there was the Tin Man, the Straw Man and the Lion. Which one does Bill Aitken think that he resembles?

The Lion.

There was also some discussion of certain parties cuddling up together. At that point, I decided that I would stop listening to such comments.

It was rather unfortunate, but predictable, that Conservative members largely restricted their comments to two issues. One was business rates and the other was the balance between central and local funding. I understand why the business community has some reservations about the committee's proposals, but under the committee's recommendations it would not be possible to use the business rates to subsidise the council tax, as the two taxes would be linked. Paragraph 78 of the committee's report explains that technical work should be undertaken to establish such a safeguard.

As members know, the Executive has ruled out the proposal on business rates. However, I challenge its response, which states that control over business rates would not make local authorities more accountable. As Iain Smith stated, the issue is not whether businesses have a vote; it is that, if business rates were returned to council control, the local electorate would see a more direct link between the policies of the council and the levels of taxation across the business and domestic sectors. Hence, the electorate would be able to make a perhaps more meaningful choice at election time. In addition, the proposal would be an opportunity for the business community, local council representatives and other community representatives to work much more closely together.

The committee's report asks the Executive to explore the potential for councils and businesses to work closely together in the development of business improvement districts. I thought that Iain Smith might have said a little more about those, given that he was so enthusiastic about the issue in committee. The committee also asked the Executive to examine how the BIDs concept could be modified in areas with no significant business base and to fund community development schemes that are supported by the local electorate. We welcome the Executive's commitment to consulting on that proposal. We see huge potential for that kind of work as community planning comes on stream.

The second issue that Keith Harding raised was the central-local balance of funding. We should be clear about the Conservative party's stance: it wants to weaken local authorities—it always has—to such an extent that they become non-viable and no longer exist. As Andy Kerr said, the Executive is committed to allowing as much local control as possible, in order to allow local authorities to reflect local needs—in other words, subsidiarity.

Does Sylvia Jackson consider that school boards that are made up of parents are not local?

No—I am not saying that at all. [Interruption.] I will move on—Keith Harding and I can discuss that issue after the debate.

My next general point is about the comments that were made by certain sections of the media after the committee published the report of its inquiry. Some reporters took delight in scaremongering, particularly by presenting the worst-case scenario for future council tax increases. Unfortunately, Keith Harding added to that scaremongering today. Let me be clear that almost five of every 10 homes in Scotland are in the two lowest council tax bands—band A and band B. The rest are spread out across the remaining six bands, with only one in 10 homes falling into the top three council tax bands. The end result is that, in each council area, people whose homes were worth £10,000 in 1991 pay the same council tax as people whose homes were worth £25,000 in 1991, and people whose homes were worth £250,000 or more in 1991 pay only three times as much as those who live in the lowest-value properties.

Most of the witnesses who spoke to the committee about the council tax said that it would make more sense to introduce another council tax band at the bottom end of the range and to set a lower rate of council tax for the properties that fall into that band and higher rates of council tax for properties that fall into the higher-value council tax bands.

I take Sylvia Jackson back to her comment about scaremongering. The last time that the Tories were accused of scaremongering was when we said that the new Scottish Parliament building would cost more than £40 million. Would she care to reflect on that?

I will move on.

Many witnesses told us that, as well as looking at council tax bands, we should look at council tax valuations. Council tax bills are based on property values in 1991, so they are more than 10 years out of date. It is important to remember that revaluing properties would not mean an increase in the total council tax bill for Scotland. People whose homes have increased in value since 1991 more slowly than the average for Scotland as a whole could face lower bills. As Donald Gorrie suggested, people whose homes have increased in value more quickly than the average for the rest of Scotland could face higher bills. Bills for people on low incomes would be wholly or partly met by benefits, which is what happens at present.

I simply cannot understand how the committee found that the council tax was and has remained "sound". Sylvia Jackson knows that council tax charges bear no relation to people's ability to pay. That is particularly the case for those owners to whom she just referred, whose houses have risen in value but who do not have the income to pay higher charges.

Most of the evidence related to council tax collection and we found that, administratively, the council tax was fairly easy to collect.

What other points from the report could the press and Conservative members have highlighted? The first, and most important, point that they could have highlighted was the fact that the evidence collected led to a number of recommendations. Unfortunately, they concentrated on only a few recommendations. The important issues about which the committee collected evidence included the revenue grant distribution system and local authority capital finance.

As we collected evidence on those important topics, another issue became increasingly important—Iain Smith touched on it earlier. How can we make local government finance more easily understood, not just by members of the committee—we found the system quite difficult to understand—but by the man and woman in the street? They need to be able to understand how money is being spent and, more important, how their views are taken on board when funding decisions are made.

There is no doubt that, due to the gearing effect on council tax levels, the public are justifiably confused when they see council tax increasing but the level of service provision not increasing at the same time. If a greater proportion of the money that local government spends were raised locally, and if the balance of central and local funding were changed from the 80:20 split, the gearing effect would be reduced and, with it, the confusion that the public feel.

The committee found the issue of revenue grant distribution especially complex. We believe that the distribution system is in need of review. We accept that the Executive has moved to reduce the number of ring-fenced grants and we welcome its agreement to consider, with COSLA, the potential to relax the ring fencing of grants on a case-by-case basis alongside the development of local outcome agreements. Contrary to what the Conservatives say, those agreements appear to be popular among people to whom we have spoken about the moves. The committee also believes that, although no system is perfect, improvements and simplifications can be made. We therefore welcome the commitment to keep the current system under review.

Many other points have been made today, one of which concerned capital finance. The committee recommended that the Executive, with COSLA, should develop a prudential capital finance system in place of the existing section 94 consents. We are pleased that the Executive plans to replace the existing system of capital consents through the Local Government in Scotland Bill, which is currently before the Parliament.

Over the past couple of years, the committee has received several submissions on the 50 per cent council tax discount that is given to owners of second homes. Although we recognise that there can be different reasons for owning second homes, in general we are sympathetic to the local authorities that are potentially disadvantaged by having a higher proportion of second homes in their areas. We are pleased that the Executive has given a commitment to look into and consult on the matter.

There has also been much discussion about local income tax. Iain Smith dealt with that subject adequately. One disadvantage of the current system—Mike Rumbles may have touched on this—is that people may have low incomes and be ineligible for benefit yet still have liability for council tax, which would take up an enormous proportion of their income. A local income tax that could take into account such circumstances would be fairer. It is disappointing that the Executive seems to have thrown out that idea, although we now hear that there is a chink of light.

Will Sylvia Jackson give way?

No, she is in her last minute. In fact, she has gone beyond her last minute.

The committee also recommended that the Executive should develop alternatives to PFI and PPP. As usual, the SNP has not reflected on the alternative developments that are taking place. I am thinking of the not-for-profit developments about which people are becoming more enthusiastic.

I must ask the member to wind up.

The committee also recommended that the power of local authorities to set fees and charges should be extended. I am pleased to note that that recommendation has been accepted. Finally, the committee asked the Executive to reconsider the overall size of the cake. I could not finish without saying that there is a real need for extra money for local authority infrastructure such as non-trunk roads and bridges.

This has been a major, robust inquiry and we have travelled a long road. The report runs to four volumes and 1,000 pages, including a commissioned report by Heriot-Watt University. There were 29 oral evidence sessions, 13 meetings and 61 witnesses. More than 50 hours of committee time were spent in taking evidence and our thanks go to the committee staff and members for their patience. I also thank Trish Godman for the firm and fair way in which she chairs the committee.

I am sorry that I had to hustle the member, but we have a short debate before we come to decision time.