Chamber and committees

On your point about the passing on of costs, that is a live issue that came up in our discussion last week. Developers said that, ultimately, they would have to put the cost on to house prices. Developers down south have said that, too. We will continue to discuss the matter with them. We certainly hope that any impact on house prices would be marginal, but we are keeping an eye on that. That will be part of the business regulatory impact assessment that we will undertake, which is the next phase.

Has the issue been raised on a number of occasions? Yes—particularly at the time. On the desire from local government for no further freeze in 2025-26, I have said clearly that it is part of the budget discussions. It is about a package.

In the big picture of all the things that we are getting on with in the agreement space with local government, there is sometimes a lot of focus on the relatively small number of things—some of which might be significant—where there is disagreement. I hope that, through the budget process, we can move beyond some of those issues, because a lot is being delivered, and there is a lot that we can deliver jointly.

I see Katie Hagmann at least once a week—perhaps more often than that—and my officials see their counterparts in COSLA regularly. Perhaps this is not always understood, but a lot of joint engagement and detailed work goes on.

First and foremost, let me recognise that the negotiation is between COSLA and the unions, and it is really important to abide by that principle. Although we have supported local government pay this year and in previous years, it is important to reiterate that the negotiation is between those two parties.

I would very much like to get to a position in which we can move beyond what you have described. Clearly, it has been quite a difficult year, but we have provided additional funding, which was very difficult to identify. Collectively with COSLA, we had to make some very difficult decisions about what would be paused and what funding would need to be utilised for pay. The upside is that two of the three unions have now accepted the offer, and what happens with Unison remains to be seen.

The solution is multiyear funding. One of the better things that the new UK Labour Government has announced is a spring spending review of resource and capital funding, which will trigger multiyear funding, with three-year funding being reviewed every two years. That is how the system used to work, but that has not happened for many years.

Multiyear funding is important because it can help us with so many things, including reform and the ability to reach agreements on productivity and efficiency. A multiyear envelope also helps with pay, because we can then support multiyear pay deals and, in turn, local government. We cannot give out multiyear funding unless we have multiyear funding, but if we get multiyear settlements, we can provide local government with multiyear settlements, which will enable it to get to a more productive space in relation to multiyear pay deals and all the things that come with that, such as reform and doing things differently. It is hard—almost impossible, to be honest—to do all that with single-year budgets. That is the way forward.

The last year with single-year funding will be 2025-26, and we will have to do our best to minimise the chances of industrial action, which is costly to public services. We all want to avoid that, and the longer-term solution is to provide multiyear deals.

I cannot see the UK Government reining back from what has been a clear commitment, and I think that work is already under way on the UK spending review. What remains to be seen is what that looks like. I am sure that we will touch on capital today. We have had a cut to our capital budget, which will, unfortunately, reduce our ability to spend in that area.

The spending review, which covers resource and capital, gives the UK Government an opportunity to look a bit differently at the fiscal rules, particularly in relation to capital and borrowing, which could give us a different trajectory on capital availability. I would like nothing more than that. I can assure you that, at the meetings with the Chancellor of the Exchequer, we have raised that issue and that of financial transactions. Along with Welsh and Northern Irish counterparts, I met the Chief Secretary to the Treasury in Belfast last week. We were really clear about the need for a change in direction with more resource to sustain public services and more capital to invest in infrastructure.

We need to wait and see. I do not think that there will be any change to the principle of doing the review. The uncertainty is about what pops out the other end. We will be trying to influence and engage with all that as much as we possibly can.

I raised the importance of city deals and growth deals with the Chief Secretary to the Treasury. A couple of deals in Northern Ireland are also in that position. Clearly, there is a lot of anxiety locally about the deals. It is really a matter of timing. The deals that had already been signed were fine, and those that were in the process of being signed—which, in Scotland, captures Argyll and Bute—have been put on hold due to the budget and the spending review. We have said that it was really important that we give certainty to communities. We have already said that our share, which I think is £25 million, is there for the growth deal. Our call to the Chief Secretary to the Treasury was for the deal to be expedited as a matter of priority, because it needs to be resolved and certainty needs to be given. We have made our position clear and we will continue to pursue the matter.

We are not complacent but, to look behind and underneath examples of English local authorities going bust, some related to ropey investment decisions that were made without due scrutiny or oversight. The construct of the ability of English local authorities to do that is a bit different from the situation for Scottish local authorities.

There is a debate about the general power of competence. There is also a debate about giving local government more fiscal powers, as we want to do. All of that has to be done within a prudent framework, because we have to make sure that we work under the same requirements.

Although no limits are set by the Scottish or UK Governments on the amount that a Scottish council can borrow, a council is under a statutory duty

“to determine and keep under review the maximum amount which it can afford to allocate to capital expenditure.”

It has to be able to pay for what it borrows, and it has to have regard to the CIPFA prudential code. There are requirements. Councils are also required, before the beginning of each financial year, to set authorised borrowing limits for a three-year period. There is a level of scrutiny, including through the Accounts Commission, Audit Scotland and so on.

The short answer is that I feel that we have a more prudent set of frameworks, which will prevent some of the more extreme cases that we saw down south. However, we must be vigilant, and we continue to work with local government on getting the right balance between meeting aspirations for fiscal powers and ensuring that that is done within a prudent framework.

I am not aware of that ever having happened, but I would like to think that we would get intel that there was an emerging problem before it did. I would also like to think that the lines of communication are short enough between the Scottish Government and local government to prevent such situations. That is perhaps a bit different from the situation down south. The size and scale of government there might mean that the lines of communication are not as short.

I think that, if a problem was beginning to emerge, we would be well aware of it prior to the point of having to step in. I mentioned the Accounts Commission. It might highlight to us concerns about the financial position of a particular local authority. I think that the issues would be brought out at an early enough stage to do something about it. However, you would then have to deal with what that something would be. There is the funding formula for local government, which is basically an agreement among 32 local authorities. Touch wood, we have not had a council on the verge of bankruptcy. We would want to ensure that we work to avoid that, through the prudential framework and the work of the Accounts Commission.

Let me first recognise that a large chunk of the reserves are committed. I am not going to disagree with that point of principle.

I have a couple of observations. The reserve balances are not equally spread. Some local authorities have hardly any reserves, while others have quite significant reserves. There is a range of reasons for that, a lot of which are Covid related. You will notice that the reserve balances are considerably higher than the pre-pandemic levels, because of the additional funding that went through local government during Covid. Again, it is a point of principle that decisions on the use of reserves are the responsibility of councils, and they should use those where it is prudent and sustainable to do so.

However, the other point that I would make is that this is all public money. We all have an interest in ensuring that public money is utilised in the best way. Some local authorities are using their reserves to drive reform and to change the way services are delivered, and that sometimes requires investment. We understand all of that.

Reserves are part of the picture, and we would want and encourage local authorities to deploy reserves in a way that is prudent and responsible and that makes the best use of public money.

Yes—it is quite hard to navigate. The more transparency there is, the better, when councils are announcing what they are going to do, whether that is transforming a service or implementing a project. Bringing everything to the fore would probably be helpful.