Official Report 547KB pdf
The next item on our agenda is an evidence-taking session with the Cabinet Secretary for Finance and Local Government on the Scottish budget. We are joined by the cabinet secretary, Shona Robison, and, from the Scottish Government, by Ellen Leaver, acting director for local government, and Ian Storrie, head of local government finance. I welcome you all to the meeting. I should also say that there is no need for you to operate your microphones—we will do that for you.
I invite the cabinet secretary to make a brief opening statement.
Thanks, convener, and thanks for the opportunity to make some brief opening remarks.
This year’s budget invests in the wellbeing of our society and seeks to ease the pressure on families and family budgets by continuing, and expanding, the best cost of living support package available anywhere in the UK.
With regard to local government, we have made significant joint investment in the engagement process throughout the financial year, and the local government settlement delivers what I would describe as a fair outcome for councils. The budget provides a real-terms increase in the settlement, including £253 million of unrestricted general revenue grant. I could have considered targeting all or some of that increase at social care, but instead I chose to provide it as flexibly as possible to councils and to give them full discretion in allocating that money to meet local priorities. I also confirm my intention to provide councils with full discretion over council tax; indeed, that was the most frequent request of COSLA leaders throughout our extensive engagement.
When I appeared before the committee to give evidence on the 2025-26 budget, the local government settlement was just over £15 billion. In this year’s budget, the settlement for 2026-27 is £15.7 billion. That represents an increase of £650.9 million, or 4.3 per cent in cash terms; in real terms, it is the equivalent of a 2 per cent increase. Those figures represent a true like-for-like comparison and are transparently set out in table 4.15 of the Scottish budget document.
Additional funding was, of course, made available to councils throughout the year, as it has been in every previous year and invariably will be in the years to come. However, factoring in that 2025-26 funding without any crystal ball to confirm what will happen in 2026-27 does not provide a like-with-like comparison and risks being misleading.
It is also not possible to know, or to second guess, what else will happen over the course of the spending review process, as it sets out high-level spending envelopes for portfolios to support medium-term planning. Those envelopes are intended to provide multiyear planning assumptions, and do not represent multiyear budget allocations.
I recognise that the envelopes will be extremely challenging for local government, as they will be for all public services, but I want to offer the committee a few points of context. First, the Scottish Government remains committed to working with councils and COSLA to ensure the sustainability of local services, including exploring local government’s role in delivering our broader public service reform agenda.
Secondly, the portfolio approach adopted for the spending review does not take into account the impact of in-year transfers. I have baselined more than £2 billion into the local government settlement since the Verity house agreement was published, but it remains the case that hundreds of millions of pounds of funding in the health and education portfolio spending envelopes is likely to be transferred to local government over time to support joint priorities.
I appreciate that those might sound like warm words, but I believe that the evidence supports my case. The 2022 spending review indicated a core revenue allocation in 2026-27 of £10.7 billion. In contrast, the Scottish budget delivers almost £14 billion.
Finally, I want to acknowledge that the Scottish budget also sets out a strong non-domestic rates package in the context of our revaluation. I remind the committee that the Scottish Parliament welcomed the move to three-year revaluations, and that revaluations are administered by assessors who are independent of the Scottish Government and local government, another move that was widely welcomed at the time. With average growth in rateable value of 12.23 per cent, the Scottish budget confirms that I have lowered the basic, intermediate and higher property rates, delivering the lowest basic property rates since 2018-19. I have also maintained the most generous small business support relief anywhere in the UK.
It is true that some rateable values have increased. As a result, we have introduced transitional reliefs to ensure that the increases in net liabilities will be capped significantly lower than the percentages that are often quoted. In total, the budget supports a domestic rates relief package worth an estimated £864 million in 2026-27. As a result of the measures in the Scottish budget, the total revenues raised from NDR will actually be 6 per cent lower than they were before Covid.
I hope that those points have been helpful to set the context for this morning’s session, and I look forward to your questions.
Thank you very much for that overview, which touched on some of the points that I am going to ask about.
I will start off by asking about the local government allocation and the spending review. The committee called for the budget to recognise the challenges of increased demand for council services and, in particular, social care delivery.
In your opening statement, you pointed out that you had taken a flexible approach so that councils had a choice as to how they funded that area, but COSLA has made it clear that it does not have a sense that there is recognition of the increased demand for social care delivery. What are your thoughts on that?
COSLA’s ask was for £750 million of new money for social care for 2026-27. That is more than the entirety of all the resource consequentials that the Scottish Government has available for the whole spending review period. Money of that quantum simply did not exist.
With regard to what did exist—the quarter of a billion pounds—I could have said, “That money’s for social care,” but local government would have said, “We’re supposed to be getting away from ring fencing—you should give us flexibility.” My decision was that it was better to put the £253 million in the general revenue account, as that would allow local authorities to spend it on social care or on other priorities as they see fit. They also have full discretion over council tax.
Our spending review outlook is determined by what we know that we have in front of us from the UK spending review, which is very tight. We can put out our assumptions only on the basis of what we know.
However, I re-emphasise the point that no Government spending review in history has ever remained as it was set out, because funding shifts. There is a Scottish Parliament election coming up, and there will be a general election in 2029, which I suspect will lead to additional funding flowing. History tells us that assumptions are assumptions, but the actual funding that is available moves significantly. I set all that out in my letter to the COSLA to provide some reassurance around the flat cash spending outlook, and I will continue to provide such reassurance.
That was helpful. It is important to understand that the amount of money that COSLA requested—£750 million, which is a high amount of money—did not exist. I also recognise what you said about the request in relation to ring fencing, which we have been involved in calling for.
Our annual conversation about how the budget figures are set out has changed in scope a little. In your statement to Parliament, you used budget-to-budget comparisons, but the budget document includes autumn budget revision-to-budget comparisons. Those different comparisons tell different stories. One paints a slightly rosier picture than the other. I am concerned that that could be confusing for the public and could inhibit the transparency—which you mentioned in your opening statement—that we are looking for. Which comparison do you think gives us the baseline for council spending power next year?
The first thing to say is that all commentators acknowledge that the local government settlement represents a real-terms increase. The issue then is whether you compare this year’s figures with the ABR figures or with last year’s budget.
The local government settlement is subject to a large number of in-year transfers and in-year funding shifts. I agree with the Scottish Parliament information centre. On the front page of its briefing, it says:
“Comparing Budget document 2026-27 to the previous Budget document, as SPICe has done in the past, we see both cash and real terms increases in the overall revenue allocation to local government”.
The SPICe blog sets out why you should not use the comparison with the ABR. There are two fundamental reasons why the comparisons are different. If you compare the budget figures with the ABR figures, you need to remember the two significant funding moves that took place in 2025-26. The first was the £144 million that was added to the 2025-26 budget for employer national insurance contributions. That was done after the budget was published. On top of that, there is the £109 million that was added to the 2025-26 budget for pay. Those additions inflated the ABR position.
If we compare it to the ABR with that additional funding in it, it gives us a different comparison than comparing budget to budget. Similarly, there will be movements in 2026-27—some of which we know about and some of which we do not—that will shift the comparator to the 2027-28 budget.
11:45
My contention is that, as the Scottish Parliament information centre has set out, because of the uniqueness of local government, we cannot really make a comparison to the ABR. I point members to table 4.15 in the budget document, which, for transparency, sets out all the areas of funding that move. That is why we have that table: instead of making a comparison to the ABR, it shows why we are saying what we are saying. We did not know, for example, when the employer national insurance contribution money would come and what level it would be. To compare it to that, considering that that funding came after the draft budget, is not to compare apples with apples. That is our position. Because of the uniqueness of the local government budget, we have done it like this for many years. SPICe seems to think that that is a reasonable way to compare.
You mentioned a table, but I could not find it in my papers.
It is table 4.15.
Do you feel that that is sufficient? There is confusion here.
We put that table in for that very reason—so that we could point to it and say, “Here is the position.” I have been really clear about the employer national insurance contribution and the pay issues. Between them, we are talking about more than £250 million. However, if we compare the budget to the ABR, those two elements—a quarter of a billion pounds, in-year—which came after the budget was published, will shift the comparison. Further, we do not know what additional funding may end up coming through in 2026-27. We have to have a fixed point in order to compare like with like.
With other budgets, it is more straightforward. Although there might be a little bit of in-year movement, it is not of the magnitude that we have with local government. It is around the edges, and that is fine. However, for local government, in-year movements are material, which is why we have tried to set that out.
The spending review shows the plans for the next three years and suggests that the local government settlement could be almost £500 million smaller, in real terms, by 2028-29. I recall you mentioning that when you were here last week. However, there are real-terms increases in other budget lines, such as health, social justice and transport. How are we going to fix what could potentially become quite a big hole? Are you imagining that more revenue-raising opportunities are coming and that councils will be able to find that £500 million?
First, let me reiterate that that is a guide—it will not be the final budget or settlement for local government. When I pointed out what had happened at the previous comparable point, which was the 2022 spending review, I said that the figure for what, at that point, was a flat cash outlook, was £10.7 billion for 2026-27, compared to £14 billion now—a difference of almost £3 billion. Obviously, the flat cash outlook that was foreseen is not what transpired. The shift might not be of that magnitude, because that also takes into account what happened when there was a change of UK Government, when the Chancellor of the Exchequer reset budgets, because they had not been set in line with inflation. That resetting of budgets was very welcome. There is that element but, even setting that aside, there would still have been a material change compared with the spending review.
The other point is that the portfolio approach that was adopted for the spending review does not take into account the impact of in-year transfers. Despite the flat cash outlook, there will be in-year transfers that make that position look different.
Finally, there is the truth that, as in the rest of the public sector, there will have to be transformation and a different approach to the way in which services are delivered. The health service is being challenged to do that at pace, as are all our public bodies. Head count will need to be reduced for operating and corporate costs.
Local government will have to find its path and look at things such as shared services. The three Ayrshire councils are very far ahead on that; they are in advanced discussions about taking a fairly maximalist approach to sharing services across the three councils. Other groups of local authorities are looking at that, too, and some local authorities provide services for their neighbours, from which there have been considerable savings. That is before we get into digital, automation and all that. We want to support local government to up the pace of change, because the rest of the public sector is doing just that.
On the areas that you referred to, we have made a clear commitment on passing on health resource consequentials. We have put in additional funding to tackle waiting lists in the national health service, and that all flows through. Our social security legislation demands inflationary uplifts to social security spending, as agreed to unanimously by the Parliament, so some of the costs are fixed, if you like.
All I can say is that we will make sure that we work with local government on all those things, but local government will have to play its part in changing the way in which things are done.
I recall that, in evidence sessions that we held before the winter break, a witness talked about the concern that, if people on the ground—our constituents—feel that they are not really getting the services, that could give rise to unrest. Do you have any concerns about that?
It is really important that services are quality and are provided in a timely fashion. We are providing £2.3 billion of funding to social care, and we are supporting the real living wage. That investment in social care goes well beyond—by about £500 million, if I remember correctly—the commitment that was made in the Parliament a few years ago on the trajectory of increasing social care spend.
I understand the importance of local services, and it is important that we work with local government to focus on ensuring that services are maintained. However, how they are provided might need to look a bit different, in the same way that all other parts of the public sector are looking at delivering things in a different way. That is just the reality of where we are. We have to ensure that we change services so that they can meet the current demands and demographic challenges. Doing things in exactly the same way will not achieve that, so that is an important component. We are trying to oil the wheels of things such as the invest to save fund; local government will get access to that, too.
We will move on to the theme of council tax. I bring in Evelyn Tweed.
Good morning, cabinet secretary and officials—it is good to see you here today. It is great to hear, cabinet secretary, that local authorities will have full discretion over council tax and that you have urged them
“to translate the settlement into reasonable decisions on council tax.”
However, it has been mooted that a fifth of councils plan to raise council tax by more than 10 per cent. What would you say to that?
As I said, I have provided more than £0.25 billion in extra revenue to support local services. I do not underestimate the challenged financial environment that everybody is facing. However, if we look at the settlements for local government over the years, that is a pretty big increase in completely discretionary and flexible funding. Actually, I think that it might be one of the highest general revenue grants—
It is the highest general revenue grant, except for last year—
It is the highest except for last year.
—in recent times.
For the past two years, we have given local government a pretty significant increase in the general revenue grant. That is where local government says that it wants the money, because it is flexible. I would hope that, given that funding, local authorities would make responsible decisions and minimise any proposed increases in council tax.
I know that local authorities will be in differing positions. We have been giving particular support to some of the smaller local authorities, which we think need to get very much into the shared services space, as they are trying to support services with a very small council tax base. There are particular challenges for the smaller authorities, and we are engaging with them directly. I would hope that we see reasonable positions on council tax, given the funding that is being made available.
Are you concerned at all about the impact on communities and households of increasing council tax at a time when satisfaction with council services is reducing?
We are very cognisant of the impact on household budgets, which is why a good part of the budget is about trying to enhance some of those supports, whether that is the wraparound services during the school day, such as the addition of breakfast clubs, or extending the school day and trying to provide support for working families without additional cost to them, which is important. We have in place many other supports—they are not available anywhere else—that are designed to support household budgets.
I should have said earlier that council tax rates in Scotland are still significantly lower than they are elsewhere in these islands. For example, our average band D property has a significantly lower council tax rate than elsewhere, and water bills are lower than elsewhere, too.
I will make a point on the survey. As I understand it, the survey was carried out before the budget, so it was forecast before the actual uplift was known. It is for councils to consider their position in the light of what they now know.
I recognise that some councils will be in a more challenging position than others, particularly those that are smaller. That comes back to my earlier point that we must look at the shape of that across Scotland and at where there are opportunities, whether we are looking at single-island authorities or at that shared services landscape, where councils can come together, share services and reduce the cost base.
Thanks for that, cabinet secretary.
We will move online. Mark Griffin has some questions.
I will stick to council tax. The Government has proposed new council tax bands for properties that are worth more than £1 million and it estimates that the costs of a targeted revaluation are around £10 million. Will the cabinet secretary set out what that targeted revaluation will look like and how it will work in practice?
12:00
The targeted revaluation is only at the higher end, to create the two new high-value property bands. That is not being done to replace the consultation on wider reform and transformation in how local taxation is to be taken forward. I am still keen to build political consensus on that—that still stands.
I guess that our policy builds on the mansion tax proposals down south. Given the different property base in Scotland, we have taken the view that it would apply to houses with a valuation of over £1 million. That would make the system fairer. We know that the difference in council tax liability is not fair, the further people go up the bands proportionate to their income. Creating the two new high-value property bands will help to make that fairer while the wider consultation is on-going.
The measure will not apply until 2028, so there is time for discussion with COSLA and local government about how it will work in practice. They may wish to consider distributional impacts. Clearly, some local authorities will be bigger beneficiaries than others. It is up to local government whether it uses a different distribution formula to take account of that, but there is plenty of time to discuss that and work it out. The revenue estimates from all that will be published once the policy is finalised, but the aim will be a fairer contribution from the highest-value properties. Local government will get to keep the money, unlike the position down south.
Thanks for that.
Sorry to interrupt, Mark, but, before you go on to your next question, I see that Meghan Gallacher has indicated that she wishes to come in on this point specifically. Or not, Meghan? Do you already have your answer?
Yes.
Super. In that case, come on in with your next question, Mark.
I completely understand the policy intent and the policy argument behind it. I was asking more about the mechanics of how the targeted revaluation exercise would be carried out. I understand, however, that it is perhaps too early to say.
I can bring in Ellen Leaver. It might be helpful if she gives a little bit more detail.
I am happy to do so, cabinet secretary.
Scottish assessors will take forward the revaluation exercise. They will look at available data through Registers of Scotland. They will also have access to information through council notices, building warrants and improvements that may have had an impact, in their professional judgment. There will be a process of notices and then a process of valuation to identify the properties. That will be undertaken by expert Scottish assessors, independently of the Scottish Government and local government, to identify those properties. The assessors are confident in their assessment of the costs of undertaking the exercise over the two-year period and in the appeals process that they have provided to us, and they are confident that it can be delivered effectively within that timescale. They will be undertaking all that detailed work over the next two years.
Thank you—that is helpful information. As the Government is now committed to the targeted revaluation, what consideration was given to a wider, full revaluation, given the length of time since the last one was carried out?
I understand that point. A consultation is on-going, which is important in relation to that wider point. It is important to reassure people on that; a lot of joint work has been done with COSLA.
The fundamental point is that we would want to link any future wider revaluation to wider reform of the council tax and the consultation on that closes at the end of this month, that is, at the end of this week. It is aimed at building political consensus around what local taxation should look like, not just among politicians—we are trying to take the public with us, too. Council tax can be pretty contentious—it has a contentious history—and we want to build consensus around what the future looks like for local taxation.
That will clearly be an issue for the next parliamentary session rather than this one, given the timeframes. However, I hope that the consultation’s findings can be provided to the next Parliament as a starting point for fresh discussions—which I hope will be on a cross-party basis—about what the art of the possible is. There have been incremental reforms in relation to second homes and empty homes, the mansion tax and so on. However, there is a more fundamental question that can be addressed only by building enough consensus. That will be for the next Parliament to do.
This has kind of been covered, but, given that the consultation ends this week, will the Government be in a position to give even interim findings from it before we break up?
I think that that would be tricky, because that information all has to be digested, but I will ask Ellen Leaver to come in on that.
The volume of responses to the previous consultation in 2023 or 2024—I might have the year wrong—on the multipliers proposal, was such that the analysis took the full period of time that the contract had been awarded for. Through the current consultation process, we have held town hall events, which are on-going, so there is a lot of qualitative analysis to be undertaken. The expectation set with the contractors is that they have until late March or early April to produce interim findings and then a final report. That would take us beyond the pre-election restriction period in terms of the ability to publish those findings. That is our expectation, but we will work with contractors to see when that report will be available and to act accordingly.
We will move on to the theme of capital allocations. I will bring in Alexander Stewart.
Good morning. Investing in infrastructure and making sure that facilities within communities are in good condition—whether buildings, bridges, roads or whatever else—is vital. The budget shows a continued reduction in capital allocation. Estimates suggest that council debt could be to the tune of about £25 billion across the local authorities. How do we ensure that facilities and infrastructure can be maintained and sustained when there are continual budget reductions in that process?
The spending review outlook on capital is very difficult—full stop. That is because there is a real-terms reduction in capital in the spending review. We cannot escape the fact that that has a flow-through to every part of the public sector; it is on a downward trajectory.
There are some anomalies in local government’s capital position. There has been one-off capital funding of £40 million for ScotWind, and funding of £20 million will continue for 2026-27. However, local government knew that that funding was not guaranteed. We are now profiling flooding funding in a way that more realistically reflects how it will be spent, because that funding was continually being underspent.
On top of that, we are trying to find imaginative ways of growing the envelope. I have been keen to open the prospect of accelerator deals with individual local authorities. That prospect will depend on their borrowing capacity and their debt levels, and not every local authority will be in the same position, but the accelerator model deal that we had with Edinburgh has allowed Granton to become a major infrastructure expansion area, not just for housing but for transport and all the rest of it. We are looking at West Lothian for Winchburgh station. We are looking at the island authorities for infrastructure investment in the Western Isles, Shetland and Orkney. I am keen to have further discussions with individual local authorities about whether we could have one or a cluster of local authorities around some of those infrastructure investments.
It is about trying to grow the pot because the capital departmental expenditure limit outlook is so restricted. We have used financial transactions mainly for the affordable housing supply programme, and local government gets its share of that in housing investment. Against a challenging backdrop, we are trying to be imaginative in the ways that we are looking at expanding what we can deliver where.
You make valid points about how you can support larger councils and, as you have identified, the smaller ones might have to share or become part of a group if they are to receive some of that support. Without it, they are very much outliers, they do not have the same flexibility and resource and they might have more debt to manage.
I accept that. We have 32 local authorities. If we were starting with a blank sheet of paper, we might not draw that situation up in the way that it is now. However, I am also conscious that, if we embark on a whole-scale local government boundaries review, with the best will in the world, it will tie us up for a decade. We could, however, accelerate the shared services space, where things happen more quickly by negotiation. In the neck of the woods that you are familiar with—Stirling, Falkirk and Clackmannanshire—there are discussions about the art of the possible around shared services. I encourage that, because it provides more flexibility and economies of scale and it also reduces the cost base. We are trying to encourage and support that type of thinking.
We will move on to our next theme, which is non-domestic rates and the 2026 revaluation. I will bring in Meghan Gallacher.
The 2026 non-domestic rates revaluation is causing considerable concern across several sectors, particularly hospitality and retail. I am wondering what the cabinet secretary’s initial response is. Even this morning, MSPs have heard from the Scottish hospitality group, which has sent a briefing paper outlining and detailing its concerns about the impact that non-domestic rates will have on the sector.
First, I reiterate that I understand some of those concerns. It is important to put on the record again that the average growth in rateable value is 12.23 per cent. That is not to say that there are not some increases that are much higher than that, but the average is 12.23 per cent. We have also lowered the basic, intermediate and higher property rates, delivering the lowest basic property rates since 2018-19.
In recognition of the concerns, we have done two things. First, we are providing revaluation transitional reliefs to protect those who are seeing the most significant increases in rateable values, ensuring that the gross bills of an estimated 60,000 properties are lower in 2026-27 than they otherwise would have been. That will smooth out the increases over the next few years, rather than it being a big bang and potentially affecting the viability of businesses. There is £184 million of investment in that alone.
In addition, there is the relief for retail, hospitality and leisure premises, which is 15 per cent for basic or intermediate property rates for properties with a rateable value of up to £100,000. That is the relief in mainland Scotland—we are going further in the islands and in some remote areas, where the relief is up to 100 per cent. For the first time, retail and leisure will also benefit from that; we previously had a relief for hospitality only.
12:15
Finally, although it is a bit opaque, you will be aware of some of the press speculation about whether the UK Government was going to move further on hospitality, given its revaluation exercise down south. The UK Government has intimated that there may be further support for hospitality. I have written again—that is now two letters—to the Chief Secretary to the Treasury to say that we need to know whether that is going to happen and, if so, whether there will be consequentials. If there are consequentials, we are looking to give further support to the hospitality sector through that process.
Taken together, we have a package of reliefs which, as I said in my opening statement, is estimated to be worth £864 million. That is substantial and I hope that there will be recognition that the transitional reliefs will go some way to smoothing out the issues for those who are facing additional costs.
Thank you, cabinet secretary. There is a lot to unpack there. I will get on to rates relief in a second.
The issue with the revaluation is that not all sectors are assessed in the same way. That has resulted, unfortunately, in hospitality businesses being penalised with extraordinary increases in rateable values. Some of the figures are eye-watering: between 500 and 800 per cent, or more. Would the cabinet secretary reflect on that?
Surely, when you are going through revaluation, the consultation has to be done across the board with the full sector. The scenario now is that you are saying that things will even out in a few years’ time, but some of those businesses do not have a few years for things to even out. What is your direct response to hospitality businesses that have not been fully considered when it comes to non-domestic rates?
I have had a lot of engagement directly with hospitality, as have ministerial colleagues. We absolutely want to hear what they have got to say. I also remind folk that this is an independent process. The Parliament agreed to and welcomed the move to three-yearly revaluations that would be independent of the Scottish Government and local government. It is also important to remember that the average increase is 12.23 per cent.
There is an issue about the methodology, which is why the review of hospitality methodology—I am not sure that that is its correct title—is under way, chaired by Brian Gill KC. That work will get to the heart of a reasonable concern that hospitality businesses have in relation to what is and is not fair, particularly in comparison to other sectors. We have listened to that concern and accepted it; the review is an attempt to make a more fundamental change.
The transitional relief of £184 million is a big investment in supporting hospitality businesses and others to not have those big costs up front. Around 89,000 properties—which is 96 per cent of all retail, hospitality and leisure properties—could benefit from having zero or reduced rates. The budget guarantees that support for three years of the revaluation. It is not a one off—it is for three years.
We will continue to discuss the issue with the hospitality sector. If any further funding comes from the UK Government in recognition of the issues with its revaluation, I will commit to further supporting hospitality with that funding. I am pushing the Treasury for an answer. Clearly, something is being discussed and it is not being forthcoming with the detail of what it is, but we will pursue the matter to find out whether it will result in further funding that can help the hospitality sector.
That is helpful. Has the Scottish Government conducted any research or done further work with the hospitality sector, because we know that, roughly, an additional 20,000 hospitality jobs have gone since September 2025 and 9,000 since the last UK budget. The revaluation seems to penalise success in that it works against hospitality businesses that have grown and have employed more people, rather than being something that they can co-operate with and move on from. Is there any analysis that would be able to measure how many jobs and businesses might be impacted as a result of the decision?
I know that I will get the name of it wrong, but we have a regular round-table meeting with the hospitality sector that Ivan McKee, Richard Lochhead and I regularly engage with. Quite often, material from the sector is highlighted, which we then analyse. We welcome the flow of information. I give the assurance that we will continue to carefully look at and reflect on any information.
The Scottish Retail Consortium has told the committee that the 15 per cent rates relief for the retail, hospitality and leisure sector that you mentioned is an encouraging start but, of course, it is less generous at every level than in England. What is the Scottish Government’s response to that? I appreciate that you have written to your UK Government counterparts on the issue but, as it stands, the offering in Scotland is less generous than that in other parts of the United Kingdom.
I will bring in Ian Storrie in a second. My understanding is that part of the issue, or the stooshie, if you like, down south has been because the Covid supports have come to an end, which is where the 40 per cent relief for the RHL sector emanated from. The sector ended up with an equivalent relief of between 10 and 12 per cent, I think, for permanent support—it is not based on the same system, but that is the percentage that it translates to. We have done an analysis on various sectors both north and south of the border and it is fair to say that our offer of 15 per cent compares reasonably well to some of the reliefs.
I should also say that the permanent change in England has been subsidised by an increase in the very high property rates in the city of London. They are able to garner a lot of additional revenue from that, but we do not have that property base in Scotland, so we could not have the equivalent. Our reliefs are having to come out of the public purse, rather than being subsidised by very high property rates. It is very important to put that on the record.
If you do not mind, I will respond to a few of the points that you raised, Ms Gallacher. The first thing to recognise is that all the valuations are undertaken by independent assessors, who use statutory guidance and case law to determine valuations. There is no political element to the hospitality valuations, as they are conducted by chartered surveyors. As the cabinet secretary said, an independent review is under way on whether the hospitality valuations are accurate.
It is important to differentiate between the changes in England and Scotland, because we have different revaluations. One of the recommendations from the Barclay review was that we should move to three-yearly revaluations and that we should adopt a one-year tone.
The tone is the date against which all values are benchmarked. In England, they now have three-year revaluations, but a different tone. The tone in England is two years ahead of time, which means that it was slap bang in the middle of Covid, whereas our tone was slightly at the end of Covid, so the change from the 2023 revaluation to the 2026 revaluation is very different in Scotland and England. When the Scottish Retail Consortium compares the offer in England, it is important to recognise that the average change in rateable value in Scotland for shops and retail is 6 per cent but the average change in England is 10 per cent. Their values are higher in the first place, so by the time that you apply a relief to the value, you are starting from a different baseline. It is therefore no longer possible universally to compare like with like.
Last week, or the week before, we published an assessment of all the rateable value changes. It is on the Scottish Government website and I am sure that we could write to the committee to make sure that you have access to it. It sets out all the different rateable value changes by property type, sector and so on. As I said, the uplift for retail in Scotland is 6 per cent, compared with 10 per cent in England. For hotels in Scotland, it is 28 per cent, on average; in England, it is 78 per cent. For public houses in Scotland, it is 15 per cent; in England, it is 30 per cent. Immediately, there is a different starting position from which to apply the reliefs, the calculations and so.
As the cabinet secretary said, the reduction in poundage and the relief in England is equivalent, depending on the tax threshold, to a relief of between 10 and 12 per cent, whereas in Scotland it is 15 per cent, albeit not to the highest-value properties. As she said, the highest-value properties in England will be subject to a supplement.
I understand that well. The issue is that businesses will be looking at where it is best for them to set up—where they will get the best bang for their buck—to be viable and sustainable and to grow. Through the non-domestic rates revaluation, potentially, particularly in some parts of the sector, the story will be of bad news rather than the sustainability and fluidity that is needed in that sector. That is my point, not from the numbers context, which is understandable, but in terms of what businesses see and how they are comparing between Scotland and the rest of the United Kingdom.
I would be interested to hear estimates of how much businesses’ NDR bills will increase next year after revaluation and new reliefs. I know that I have touched on that, cabinet secretary, but I ask just in case you have any further comment on how much, on average, hospitality, retail, and leisure businesses will have to pay. It will be good to have a comparison between the three of them.
I will bring in Ian Storrie again. The figure that I have for average growth in rateable value is 12.23 per cent, but that is across the board rather than differentiated. I will see whether there is a figure for differentiation in a second. As I said, we have lowered the basic, intermediate and higher property rates in addition.
Do we have a differentiation? Could we write to the committee about that?
A differentiation of what? Sorry, I missed that bit.
Within the percentage increase, is there a difference between retail, hospitality and leisure that may cut that 12.23 per cent?
Yes. The report that we have published, about which we will write to the committee, has a breakdown by property type.
In particular, you made a point about the average increase being between 500 and 800 per cent, if I have quoted you correctly. There are 258,000 properties on the valuation roll. A total of 112 of those have a rateable value increase of between 500 and 800 per cent. I have not done the maths on that, but it is a tiny fraction. For those, I accept that that increase might be an issue. However, the median rateable value of those properties is £2,500, so they are well below the small business bonus scheme threshold. Most of the people who are experiencing those excessive increases are doing so because the properties had tiny rateable values in the first place, and they have just stayed within the SBBS threshold.
Our report has breakdowns by rateable value type and property type, as defined by assessors. It breaks rateable values down for public houses, hotels and so on. They are all broken down very clearly, and the tables that are attached give quite a lot of extra detail.
12:30
I suggest that we write to you with the report, and perhaps pull out some of that detail and draw attention to the key points in a covering letter, if that would be helpful. It would mean that folk would not necessarily have to wade through the report itself.
That would be helpful. Thank you.
That would certainly be welcome.
We will now move on to a new theme—the Verity house agreement, the fiscal framework and public service reform—and I call Willie Coffey to ask questions on it.
Good afternoon, as it is now. Before I get to those issues, I want to ask you about the allocation to the affordable housing programme that is planned for 2026-27. From my reading of the blue book, you have allocated £926 million to the programme, which is a substantial increase on last year’s figure of £768 million; it is, in fact, a 17 per cent increase. Can you give us an indication of how that will get you towards the target of 110,000 affordable homes by 2032 that you have outlined in various Government statements?
You are right to point to what is a significant investment. I guess that it goes back to the point about choices; it means that we are putting—or, I should say, nailing—our colours firmly to the mast. I was trying to think of the right expression there.
We are being explicit about where we are putting capital, but it does mean that other areas will perhaps not get quite so much. The £926 million of capital funding will absolutely ensure that progress continues towards meeting the affordable housing supply programme target of 110,000 affordable homes by 2032. It is part of the ambitious multiyear investment of £4.9 billion, £4.1 billion of which is public investment over the next four years, with the other £800 million being levered in from the private sector for things such as mid-market rent. That will support the delivery of around 36,000 affordable homes, which is estimated to provide up to 24,000 children with a warm, safe home. It is a big deal, and a big investment.
We need partners to deliver that. Local government is clearly a key partner, as are the registered social landlords. We want the private sector to play its part, too, particularly in areas such as mid-market rent and build-to-rent properties, where there is clearly a demand and a market.
I would also point out that construction inflation is still impacting on house building, so we have to try to ensure that money goes as far as possible. In that respect, more homes Scotland, the new housing body that Màiri McAllan has announced, is an attempt to ensure that we extract best value for money in terms of land availability and economies of scale. There is a lot happening in the housing space that we should be quite excited about.
Thank you for that.
Moving on to another matter within the budget proposals, I should say that my colleagues in East Ayrshire have been pressing me to get more information, if at all possible, on the commitment that you announced on swimming lessons and whether any budget line in the blue book identifies a figure in that respect. Is it part of the overall commitment to sport that you have also announced?
I think that it is part of the overall commitment to sport. I will bring in Ellen Leaver in a moment, but I should correct myself and make it clear that this is not a one-off but a multiyear commitment. It is an important intervention with regard to safety and other such issues.
It is part of the wider sport offer, Ellen, isn’t it?
Yes, it is nested within the wider allocation for sport, alongside other things such as the extra time commitment through the Scottish Football Association. A number of things have been nested together, and an envelope has been allocated, with further discussion to take place with delivery partners about the most effective way of ensuring that the funding flows through.
As happens in, say, the child poverty space, we would expect some of that funding ultimately to flow through to programmes of work that councils might take forward, but, at the moment, it is nested within a portfolio envelope for sport—I am thinking here of the summer of sport initiative.
Similarly, when we look at the funding package for child poverty available in the budget, we see an uplift in the tackling child poverty line. Further discussion will take place with key partners about how that funding can be distributed to best effect in local projects.
But it will mean additional funding for local government that currently is not in the local government settlement. This goes back to the point that when we have policy development—whether in the child poverty space or the sport space—a lot of the funding will find its way to local government once agreements are made on delivery and what will be delivered. That is a good example of why local government funding can be more complex.
Ultimately, will the amount that local authorities wish to spend on the swimming commitment be down to them, or will you ask for that to be earmarked or, dare I say it, ring fenced?
We want to get to a sensible arrangement without too much red tape around it. We want to keep things as straightforward as possible. A lot of delivery will be done through school provision. The outcome is the important thing, and that is making sure that kids learn to swim.
On the wider issue of the part played by the Verity house agreement between the Government and local councils, can local councils see their asks in the budget? Have we seen the end of the ring-fencing bun fight for ever in this Parliament, before we both leave?
I do not know that I would be that optimistic. The figures on baselining speak for themselves. Over the past three budgets, about £2.2 billion has been baselined. That is a lot of money that used to be ring fenced and is now baselined.
There is a direction of travel, for sure, but sometimes there are good reasons for money sitting within a portfolio before allocation, because policy might change. For example, in the active travel space, the Cabinet Secretary for Transport wanted to change the way that funding was delivered. If that money had been baselined, she would not have been able to do that. There are checks and balances, and ultimately it is about finding a balance.
One of the principles on the budget in the Verity house agreement was about having an open book and being open about the challenge. I have had numerous discussions with COSLA in the run-up to the budget. I hope that one thing that it could not criticise is the process or the openness in discussions. On the £750 million ask for social care, I was clear that that quantum just did not exist—it was more than the entire resource consequentials for the whole spending review. I cannot produce something that is of a quantum that is out of the park. I had to be frank about that.
Then we went into the territory of the key asks. One key ask was for further removal of ring fencing and increased baselining, and we have done more of that. Another was for freedom over council tax, and we have done that. Another was for additional funding, which we have done through the £253 million in the general revenue grant.
Those were the key asks, and I feel that we have met them and that it has been a very open conversation. Ultimately, the response from COSLA is the response from COSLA. I think that we have provided a fair settlement in the context of the finances that are available to us.
Overall, would you say that we are in a better place when the budget is produced than we were at the start of this parliamentary session? My recollection is that there was a huge bun fight about ring fencing and arguments about allocations. Are we in a better spot?
Just before you joined the committee today, our colleague from COSLA said that he thinks that the Verity house agreement has delivered a number of improvements. We know that it is not perfect, but it is better than where we were at the start of the process, when we constantly argued about allocations and ring fencing.
I agree with that. We have taken a lot on board around the need for trade-offs between quantum and flexibility.
I am very much in favour of giving local government maximum flexibility. However, if I had my colleagues around the table, they would say, for example, that we have to make sure that social care is delivering so that delayed discharges can come down. I would also have education colleagues saying that we need to make sure that teacher numbers are maintained.
There are checks and balances, but we are in a better place. I do not know whether it will ever be perfect, but we have made significant progress. I did not hear the session before, so I am pleased to hear that there was some recognition of that.
Lots of other things are going on, which is perhaps not the headline-grabbing stuff, such as the work with the single island authorities, the accelerator deals with the islands, or the work—again, in relation to the islands—that is going on with the ferries task force.
Lots of innovation is happening that is a joint endeavour between local government and the Scottish Government. There is an awful lot going on that does not make the headlines, but that is really important.
I will ask about the fiscal framework and the role that it plays. It was published last October, but it did not have any details of rules-based funding frameworks or information on accountability and assurance and things like that. Is that yet to be developed in the relationship between—
Again, there is some progress. While we have to remove some of the ring fencing and flexibilities are important, there is recognition from local government that there also needs to be transparency and accountability on their side of delivery.
With 32 versions of delivery, as is ever the case with anything, we will have some local authorities performing better in some areas than in others. The Accounts Commission regularly gives reports on where it thinks that there needs to be improvement. The issue that comes up more often than not—I have seen the Accounts Commission talk about this—is transformation and change, the pace of which needs to be upped not only in local government but across the board.
We have more control over that pace in other parts of the public sector, but we rely on local government partners to get on with it, if you like. We can oil the wheels with things such as invest to save but, ultimately, they have to want to get into the discussions about shared services and doing things differently. As autonomous bodies, we cannot force them to do that; they have to want to do that. Again, we will not see everybody moving at the same pace with that. The Ayrshires, for example, are further along the road, and we need to see that happening in other places.
It is also a question of good practice. I will take the example of the work that Glasgow in particular has done through changes to social work services, which have led to a massive reduction in the number of children coming into care. All 32 local authorities should be doing that. If it works—and if it is so obviously delivering better results—authorities would have to have a pretty good reason as to why they would not want to go down that road and adopt those practices.
The cabinet secretary has mentioned the three Ayrshires a few times. I have seen huge improvements there over the years, and it is great to see the collaborative working and shared service thing actually happening.
The cabinet secretary also mentioned invest to save, which this committee was really keen to be extended. However, there was a wee concern about a bidding element and some councils being able to bid perhaps to the detriment of others. How would we resolve that kind of issue?
We have tried to learn about what worked from last year. The process has to be on the power of the proposition. There is no point in scattering £30 million across the place and letting a thousand flowers bloom; it has to be about those who have a proposition and can show how it could be done.
12:45
We have been having discussions with, and giving encouragement, to local authorities that we think could benefit. With, for example, the Falkirk, Clackmannanshire and Stirling scenario, we have been in discussion with the councils for quite some time and have been encouraging them to think about such an approach. After all, one of those local authorities is one of the smallest in Scotland, and it has a fragility, because of its size and capacity.
There are, for sure, some really good people within that local authority, but the issue is the scale, and there has to be collaboration with neighbours. That council is up for it, but it needs the others to be willing dance partners in order to get on with it.
There is a lot of scope here. The invest to save money is only to oil the wheels—the momentum has to lie with the local authorities themselves.
Thank you so much for the answers to those questions.
We are coming to a conclusion, but I have one very brief question to ask about the nature restoration fund and the fact that the dedicated pot for local authorities has been cut. I had a conversation with a climate scientist yesterday, who told me that, in any weighting, the nature and biodiversity emergencies need to be put at the top of the tree. I am therefore a bit concerned—indeed, I have had councillors in rural areas getting in touch with me to say that they are very worried. Because this is a dedicated pot of money, they access it in a different way from the money in the larger nature restoration fund. It would be interesting to hear your thoughts on that.
With the investments in the national public bodies, there are increases in those areas, particularly in forestry, peatland restoration and so on. However, convener, it might be best if I take that specific issue away and have a look at it, if you are happy for me to do so.
That would be great—thank you.
As that concludes our discussion, I thank the cabinet secretary and officials very much for coming to talk to us about the budget. It has been very useful.
That concludes the public part of our meeting, and we now move into private.
12:47
Meeting continued in private until 13:05.