Local Government and Communities Committee

Meeting date: Wednesday, November 22, 2017

Official Report 706KB pdf

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Draft Budget Scrutiny 2018-19

Under agenda item 2, the committee will take evidence on the Scottish draft budget for 2018-19. I welcome Councillor Gail Macgregor, the spokesperson for resources, and Vicki Bibby, the chief officer, local government finance, from the Convention of Scottish Local Authorities, and Paul Dowie, director of shared services, from the Improvement Service. We have a couple of opening statements, the first of which is from Councillor Macgregor.

Thank you very much, Bob. Graham Simpson assured me that you are a kind bunch and that you will be gentle with me because I am giving evidence for the first time. I will hold him to that.

Thank you for inviting me along to give evidence in the run-up to the budget. Obviously, it is a difficult time for local authorities and the issue is of great importance to me not only in my role as the COSLA resources spokesperson but as a councillor and, most important, as a citizen and a member of the public. It is essential that we recognise the vital services that local government provides to communities right across Scotland. Many of you in this room have been councillors and have been at the hard end, so you will understand the challenges that we face.

We have produced a document entitled “Fair Funding for Essential Services”, and the key message that we set out in our written evidence, which I think you have a copy of, is wider lobbying around this year’s spending review. We are here to champion local services and, I hope, gain some support from you for our joint work with local government and the Scottish Government. I very much welcome the discussion today and will offer any information and evidence that I can. I am quite new to my role, so I may defer to Vicki Bibby on occasion when the discussion gets technical. She will keep me right.

We recognise the tight financial environment that we are in—we will get the details of the Scottish budget later today, once the chancellor has made his statement—but, if we are serious about tackling inequalities in Scotland and promoting inclusive growth, we must have a properly resourced local government that delivers the essential services that we have set out in our document.

There are big challenges ahead. As I say, we must all work together, but we face pay inflation and ever-increasing demand for services. Reduced funding is a reality—we know that. Restrictions on local taxation are still an issue for local government, and how we tackle that and remain sustainable will be a massive challenge. The problem is exacerbated in the short term by one-year budgeting. Gone are the good old days of two and three-year budgets, and one of the big challenges that we have now is in working from year to year. I welcome today’s discussions in the hope that 2018-19 will address some of the issues that I have raised.

Thank you for the welcome and the opportunity to participate. In the written evidence that we have provided, we echo a lot of what councils and COSLA have said in their submissions. As part of this conversation, we will draw on a range of resources that show how local government is responding and the type of things that it is doing.

There is scope for further improvement and innovation. A number of councils have highlighted their work particularly on the digital side and how we might prosper in a digital world, in terms of internal and external self-service and how we can engage with communities differently and make best use of the assets that we have. In their submissions, people refer to how sustainable those approaches are. Although the Improvement Service believes that there is an opportunity for service redesign and transformation, that will require leadership, capacity and people and investment.

The past five years have seen a significant flattening of structures and a broadening of management portfolios, which has caused issues around sustainability and resilience to arise particularly in unprotected and corporate services. That is highlighted in a number of submissions.

Local government has collaborated in the creation of shared capacity through the digital office, work on the roads collaboration, the northern alliance and things like that. However, all those collaborations take time to lead and to put in place, and they require up-front investment. That can be hard to find when short-term deficits have to be met and budgets have to be balanced.

We have highlighted that, alongside scope for improvement and innovation, we are trying to get to a position where local government has true flexibility and—as has been highlighted by the commission on strengthening local democracy in Scotland—a range of additional fiscal capabilities so that we can have truly local choices.

Thank you for those opening statements. Our first question is from Graham Simpson.

Thanks for coming. Local government has, for many years, complained that it does not get enough money from central Government. This year, you are arguing that you need a revenue increase of £545 million just to stand still. Can you explain what that figure is based on?

As you know, local government feels that it has been the poor cousin in the public sector arena. Over the past few years, with budget cuts, we have reached a pressure point. The reality of the £500 million that is required just to stand still is encapsulated in the fact that the inflation rate is 3 per cent and the fact that we are finding it increasingly difficult to deliver demand-led services with the budget that we have and the pressures that come with that. Vicki Bibby might be able to give you a more technical answer, but the main factors are inflation and the additional demand for services, such as care at home, childcare and suchlike, that we are having to provide. If we do not get additional funding for those services, we are going to be in a very difficult position.

Does Vicki Bibby want to add to that?

Yes. I will explain how the £545 million is made up. As councillor Macgregor says, over half of it—just under £300 million—is based on inflation and £250 million of it is based on demand. We have worked closely with the Improvement Service, the economists and the statisticians to look at trend data and have built up a substantial piece of forecasting work that we have worked on with directors of finance. That model has been in place since 2012, when COSLA worked on the strategic finance review group model that produced the gap. We have been updating that every year to highlight the continuing demand for services.

I do not think that we are calling for an extra £500 million explicitly; the purpose of our submission is to highlight the fact that we would require an extra £500 million just to continue to deliver the services that local government is delivering at the moment. It is a recognition, just as a starting point, that local authorities have that budget gap to address through efficiencies and transformation.

Does Paul Dowie you wish to add anything?

No.

I am a little bit confused by that. You are saying that you want no more cuts to the revenue settlement. However, in order to have no more cuts—for example, to stand still—you need an increase, but you have just said that you are not calling for that. Which is it?

We are calling for a fair revenue settlement for local government. We are trying to say that, before any cuts to the settlement, local government is wrestling with a £500 million funding gap.

What would you regard as a fair settlement?

A fully funded budget.

Would that mean £500 million of extra funding?

In a perfect world, yes. We will come on to the other challenges that we will face if we do not have additional funding in the budget. That would cause massive pressures in other areas, but we will come to that later.

In your written submissions, you both refer to the restrictions on spending. COSLA says that 58 per cent of councils’ budgets cannot be reduced. The Improvement Service put the figure at over 60 per cent, but you are making the same point that there are restrictions on what councils can spend. COSLA’s submission says that just 42 per cent of the budget has to absorb cuts, which means that an 8 per cent cut in resources results in a 20 per cent cut in services. Should there be fewer restrictions on spending?

There must be greater trust between local government and the Scottish Government. I have been involved in some good discussions with Derek Mackay recently, and I thank him for that. We have had some frank and open conversations about trust and what the Government will allow local government to take a little bit more control over.

Historically, we have ended up with an awful lot of “over and above” initiatives that are not contained within the core settlement, which has led to the imbalance, with 58 per cent of local authorities’ spending now being controlled through sanctions or other stipulations. There are many things in the budget that could have caps or sanctions removed if there was a little bit more trust in local authorities. We are all in it for the same thing—we are not here to cut services and we do not want to lose staff; we want to empower our staff and provide better services for the public. I believe that the Scottish Government wants those things as well. However, while we have sanctions in place and Government priorities that do not allow us to play with our budget a bit more, we have reached a situation in which it no longer trusts us to deliver what we know we should be delivering.

It is important to get the message across that discussions are taking place and are very positive, but actions will speak louder than words. The Government needs to give us just a wee bit more autonomy back, to allow us to manage our budgets. As you say, we have only 42 per cent of the entire budget to play with, and only a third of the education budget. That leaves us really strapped as to the decisions that we can make when we start to look for efficiencies, as we said earlier. It is great for BBC-headline-grabbing initiatives to be announced, but it is we who bear the brunt of delivering those.

That links to the point about transparency that the committee has made in the past. Glasgow City Council’s submission talks about some of the less explicit impacts of some of the constraints—for example, on teacher pay and things like that. It is not just about major new initiatives coming in and how they are funded; it is about teacher numbers and things that will have an impact on the flexibility that councils have.

11:30  

Mr Dowie, in your submission you say that the total current spending by Scottish councils has reduced by 11 per cent in real terms over six years. Last year, when we were doing this exercise, one of our conclusions was that there should be much greater transparency around the local government settlement. We struggled, frankly, to get straight answers from anyone and the picture was confused. What would you do to make things clearer for us, for you, and for the general public?

A lot of work is going on within individual councils in terms of presenting their budgets, what is in their budgets and how their budgets are formed as part of the consultation exercise that they undertake at the moment. There is also the work that we do at a national level, which is about greater collaboration and sharing around how we construct the profiles that are used in the discussions that we have, which are common sets of assumptions that we use across the partners in local government.

Councillor Macgregor, do you want to add to that?

I believe that local authorities are good at consulting their local people. That has improved remarkably over the past five to seven years. At a local level, the consultation goes out usually pre-Christmas or pre-December.

The difficulty that we have at the moment, particularly in respect of transparency for people like yourselves, is that a late autumn statement from the UK Government impacts on the statement from the Scottish Government. Whereas, three, four or five years ago, we were able to start to set budgets in December and almost had them tied down by February, we are now looking at that process trailing into the following year, which will cause a bit of a challenge for us regarding transparency for the committee. Nevertheless, at a local level, we are very good at consulting the general public. We are just going to have to do it a little bit later and in a slightly tighter timeframe than we have previously had to do it.

Does Vicki Bibby want to add to that?

On variations in the budget, it depends on whether you use the draft budget or the actual budget. The key thing for local governments and their core funding is the local government finance circular. It is not easy to tally all these things together, but we are working closely with SPICe and speaking with Scottish Government officials to come up with a common set of presentations that will help everybody to understand the true picture.

That is exactly what we were calling for last year. Let us hope that it happens.

One of the issues that we had last year, when we were trying to scrutinise budgets, was that some people were including moneys that were transferred via health and social care integration, which was £250 million of support for local government, half of which was for care sector wages and the living wage, whereas other politicians were not counting those moneys. Some politicians were counting support for local government through pupil equity fund moneys, whereas others were not. We found that the numbers changed very quickly depending on what moneys we were looking at.

I am not trying to undermine in the slightest COSLA’s assertion that there is a £545 million gap; I am just trying to understand whether that figure takes into account moneys that local government receives for things such as health and social care integration and PEF as well as moneys that it receives through council tax increases. Or is the £545 million a stand-still figure that is based solely on the revenue grant?

My understanding is that the figure is based on the entire budget and on the assumption that everything that we are already doing—whether it be social care, PEF or any of the other things that we have had to implement over the past two years—requires to continue. Assuming that those things are going to continue as they are, the figure represents simply an inflationary and demand-led increase. It does not include any additionals; it is what we require just to continue to do what we are doing.

On top of every penny that you got last year, you would need £545 million just to do the same again.

Yes.

That is what you would need, irrespective of where it came from.

Yes.

Would that include giving a wage rise to all your staff? Would that be part of the £545 million?

The figure takes account of the inflation rate, so the uplift in the living wage is taken into consideration. We are going through some fairly extensive negotiations in respect of the public sector pay cap being lifted, and we were going to go with that, but most authorities have contingencies for a wage uplift at the 1 per cent rate that we have at the moment. As we move forward, we will have to look at additional funding for a greater increase.

Is the figure of £545 million based on a 1 per cent pay increase for all your employees?

Yes, at this stage.

It is based on a general inflation rate of 3 per cent.

The figure of £545 million is based on your giving every local authority worker a 3 per cent wage increase. Okay. I am just trying to nail down some of the figures. That is helpful.

We are giving them a 1 per cent increase at the moment, and the assumption is that that will continue. However, with my employer’s hat on, I can say that, going forward, we are looking at an inflationary uplift following negotiations. That is not agreed yet, but it has been factored in.

Have you factored in the baselining of the health and social care integration moneys that you got last year, or have you taken that money back out again?

The model takes the current funding and says, on the basis of inflation and the demand that we know exists from the modelling work, how much money local authorities would need just to do what they are already doing. The figure of £9.64 billion does not include health and social care integration money. If we included that money, the starting point would be higher, so applying inflation at 3 per cent and a 2.5 per cent increase to reflect increased demand would give a higher end figure. It is an illustrative model that shows the impact of inflation and demand pressures on the budget.

Andy Wightman is being patient, although he is champing at the bit to come in.

So, the figure does not include the health and social care integration money that integration joint boards are spending pretty much on social care provision and wages. Would you not take that £250 million off the figure of £545 million if that money, which you have taken out, was going back into the system?

No. We would add the £250 million to the 2017-18 figure and inflate that £250 million by 5.6 per cent then add that 5.6 per cent of £250 million to the 2018-19 figure, so the final figure would be higher than £545 million.

But that money is baselined. We will clarify that.

Yes, I am happy to do so.

My understanding is that that money is now baselined into the settlement for local authorities, irrespective of the fact that it is transferred via the national health service.

But we have taken the local government finance circular. We have not included that money in the £9.64 billion, so we have not included what would be required for inflation on that figure.

I think that that illustrates the need for all the figures to be made available at the same time, for transparency. I want to ask more questions, but I am not sure whether I am right or wrong, so I am not going to ask any more.

I am glad to hear from your response to Graham Simpson’s question about transparency that you are having productive discussions with the Scottish Government and SPICe because I think that that is absolutely vital. It is really important for the public to understand that there is a local government settlement and what that is, and then that there is health and social care money and so on. I am very encouraged by that. I really hope that that makes progress this year.

I have a number of substantive questions, but first, on the £545 million, I have a question of fact. Where does the inflation rate of 3 per cent come from? Normally, a gross domestic product deflator for broad costs in the economy is used, and that is 1.8 per cent. I have not looked at that in detail, but it is much less than 3 per cent. What is the 3 per cent?

It is CPI, at the moment.

CPI is the consumer prices index—it is the based on the cost to consumers. That is not normally what is used to calculate increased costs for public sector budgets. Normally, a GDP deflator is used. Am I not right?

We look at the retail prices index as well. RPI has historically been used, but over the past few years, there has been a shift in public calculations to more use of CPI.

Okay. I just wanted to clarify that you are using CPI.

I am interested in the Improvement Service’s paper. It refers to the fact that the Accounts Commission forecast an 18 per cent cut to local government in real terms over the next four years. In the evidence from COSLA, we see that Aberdeenshire Council and others are putting forward five-year projections for their funding over the next five years. That is against the backdrop of not having any formal multi-year funding settlement, but I presume those projections are based on projections from the Accounts Commission—as I have just indicated—and from the Fraser of Allander institute and so on. Is there not a danger of getting into a self-reinforcing cycle where forecasting is done on the basis of declining budgets or budgets that are based on Government cuts?

What is reflected in the Aberdeenshire figures—this partly links to the discussion that we have just had—is the question of how we get to a sharing of assumptions and the fact that it would be good to have some common assumptions that everybody is working to. I hope that the debate will move on to considering how the scrutiny process works in terms of those assumptions, making sure that we do not just accept them and instead challenge them, and that long-term planning will become as important as the individual year’s budget.

Okay. Would COSLA like multi-year budgets?

Ideally.

We have just had an evidence session on city region deals for which sums of money—they are modest sums in the bigger scheme of things—have been put on the table for 20 years, and we heard from the cabinet secretary that that money is factored into a long-term budgeting commitment to bind future Governments. That is quite interesting.

When it comes to planning, designing and changing services and creating efficiencies in order to deliver against projected demand increase, how important to local government is multi-year budgeting as opposed to uncertainty about how much resource is going to be available?

It is enormously important. I do not think I can stress enough how important it is. We would love to be in a position in which we were guaranteed some form of funding for big capital projects over a 25-year period. The reality with local government is that, due to the revenue-based nature of the services that we deliver, we have seen the pinch. We have done our efficiencies over the past 10 years and I think that we are reaching a stage at which efficiencies are not going to be able to go much further. Audit Scotland has come down quite hard on us in the recent past for our planning assumptions, and it was absolutely right to do so. In an ideal world, from the perspective of both revenue and capital, we have to start to look at having a better long-term vision, particularly in respect of social care and the delivery of childcare, for example. Again, that has to be a collaborative approach, working with the Scottish Government and the UK Government. Those are long-term projects and we are working year on year on year just to keep our shoes clean.

Multi-year budgeting is incredibly important for us, but it is absolutely right that we look to the Fraser of Allander institute for good, independent external advice to assist us, and it is equally right that Audit Scotland comes down on us when we do not do things right. However, we have to make it better and that has to be done collaboratively.

This is not just about infrastructure in the sense of roads and bridges. The key point is to do with the medium to longer term. The shift to prevention, if we are going to do it, requires investment. There is an upfront cost to managing services as efficiently as we can today while thinking about new approaches. With shared services, if we want to collaborate more and change structures, time and investment will be required. Without a longer-term plan, how can we sensibly plan for getting a return on and being able to pay back the investments that we make, or think about whether to make up reserves or plug gaps in future revenue and capital budgets? A broader approach that looks at the full range of possibilities is required.

The pupil equity fund is a good example of that. When that was given to us last year it was a one-year system. We have initiatives where we do not look at the outcomes and what we are trying to deliver at the end. We do not have a guarantee that that funding will stay with us for ever. We all want to look for better outcomes for pupils who are struggling, and I am not convinced that that model is the best one. There is a big discussion that we have to have. If we are going to improve pupil attainment and bring kids out of situations that are very difficult for them, that has to be part of a wider family approach—it cannot be done just through a targeted fund. There may be better ways to do it, and that is the discussion we have to have. Also, it cannot be a one-year system. Those kids are not to going suddenly and miraculously have fantastic outcomes in a year’s time. It is a really good initiative—it is a good idea—but it needs a five-year or 10-year plan to work. That is just a tiny little example.

11:45  

Finally—I am aware that colleagues have questions, so I will be brief—would you find it helpful to have a fiscal framework for local government? The UK and Scottish Governments have a fiscal framework with rules about the impact of spending so that at least we know what happens when each party does something. Would that be helpful? Also, how important is more fiscal autonomy?

The answer to the first question is yes, absolutely—a fiscal framework would be very helpful.

Fiscal autonomy is a very difficult issue. Obviously, we believe that we are the best people to determine how to do what we do at the local level, but that has to be done within a larger framework. I completely understand that, which is why I am saying that we have to work with the Scottish Government and the UK Government. Autonomy is great, but it has to be under something wider. I am not entirely sure that local government has been given the credence that it deserves at times, either. We feel like the poor cousin, and perhaps we need to bolster our structures. As you say, a fiscal framework would certainly assist with that.

There were some nodding heads when I checked this with colleagues, but our understanding is that the pupil equity fund is a multi-year agreement. It is not for one year, but will run for this session of Parliament.

Yes.

One could contend that any Government is only really in control for as long as they control the Parliament—

But the local government settlement is not for this session of Parliament—

You are absolutely right, but perhaps the PEF money was not the best example, because it is guaranteed for this session of Parliament. Is it COSLA’s position that the PEF is so significant that the Parliament should lock in PEF moneys for a decade or beyond and give a guarantee of those moneys going straight to headteachers? Would COSLA support that?

No. I am using the pupil equity fund as an example of something that has been introduced in the recent past and that we are very much in the early stages of. As you say, it is for this session of Parliament, but our local government settlements go from year to year, and if we are looking at longer-term outcomes and targeting funding, which is absolutely essential in relation to the most vulnerable people in our communities, we have to look at a longer-term approach. Those kids are not in the school for two or three years; they are in the school for six years if they are in a secondary school, and seven years if they are in a primary school. Their outcomes are not suddenly going to turn round overnight. It was just one example of funding that is looking for a specific outcome. There needs to be a wider discussion about how we get to that outcome. There also needs to be a discussion about whether the current structure is working or whether we could be doing it better.

I know that it was supposed to be just an illustrative example; I am trying to infer from your answer whether you are supportive of the fact that it is a multi-year commitment from the Scottish Government. Does COSLA support the PEF as a multi-year commitment from the Scottish Government?

At the moment, the pupil equity fund is only for this session of Parliament; it could stop in two years’ time.

Well, let us not get into the realms of elections. Would you welcome the PEF being locked in for future sessions? Would you welcome, say, a 10-year cross-party agreement in the Parliament to lock in the deployment of money to headteachers to tackle the poverty-related attainment gap?

Not necessarily; I think that what we need is confirmation of future funding for such projects. They are put in but not necessarily baselined for the following year and the year after that.

My point is that you have that for the PEF, Councillor Macgregor.

It was just one example.

Okay. That is fine. We will move on.

There is no doubt that, as Councillor Macgregor has indicated, local government has seen itself as the poor relation over the past decade or so, in relation to the funding that they have asked for but not received. When we consider where we are going at present, we really are now looking at unavoidable choices in reducing services and facilities.

Every council has a financial plan—a short, medium and long-term plan. Audit Scotland has looked at some of those plans, and a large number of councils are still not getting a tick from Audit Scotland for strong financial management. As Councillor Macgregor indicated, sometimes Audit Scotland comes down hard on local government—that is the reality. How can a council think about improving services, rather than just maintaining them, if they do not have that strong internal financial management?

I do not think that that is what Audit Scotland is asserting. There is very strong financial management in councils. In its overview reports of late—and one on local government is to come out very shortly—it has commended the management of local authorities. It has commented that there should be better longer-term financial forecasting, and I think that that is accepted, but it is difficult to do that with one-year budgeting, as Councillor Macgregor highlighted. Audit Scotland is asking local authorities to plan and go out to budget consultation on the basis of a range of assumptions, and councils are increasingly doing that. There is a host of scenarios, which all need to be resourced. The focus of what Audit Scotland is saying about improvement is more to do with long-term financial forecasting. It has commended the financial management of local authorities and how they have managed to balance budgets in very difficult circumstances.

I turn to how councils manage contingency and reserves. In the past, they tapped into their reserves to try to alleviate some of the situations that they found themselves in. However, their reserves are now being eroded and they are left with very little room for manoeuvre. Where do you see that going if there is no longer that manoeuvrability and councils are looking at long-term financial management but are not able to manage because they do not have the resource?

I know that reserves have been the subject of quite a lot of discussion with the committee in the past. Councils have used reserves to smooth budgets and invest in transformation programmes in recognition of where public finances have been going. We try to highlight that in our submission. Local government has done a lot and managed with the finances as they are, but the sustainability of that approach is very much diminished. There is not as much scope—the upcoming overview report by Audit Scotland will show that reserves are going down.

Does anyone else want to come in? Some members want to move on to look at the housing budget, but I want to mop up all the other things first.

I am keen to look at look at public finances.

One of the reasons why we do not have multi-year budgets is that the Scottish Government does not really know from year to year what its own budget is going to be. That is a significant part of it.

I want to kick off with a quote from the Improvement Service submission. I think that it is important to get it on the record. The submission says:

“councils have achieved substantial improvements in efficiency, innovation and productivity while service output and outcomes have been maintained and improved”.

Therefore, there is a recognition that councils are doing a lot with less.

However, the Improvement Service concludes that

“There are insufficient resources in the whole system to maintain current services and entitlements in line with demand. The Scottish budget has declined in real terms across the last five years and is currently projected to fall further.”

Given that consideration, how realistic is it to suggest a sum as high as £545 million when we all know that the pressures on the NHS, for example, are growing faster than the pressures on local government?

You make a very good point. I am not going to get into a discussion about local government versus the Scottish Government versus the UK Government. We are where we are. This goes back to my earlier point, which Andy Wightman picked up on: we have to start to work together more and stop blaming each other. That would be very constructive.

I cannot make any great comment on the Scottish Government’s budget. I am here to represent COSLA. As the Fraser of Allander institute has shown in a fairly recent report, the reality is that the Scottish Government has had increases in funding in real terms, whereas we have not. We have seen a real-terms decrease in our funding. That is a reflection of the Scottish Government’s priorities, and that is its decision to make. I am here to fight for local government, to ensure that we get fair funding for local services and that we are able to continue to deliver what is absolutely vital to our communities. However, I am not going to get into a discussion about who does what to who. I do not think that that is constructive.

I chaired the Finance Committee for five years and one of our rules was that when someone said we should increase money, we said, “How should it be funded?” If anyone says, “Give us more money”, they have to say, “We think it should be funded by higher taxation, reducing funding for other areas of Scottish Government” and specify what those areas should be. It is a bit hollow for someone to ask for additional funding, no matter how sympathetic we are to that, unless they also suggest how we should raise that money and where it should come from.

I completely appreciate that and that is why COSLA has has a position on issues such as local taxation. It might not be terribly palatable to some politicians, and that is entirely okay, but there is a recognition that local government needs to be able to raise its own funding. It should not always have to look to national Government for funding. If local authorities had enough autonomy to put in a local tax of some sort, or to work outwith the cap, they would be able to take a bit more responsibility for their own funding sources, and they then might not always have to ask the Scottish Government.

I understand that, in respect of the settlement for the current financial year, eight local authorities—all Labour-led, incidentally—did not put the council tax up after a nine-year freeze. Does that not make it difficult for COSLA to suggest that the Scottish Government should give additional funding when some of its member councils are not increasing council tax, even after a nine-year freeze?

I have another point on autonomy. The historic concordat of 2007, as it was called at the time, was an important step in abolishing ring fencing. I take your point that some ring fencing has crept back in, but COSLA is being a bit contradictory because you are effectively asking for ring fencing by suggesting in your submission that there should be no more cuts to the revenue settlement—parity with cash increase for the Scottish Government—which would reduce the Scottish Government’s manoeuvrability. Because of our ageing population, the NHS under devolution has increased its share of the Scottish settlement from 36 per cent to 43 per cent. You cannot ask the Scottish Government to reduce ring fencing or to say how money should be spent, at the same time as effectively asking us to ring fence a chunk of the Scottish budget, whatever the share is for local government, at this point.

There is a lot in that, Councillor Macgregor. You are, of course, entitled to ask for whatever you like; we are just analysing those asks, so you could make some observations on that.

It is absolutely reasonable. As you say, convener, there is quite a lot in there.

For us, it comes down to local government having additional flexibility to make local decisions. As you well know, we have a lot of initiatives that are ring fenced, such as teacher numbers. I will not go through them; you know them all.

I do not know any Government or any elected politician from any Government, that wants to sack teachers or anything like that. We are here to deliver services and empower the workforce, and that applies across the sector. However, we do not have control over or say in what we do with almost 58 per cent of our budget.

Of course, some of what we have to do is statutory, but some of it is ring fencing that was supposed to have been taken away 10 years ago, and that ring fencing has increased to the detriment of our core budget. The core budget is the element that allows us to deliver employability and skills, to boost our local economy, to bring in greater revenue opportunities and so on. Those areas could be hit if we cannot make more autonomous decisions in other areas.

Only seven local authorities did not move the council tax. I cannot speak to what they will do this year, but again there are huge disparities in council tax across Scotland. Some local authorities, quite rightly at the time, kept the council tax levels low while others put them up. When the freeze was put in place, it put those that were on a very low rate at a huge disadvantage. Maybe we need to look at the cap and how that is delivered. It comes down to trust and communication, which is what I am engaging in with Scottish ministers in trying to find more resourceful solutions to ensure that local government gets a good settlement and that the Scottish Government can support us in that.

I completely agree.

We need to have a debate about more flexibility, and about having more or doing less. We also need to make that a good discussion at the local level, and one of the places where it can take place is through community planning. All councils and partnerships have just created their local outcome improvement plans. That is not the whole answer but how we make better use of the shared resources we have at a local level in identifying some key priorities will be at least part of how we move that communication forward at a local level. I do not think that is going to solve the problem, but it is going in the right direction and we are getting to the point at which we might see to some tangible joint actions in more areas across Scotland.

12:00  

That is fundamental. One of the issues, of course, is that ring fencing has increased from 2 per cent to 10 per cent because the Scottish Government agreed with local government that it would provide additional money for things like free personal care, teacher numbers, and so on, and some councils decided to spend it on something else. The trust element was slightly lost there.

Regarding the point that Mr Dowie made, when the Accounts Commission was before the committee, it said that one of its concerns remains that, even in local authorities that are similar—two urban local authorities, for example—there can be quite significant differentials in the costs of different services that look similar in the view of the Accounts Commission. The Accounts Commission has said it is grappling with that. We are not talking about differences of 5 per cent or 10 per cent; sometimes it can be 50 per cent, or double the amount. What is local government doing to look at best practice in relation to service delivery so that the margins of service delivery are reduced and we get more efficiency with what is likely to be not a great settlement for local government, despite all the discussion we have had today?

The collaborative work that has been done around the local government benchmarking framework is getting deeper. We now have six years’ worth of data. Family groups of similar councils are talking to each other. There have been thematic workshops around looked after children and economic development, and reports will be published soon about best practice, the reasons for the differences, and what is driving those differences. Local government is getting better at understanding the differences and sharing what is driving them, what is good practice, and what is working around that. That is a golden thread that is running through what we are trying to do now.

I have been looking at the figures and doing some sums. I notice that you have added inflation at 3 per cent or £297 million; it is £289.2 million by my count, but I assume that some of that is to do with the living wage.

The £70 million a year represents a 1 per cent increase in salary, and the total cost of that would be £210 million. Is the £210 million set against the £297 million? Is it part of the £297 million? I am asking because local government also has other revenue sources, such as, for example, a 3 per cent increase in council tax next year that would provide another £62.25 million, and charging, which of course would provide even more for local authorities, would increase the total to £168 million. Have you put into your request for additional funding all the inflationary pressure caused by an assumed 3 per cent wage increase on the £9.640 billion, or is that in the overall local government settlement? If it is in the overall local government settlement, that would mean that £255 million of inflation in other areas of local government has not been detailed.

The £9.640 billion is not total spend; it is grant. Spend is significantly more, at £12 billion. I could run the figures for total spend and inflate that to what we would need for spend in the future. This is focused on—

I am sorry to interrupt but you said £12 billion. The submission says £15.3 billion.

I will let Vicki Bibby respond again, but we have to move on shortly.

Maybe this is something we can follow up on because it depends on whether you want to include the housing revenue account. You can include a host of different elements of spend, or not. The quick answer is that the spend does not include charges, but you could inflate charges on top of that.

It might be useful for the committee is if I run figures on the total expenditure and break that down similarly. This was on the grant element.

Yes. Thank you.

As part of that, could you go back to the original question about where integration funds would sit within that.

We will do that for you.

It is a reasonable observation. I have been in the Scottish Parliament for 10 years now, and it is all part of politics. Governments like to make the funding of councils look as generous as possible and councils like to make it look as bleak as possible. Behind the scenes, negotiations go on and then we add the politics on top of that again. We just want a bit of transparency in the figures and we genuinely struggle with that, so any additional information would be welcome.

Does anyone else have another theme to ask about before we move on to the final line of questioning, which is about housing? I am conscious that we have not yet asked about service redesign. I want to make sure that we get some evidence some of that on the record. Are there examples of good quality service redesign and would reserves have been used for that, rather than being used to plug gaps in other spending? These are challenging political and financial times for local governments, so we have to see some good quality evidence of service redesign taking local authorities forward.

It is not that I wanted to ask that question, colleagues, but we have to ask it as part of the process.

Does anyone have any comments on that?

There are some general references within the evidence to work that Glasgow and Renfrewshire and other councils have done.

I have a couple of examples. One example that ties in with digital and internal transformation leading to service transformation, is the work that Fife has done, particularly during the past five years. Fife looked at its asset base with regard to mobile and flexible working. It reduced the number of office locations from 90 to 30 and it has generated about £20 million in savings for an investment of about £6 million. That has transformed the efficiency of all services and how all staff work. Recently, Fife Council moved that into the care at home initiative, and now, with the same workforce and the same investment that it put into transformation work between 2010 to 2015, it is getting 1,400 visits per week compared with 1,100 per week from the same workforce. That is the sort of major change that can be possible.

Aberdeenshire and other councils have done similar work and others have tried to learn from that, but every council is starting from a different place and the investments and changes that are required to make it happen in each local authority can be a challenge.

A more interesting example is around at it from working with the community transformation side, which might not be quite to your point, convener. East Ayrshire has done work around vibrant communities that has lead to 30 local action plans, and to looking at community asset transfers, which has generated a couple of million pounds in savings. However, that is looking at a fundamentally different model of engaging communities in the future of services and with what is important for them.

An example that has been used a lot is the continuing work on bringing together internal shared services, or support services. In Glasgow, tomorrow’s support services has generated about £5 million in savings, and that has helped to build part of the digital customer service platform that Glasgow needs for the future. Approximately 10 other councils have tried to look at how to build on that and use it. Does that give you enough? I could give you more.

To be honest, Mr Dowie, I just want to make sure that there is something on this on the public record for when we report as part of our budget scrutiny.

I have a final question, Mr Dowie, and then I want to bring in Councillor Macgregor. Are there still more opportunities for service redesign that local authorities could be capturing?

Yes. Absolutely, because of the pace at which, for example councils are moving their services online. There are simple transactional efficiencies that can be made, but the more difficult area is when you move into self-management and self-support and build services around those types of transformations. The balance between investment and releasing efficiencies is going to be a challenge. Getting the right level of investment and capacity to make those bigger changes and transformations is the challenge that requires medium to long-term benefits.

That is helpful.

Councils are being quite creative, certainly in working across borders with other councils, and that will continue. There is always more that they could do. Councils are very reflective about their practices and are always looking for a better way of working, and that is absolutely right.

COSLA is working now on a place-based initiative across all public services. Vicki Bibby will maybe pick up on that. Certainly, I think that, where shared services, better opportunities and better working can be found, councils are looking at it and will continue to look at it.

COSLA is involved in, and working closely with the Government on, a public service reform agenda. In light of the public finances, we all need to look at this. As Councillor Macgregor says, we are focusing more on place, bringing all public services together. We are looking for a more permissive environment to allow public services to work better together, because there are great opportunities there.

As the report highlights, local authorities have made more than £1 billion of efficiencies and the easy options have, of course, been done. There is more that can be done, but the greatest potential for savings lies in all public services coming together in a place-based approach.

I will give a different example that is to do with looked-after children and involves a lot more preventative work being done to try to make longer-term savings. Argyll and Bute Council and others are putting more into wraparound care, kinship work and community work to stop children getting into the formal system as much as possible, as well as looking to things such as apprenticeship schemes and focusing on getting looked-after children into employment opportunities. There is a bit of joined-up thinking on that across councils. It is an interesting example of how councils are focusing on and targeting effort on those higher-risk and higher-demand areas.

That is helpful. We will move on now, as I know that there are one or two areas that the deputy convener wants to mop up, as well as housing.

First, convener, can I apologise profusely for leaving the meeting earlier? There was a very urgent matter that I had to deal with. I would not normally be so rude. If I ask something that has already been touched on, please forgive me.

Kenneth Gibson was asking about council tax earlier. Some councils obviously felt that council tax was a bit of a blunt instrument and that, if they were going to be raising their taxes locally, and impacting on people in that way, they wanted to see what the Scottish Government was doing with its tax-varying powers. I want to ask about the current situation with that. The Scottish Government is taking soundings on the tax issue at the moment. Is COSLA feeding into that?

Yes, absolutely. At the moment, we are in on-going discussions about income tax and there will have to be further consultation on that. Obviously, any additional funding that is raised through national taxation will go to the Government and how it distributes that will be absolutely within its gift. At local level, we are engaged—certainly, I have personally been engaged—in discussions on council tax and the limits and flexibility that we have with that. Local taxation was in the Government’s manifesto and it is a commitment for this session of Parliament, but the Government is very open to any creative or innovative ideas about local taxation and we will discuss those within the round.

That brings me on to the housing budget quite nicely. COSLA’s submission talks about providing affordable housing and tackling homelessness, in particular about the role that councils have in delivering the 50,000 new affordable homes, and about their statutory duties on homelessness and tackling the number of rough sleepers. Those are things that the committee is particularly interested in now because we are undertaking an inquiry into homelessness.

Is councils’ funding sufficient now to allow them to meet their statutory housing obligations and do you have any comments on the Scottish Government’s housing supply budget and how that is helping local authorities to address the housing needs in their areas?

I will defer to Vicki Bibby because this is an area that I am not fully up to speed on.

COSLA’s position is that local authorities have found it extremely helpful to have the longer-term indicative figures for housing supply. We have discussed that as part of the core budget, but it is very helpful to have that information.

An area that you will be aware of and on which we can follow up with more information is the concerns that COSLA still has about the level of subsidy that councils receive and the variance between that and the subsidy for registered social landlords. Again, if you want more information on that—I am sure that the committee has received it before—we can provide it afterwards.

There are opportunities in housing in relation to energy efficiency and the potential to use Scotland’s energy efficiency programme funding, but that again is operating on a one-year basis, so a plea that COSLA has made quite strongly, and is working very well with Government on, is for greater certainty and clarity about longer-term budgets.

12:15  

That is an interesting point, which I imagine we will want to follow up on. Obviously it is the councils, not the RSLs, that have the statutory duty on homelessness. I would be interested in having information about that. I will leave it there, convener, because I know that we are short of time and other members might want to come in on the housing issue.

I am aware that we are short of time. I have three brief questions, just to get some impressions on the record.

Paul Dowie talked about preventative spending, and he gave an example from Argyll and Bute. Something that concerns me is how we account for innovative things that councils do that save money elsewhere. For example, they might do something that keeps young children out of the criminal justice system and saves the criminal justice system money; there is no incentive for them to do that, because there is no consequential cut to the justice department’s money. Likewise, if local government does something that makes people healthier, there is no consequential accounting in the health system. Is there a need to create some kind of circular model that helps drive preventative spending by ensuring that people are not disincentivised because they feel that they will not get the benefits that they are creating? Do you get the point that I am trying to make?

I get it. We try to focus on the outcome and try to account for that in a way. Anecdotally, we are getting better at pulling that together. I go back to the local outcome improvement plans, which I think will give a joint focus. We are trying to get some measurable view of progress being made jointly on that, and that will help. I think that it is a work in progress and all the things that we are doing and have got better at over the last few years will help us to do, but it is a major challenge, and it goes back to the investment point. Part of the problem here is how you decide what is going to work. How do you decide that investing in a new model of preventative work will pay back in revenue reduction later on somewhere in the system? Even within an individual council, how that investment decision is made and funded is something that we are going to have to grapple with. I do not have an answer, but I think that we are making the right sort of progress to getting the information that will support us in doing that better.

That is helpful.

I have a brief second question on the gender pay gap. What are councils doing to try to close the gender pay gap, and is that built into budget forecasting?

Yes. I think that we have a paper going through the equalities committee fairly soon. That is something that we could supply outwith the committee today, if that is okay. Obviously councils are doing their level best to close the gender pay gap, and certainly at local level they are setting themselves targets. Whether they are meaningful or not, it is a very difficult conversation to have, but I think that, particularly in the higher-paid bands in local authorities, where there is a larger disparity, they are trying to do more to get a better ratio. As I said, we have a report coming fairly soon, so we could supply that to you as well.

The final question is on climate change. We are anticipating more ambitious climate change targets. There are moves at a European and international level to look at locally determined contributions. Local government has a firm role, together with national contributions. What thinking is going on for future budgeting on areas that local government can play a big role in, such as transport, planning, housing and energy efficiency, in terms of preventative spending and the prevention of carbon emissions?

I have a couple of observations. I do not have an overview across local government on that. Aberdeenshire Council has taken the innovative step of setting a carbon budget and building that into its budget-setting process. It is the first council in Scotland to do that. In the Fife example that I mentioned earlier, part of the target was to get rid of 3,500 tonnes of carbon as part of the projects. As part of many council policy-setting processes and things like that, it will be one of the things that are factored into policy decisions.

Can I check a couple of things in relation to housing? There was an interesting answer on the question of whether there is any inequity between the subsidy for new-build social rented housing in the RSL sector and the subsidy for local authorities. Is there a difference? Quite often local authorities do not have land costs for their new-build properties, whereas RSLs may have to purchase land, ironically sometimes from local authorities. Some reflections on that would be quite helpful.

We can follow up on that. We will have evidence at COSLA of the differences between local authorities and RSLs. We have local authorities that no longer have housing stock but have RSLs that are very proactive in their areas. We will have that data, and we will certainly get it to you outwith the committee, if that is okay.

That would be good.

I think that it is quite an important question.

I think that your evidence was that you felt there is inequity there. I am trying to follow up on whether there is. Do you recognise that the affordable housing investment programme has been fairly substantial and will continue to be fairly substantial with indicative budgets over a number of years?

We found it very helpful to have the indicative numbers over the years. Councillor Parry has a lot of detail on this area. We can follow up very soon, because I know that you will need it as part of your evidence on the particular issues that you have raised on housing.

I am trying to get a balance to it, because the committee might decide that it is compelled by much of your evidence—it may not—on longer-term financial planning, but if the affordable housing budget is an example of the Scottish Government delivering on that, it would be good to get it on the record. Is that an example of the Scottish Government delivering on that?

Absolutely, and it is very welcome.

That is helpful. We have been doing an inquiry into homelessness, and people have mentioned the statutory duties of local authorities. One of the questions that I asked during that inquiry was whether that is a cleverer use of the affordable housing budget. If you are building new houses, doing something imaginative in how you invest in that, how you allocate those houses, and how you create a sense of place for those who are most vulnerable in society—those who are homeless and rough sleeping—could pay great dividends both in tackling those who are most vulnerable and homeless and in meeting the 50,000 target that we all share. Is there consideration of that by COSLA?

I know that Councillor Parry and COSLA officers are involved in the development of the homelessness prevention strategy group, and I know that this is an area that they are discussing. Again, apologies because we do not have the information to hand, but we can certainly follow up with something formal from COSLA on that.

That is fine. I know that what committee members do and do not ask can be quite random sometimes, and that you plan for one line of questioning and then another one emerges. That is just the nature of these events. It is also very difficult to discuss budgets, because none of us knows what the numbers are really going to be, so it is a little bit of shadow boxing.

We might know quite soon.

Yes—imminently, perhaps. Perhaps we should have done this next week.

Before we close this evidence session, does any other member have anything that they want to raise with the witnesses? If not, I thank our three witnesses for giving evidence today. We will follow up in writing on some of the matters that we have discussed.

We move to item 3, which we previously agreed to take in private.

12:23 Meeting continued in private until 12:53.