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2nd Report, 2010 (Session 3)

Report on Local Government Finance Inquiry

CONTENTS

Remit and membership

Report
Introduction

Oral and written evidence

Structure of Report

Conclusions and Recommendations

Efficiency Savings
Shared Services
Staffing
Council Tax Freeze
Charging for services
Effect on voluntary sector
Economic Development
Prioritisation

Background

Current economic situation

Balance of Funding

cost pressures on local government

Efficiency Savings

Background
Drivers of efficiencies
Benchmarking and Minimum Standards
Investing in efficiencies

Shared Services

Background
Current activity
Potential tensions
The Role of the Scottish Government

Staffing

Local authority pay
Voluntary sector pay
Staffing levels
Funding for redundancies
Outsourcing

Council Tax Freeze

Charging for services

Further Action Required

Effect on Voluntary Sector
Effects of cost-cutting
Community Benefit Clauses
A ‘Perfect Storm’

Economic Development

The Economic Development function
Business gateway contracts
TIF and LABGI

Prioritisation

Role of elected members
Provision of services
Role of local government
Conclusion

Glossary of Terms

ANNEXE A: EXTRACTS FROM THE MINUTES OF THE LOCAL GOVERNMENT AND COMMUNITIES COMMITTEE

ANNEXE B: oral evidence and associated written evidence

Please note that all oral evidence and all written evidence is published electronically only, and can be accessed via the Local Government and Communities Committee’s webpages at:

http://www.scottish.parliament.uk/s3/committees/lgc/inquiries/Local%20Govt%20Finance/index.htm

1 September 2009 (20th Meeting, 2009 (Session 3))

Written Evidence

CIPFA

Oral Evidence

Professor Alan Alexander;
Jo Armstrong, Independent Consultant;
Professor Stephen Bailey, Professor of Public Sector Economics, Glasgow Caledonian University;
Professor Richard Kerley, Professor of Management and Vice Principal, Queen Margaret University;
Rt Hon Henry McLeish;
Angela Scott, Head of the Chartered Institute of Public Finance and Accountancy in Scotland.

9 September 2009 (21st Meeting, 2009 (Session 3))

Written Evidence

Dundee Council, Falkirk Council, Highland Council and South Ayrshire Council joint submission
Scottish Council for Voluntary Organisations
Scottish Social Enterprise Coalition
Unison

Oral Evidence

Stephanie Herd, Chair, Unison Scotland;
Glyn Hawker, Scottish Organiser, Bargaining and Equal Pay, Unison Scotland;
Rozanne Foyer, Senior Regional Organiser, Unite;
Jacqui Watt, Board Member, Scottish Social Enterprise Coalition;
Craig Sanderson, Board Member, Scottish Social Enterprise Coalition;
Peter McColl, Policy Officer, Scottish Council for Voluntary Organisations;
Helen MacNeil, Chief Executive (Glasgow), Council of Voluntary Services;
Kenny Murphy, Chief Executive (Falkirk), Council of Voluntary Services;
Kevin Hutchens, Aberdeen Trades Union Council;
David Dorward, Deputy Chief Executive, Dundee City Council;
Alan Geddes, Deputy Chief Executive, Highland Council;
Mary Pitcaithly, Chief Executive, Falkirk Council;
Alex Jannetta, Director of Finance, Falkirk Council.

Supplementary Written Evidence

Unison Scotland

16 September 2009 (22nd Meeting, 2009 (Session 3))

Written Evidence

The City of Edinburgh Council
The City of Edinburgh Council - City Development Department
Federation of Small Businesses

Oral Evidence

David Anderson, Director of City Development, City of Edinburgh Council;
Derek Cunningham, Director of Development and Infrastructure, East Dunbartonshire Council;
Colin Borland, Public Affairs Manager Scotland, Federation of Small Businesses;
Garry Clark, Head of Policy and Public Affairs, Scottish Chambers of Commerce.

Supplementary Written Evidence

East Dunbartonshire Council

Glasgow City Council

23 September 2009 (23rd Meeting, 2009 (Session 3))

Oral Evidence

Sir John Arbuthnott, Chair, Clyde Valley Review of Joint Working and Shared Services;
Rory Mair, Chief Executive, COSLA;
Councillor Michael Cook, Spokesperson for Strategic Human Resources Management, COSLA;
Colin Mair, Chief Executive, Improvement Service.

4 November 2009 (27th Meeting, 2009 (Session 3))

Oral Evidence

John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth, Scottish Government;
Bill Stitt, Assistant Team Leader, Local Government Finance Division, Scottish Government;
David Henderson, Deputy Director, Local Government Finance Division, Scottish Government.

Supplementary Written Evidence

Cabinet Secretary for Finance and Sustainable Growth

ANNEXE C: OTHER WRITTEN EVIDENCE

Aberdeen City Council
Aberlour Childcare Trust
Accenture Scotland
CBI Scotland
Community Care Providers Scotland
Scottish Association for Mental Health
Scottish Property Federation
Voluntary Action Scotland

Remit and membership

Remit:

To consider and report on (a) the financing and delivery of local government and local services and planning; and (b) housing, regeneration, anti-poverty measures and other matters falling within the responsibility of the Minister for Housing and Communities.

Membership:

Alasdair Allan (Deputy Convener)
Bob Doris
Patricia Ferguson
David McLetchie
Duncan McNeil (Convener)
Mary Mulligan
Jim Tolson
John Wilson

Committee Clerking Team:

Clerk to the Committee
Susan Duffy

Senior Assistant Clerk
David McLaren

Assistant Clerk
Ian Cowan

Committee Assistant
Fiona Sinclair

2nd Report, 2010 (Session 3)

Report on Local Government Finance Inquiry

The Committee reports to the Parliament as follows—

introduction

1. The current economic climate is proving challenging and having an impact on most sectors of society. It is generally acknowledged that public sector budgets are becoming tighter and it was against this background that the Committee decided to undertake an inquiry into local government finance. The following remit for the inquiry was agreed:

“To assess the potential effect of the current economic situation and other pressures on local authority finances; and to identify the key challenges likely to be faced by local authorities.”

Oral and written evidence

2. Apart from issuing a general call for written evidence, the Committee decided to hold five oral evidence sessions to be structured around different themes. The first session on 1 September 2009 used a round-table format and was attended by experts in the field of local authority finance and other commentators. The session was designed to set the scene for the remaining sessions and as such, focussed on how local government is currently funded; how local government might be affected by the current economic situation and how potential problems can be mitigated.

3. Further evidence sessions were held which considered:

  • The impact of the recession on the local authority workforce, on the third sector and on individual local authorities

  • The role of local authorities as economic drivers

  • Means of meeting financial challenges including efficiency savings and shared services

4. Lastly, the Cabinet Secretary for Finance and Sustainable Growth gave evidence to the Committee at its final session on 4 November 2009.

5. The Committee would like to thank all those organisations and individuals who gave written and oral evidence to the Committee.

STRUCTURE OF REPORT

6. The report is structured as follows:

  • Conclusions and recommendations

  • Background

  • Balance of funding

  • Cost pressures on local government

  • Efficiency savings

  • Shared services

  • Staffing

  • Charging for services

  • Further action required

  • Effect on the voluntary sector

  • Economic development

  • Prioritisation

  • Overall conclusions

  • Glossary of terms

CONCLUSIONS AND RECOMMENDATIONS

Efficiency Savings

While it notes the arguments in favour of having minimum standards, the Committee also recognises the potential problems with using this approach such as the minimum being viewed as the standard to be applied and the potential impact on local democracy. The Committee’s view is that the best way to improve performance and efficiency is to make use of benchmarking. Therefore, the Committee recommends that the Scottish Government and COSLA should consider undertaking a review of how benchmarking is used within local government with a view to agreeing a template for the future (paragraph 56).

The Committee notes that Audit Scotland is undertaking a detailed review of the achievement of efficiency savings by studying a sample of public bodies.

The Committee appreciates that, as it is a report from Audit Scotland, the Public Audit Committee (PAC) will consider the study on efficiencies in the public sector. However, this Committee signals its intention to examine the study, after due consideration by the PAC, and to consider whether to take further evidence in this area (paragraph 67).

Shared Services

The Committee notes that Sir John Arbuthnott has completed his review of shared services in the Clyde Valley and has made a number of recommendations.

The Committee seeks further information from the Scottish Government on what action it intends to take in relation to the suggestion in the Arbuthnott report that secondary legislation could smooth the way for inter-authority shared services (paragraph 91).

Staffing

Local authority pay

Given that staffing accounts for around half of local authority budgets1, the Committee recognises that freezing or cutting pay may seem an attractive option when seeking savings. However, this could also be viewed as a blunt management tool and it could be argued that there are other ways in which costs could be driven down. In addition, as with the issue of shared services, the impact on the local economy as a result of decisions taken should also be recognised. That said, it is properly the role for the trade unions and COSLA to negotiate a pay deal for staff in local authorities (paragraph 105).

In looking at the example of Scottish Water, the Cabinet Secretary for Finance and Sustainable Growth commented that one of the main driving forces behind the improvements there was the leadership of the management in that organisation. While not seeking to compare local authorities with Scottish Water, the Committee notes that in the round-table evidence session a number of comments were made regarding the quality of management within local authorities and in particular, the ability to innovate. While local authorities themselves did not necessarily agree with this, it is an issue which local authorities could usefully examine (paragraph 106).

Voluntary sector pay.

The Committee notes that even those who supported Petition PE 1231 recognised that it would be difficult to achieve pay parity in the current economic climate and also notes the Scottish Government’s statement that it is taking steps to remedy the situation (paragraph 115).

The issue of pay parity also featured in the Committee’s evidence sessions on home care services for the elderly. The Committee was told by Community Care Providers Scotland that for voluntary organisations to provide these services, the mid-price range would be around £14-£18 per hour while in their view, local authorities would struggle to go below £20 per hour. The Committee considers that the difference between these hourly rates cannot be down to salary levels alone. Indeed the City of Edinburgh Council commented thatA high hourly rate does not necessarily equate to better pay for front-line workers” (paragraph116).

The Committee also recognises that best value does not necessarily equate to the cheapest service and the Committee recommended as a result of its evidence sessions on home care services for the elderly that the process of e-auctions whereby contracts were awarded to the cheapest bid should be deemed wholly inappropriate (paragraph 117).

The Committee believes that these issues should be examined as part of any ongoing discussions as a result of the agreement between the Scottish Government, Scottish Council for Voluntary Organisations (SCVO) and COSLA (paragraph 118).

Staffing levels

It does not appear that a very detailed level of disaggregated statistics on public sector employment have been published and therefore the Committee asks the Cabinet Secretary for Finance and Sustainable Growth to clarify the situation and recommends that, if plans are not already in place, that statistics should be disaggregated to give this level of information, including employment level of former local authority employees now employed in arms length companies, in order that an accurate picture of employment within the public sector can be obtained (paragraph 122).

The Committee notes the Cabinet Secretary for Finance and Sustainable Growth’s observation that there will be reductions in public sector employment in the future. The Committee also notes that there have been recent announcements by some local authorities regarding potential job loss (eg, Glasgow and Aberdeen) and that in the current economic climate, it is likely to be an issue faced by a number of authorities (paragraph 129).

The Committee appreciates that while some authorities are not filling vacancies, some others may find that this is not sufficient to address the issue of staffing levels and may feel that they need to go further. The Committee notes the unions’ views about the need to avoid cutting front-line services and agrees that local authorities need to determine what their priorities are going to be in examining staffing levels to ensure that services vital to the local area are not jeopardised (paragraph 130).

Local authorities will inevitably also need to consider the impact of any potential job loss on the local economy so that areas which are economically vulnerable from the impact of significant job loss are not further affected (paragraph 131).

The Committee appreciates that these are difficult decisions to take and Dave Anderson from the City of Edinburgh Council made a valid point when he counselled against cutting capacity to the extent that front-line services could be affected in the future. The Committee also appreciates that local authorities are having to examine their budgets at a time when demand for many of their services is actually increasing (paragraph 132).

The Committee further notes that the Arbuthnott Review signalled that the scale of the financial challenge cannot be met by short term solutions “such as year on year efficiency savings or ‘salami slicing’ budgets and that authorities should take a more strategic, long term view. The Committee’s view is that such an approach should also apply to the examination of staffing levels (paragraph 133).

The Committee appreciates the desire to secure pay increases and to maintain current staffing levels and front-line services. However, in the current climate, it seems inevitable that trade-offs will need to take place because not everything can be achieved within current budgets. The Committee assumes that such discussions will take place between local authorities and trade unions during their forthcoming negotiations on pay and staffing levels (paragraph 134).

Funding for redundancies

Reducing staffing levels is not in fact a cost-free option and redundancy packages (particularly where the people involved are on relatively high salaries and have long service) can be substantial (paragraph 138).

In addition to the up-front costs of funding a redundancy package, there is also the question of the potential impact on local authority pension schemes as a result of the payment of early retirement pensions, the continuing liability to pay pensions to staff who have left and the reduction in employee contributions as a result of staff leaving. All of these factors can have a bearing on the cost of a pension scheme (paragraph 139).

However, in his Pre-Budget Report, the Chancellor stated—

“Cap and share reforms to the Teachers, Local Government, NHS and Civil Service pension schemes will cap the contribution to pensions made by employers, thereby limiting the liability of the taxpayer as pensions become more valuable. Cost increases below the cap will be shared equally between employers and employees, and those above the cap met solely by employees. In addition, as part of cap and share, the Government will expect those earning the highest salaries to pay a greater contribution towards their pension.” (paragraph 140)

Outsourcing

While there can be a place for outsourcing, it is extremely important to ensure that the quality of the service remains high. A number of concerns were raised that quality was being sacrificed in order to reduce costs, and in particular that wage levels and conditions were depressed to keep costs down (paragraph 146).

Therefore, the Committee is of the view that if outsourcing of any services is to be considered, that it should be undertaken in the context of a strategic review to determine how best to deliver a service, rather than viewed as a cost-cutting exercise (paragraph 147).

Council Tax Freeze

It is not possible to state categorically what will happen to the council tax beyond this Parliamentary session, given that this will be determined by the outcome of the next Parliamentary elections and the policies of the parties within the Parliament. However, the Committee notes that the current Scottish Government will have responsibility for setting the 2011-2012 budget and it is not clear whether there is an expectation that council tax will continue to be frozen in that financial year. While the Committee appreciates that the level of the Scottish budget is not known beyond 2010-11 (particularly as this is beyond the current Spending Review period), the Committee seeks clarification over whether the Scottish Government intends to continue the council tax freeze into 2011-12 (paragraph 155).

Charging for services

The Committee recognises that there are inherent problems in having a general approach to charging, given that each local authority will want to take account of its own circumstances. However, it agrees with Sir John Arbuthnott’s recommendation that councils should work together to introduce consistency “where this does not cut across local priorities to make this more easily understood by citizens and to avoid a ‘postcode lottery’ for fees and charges in neighbouring authorities.”2 The Committee further recommends that the Accounts Commission should undertake an audit of local authority charges across Scotland (paragraph 166).

Effect on voluntary sector

Effects of cost-cutting

The Committee will consider the draft guidance on the procurement of social care services and will decide whether it wants to undertake further work in this area (paragraph 172).

The Committee agrees that there should be better information on the comparison between the services provided by the third sector and the public sector as outlined by the SCVO. The Committee recommends that the Scottish Government should undertake such an information gathering exercise in tandem with COSLA and SCVO (paragraph 178).

Community benefit clauses

The Committee recommends that community benefit clauses should be integrated more into contracts to help protect jobs in the local area etc. It recognises, however that there will need to be an evaluation of potential benefits as part of the procurement process (paragraph 181).

‘A Perfect Storm’

The Committee notes the potential for a “perfect storm” and for local authorities to be viewed as the funders of last resort. Since the Committee took evidence on this inquiry, further issues have arisen such as the ongoing dispute between the Lloyds TSB Foundation for Scotland and Lloyds TSB which has the potential to have a significant impact on the voluntary and charitable sector. The Committee intends to hold an evidence session on this issue in the near future (paragraph 186).

Economic Development

Business Gateway contracts

The Committee is concerned by the evidence it has received that there is not sufficient flexibility within the business gateway contracts to deal with the current challenges in this economic climate. The Committee also notes the Cabinet Secretary’s willingness to listen to further arguments on this subject and recommends that the Scottish Government review the current business gateway contract, in conjunction with local authorities and business organisations, to ensure that it does have sufficient flexibility to deal with changing economic circumstances and priorities (paragraph 202).

Tax Increment Financing and Local Authority Business Growth Incentive Scheme

The Committee recognises that local authorities need to find solutions to their economic problems in the short-term and therefore, schemes such as TIF and LABGI may not be able to provide these short-term solutions. However, the Committee asks the Scottish Government to provide it with updates as this development work progresses (paragraph 209).

Prioritisation

The debate over the services that local authorities should provide is key to their financial health. This is echoed in Sir John Arbuthnott’s review of shared services in Clyde Valley where one of his key messages is that authorities should revisit current priorities, with partners and with the Scottish Government and make sure they are focussing on the right outcomes for their communities (paragraph 237).

While the Committee is not advocating an examination of local government boundaries, it is acutely aware that the decisions that are taken now on prioritising services will have a significant impact on the people of Scotland and everyone will have to live with the consequences. While there is some evidence of discussions beginning to take place, it is imperative that there is a wider debate on the issue of how and what services are provided by local authorities (paragraph 238).

The Committee notes the comments from COSLA and Sir John Arbuthnott that local authorities need to start planning over a longer period (say ten years). It also notes the comments from the round-table discussion that elected members need to take on a far more prominent role in the management of local government. The Committee questions whether it is realistic to expect local authorities to develop ten-year plans and considers that such plans raise fundamental questions regarding democratic accountability within local authorities (paragraph 239).

The Committee also recognises that the idea of ten-year plans and sharing services across local authorities has the potential to fundamentally affect the shape of local government services and indeed, the shape of local government itself (paragraph 240).

The Committee appreciates that it has not been possible to conduct an in-depth examination of these fundamental issues in the context of this inquiry. Therefore, it signals its intention in the future to undertake an inquiry into how local authorities deliver services (paragraph 241).

background

Current economic situation

7. The collapse of a number of US based financial institutions, including Lehman Brothers and AIG in September 2008, was the biggest shock to the world financial system since the 1929 stock market crash. The reduction in the availability of credit, a fall in asset prices and a loss of confidence has resulted in the global economy experiencing its most severe contraction since the 1930s. When the full scale of the crisis became apparent governments around the world intervened to ensure the banking system continued to function and provided support to many financial institutions which has increased the UK Treasury debt to £844.5b (as at November 2009).

8. As a result the UK and Scottish Government have had to re-evaluate their spending intentions for the remainder of the Spending Review period. The UK Government Pre-Budget Report 2008 and Budget 2009 resulted in Barnett derived consequential changes in the Scottish budget and the Scottish Government opted to re-profile capital spending from 2010-11 into 2008-09 and 2009-10 with the permission of the UK Government. As a result of the current fiscal situation, analysts have warned of medium term spending squeezes in Scotland and the UK as a whole and the tight financial context is now accepted across the political spectrum.

9. The Institute for Fiscal Studies (IFS) predicts that real terms reductions across all UK Government Departmental Expenditure Limits (DEL) will be around 2.3 per cent each year between 2011 and 2014. It is also predicting that real term growth will continue to be constrained during 2014 to 20183. However, the exact size and length of any budget squeeze will be dependent on a number of factors and therefore, it is unclear at the present time what the actual reduction will be.

10. As Audit Scotland notes in its report on Scotland’s public finances, any squeeze at a UK level will impact on the amount of money available to the public sector in Scotland and in turn, the voluntary sector and private sector organisations that rely on public sector funding will also be affected.4

11. A report by the Centre for Public Policy and the Regions, commissioned by the Society of Local Authority Chief Executives (SOLACE) and CIPFA Scotland predicts an 8.5% real terms cut in the Scottish Budget between 2009-10 and 2013-14.

Sources of Income

12. Local authorities obtain income from a variety of sources. The sources of revenue and capital income are briefly outlined below.

Revenue Income

13. Local authorities receive revenue income from the Scottish Government, Council Tax receipts and Non-Domestic Rates income and income from sales, fees and charges. In 2007-08, local authorities received revenue income from the following sources, in cash terms (and as percentage of total income):

  • General Revenue Funding - £9,834m (59.2%)
  • Council Tax - £1,890m (11.4%)
  • Non Domestic Rates Income - £1,860m (11.2%)
  • Sales, fees and charges - £2,132m (12.8%)
  • Other income - £883m (5.3%)

14. The total revenue income of local authorities totalled £16,599m (Source: Scottish Local Government Finance Statistics, Table 2.1). Figure 1 depicts the sources of revenue income as a proportion of total income.

15. CIPFA Scotland provides estimates of local authority income which do not include the income from sales, fees and charges. In 2008-09 the total revenue income of local authorities, on this basis, was £12,281.787m. The revenue income was derived from the following sources:

  • General Revenue Funding - £7,336.136m (59.7%)
  • Non Domestic Rates Income - £1,962.801m (16.0%)
  • Specific grants - £739.837m (6.0%)
  • Council Tax income - £2,243.013m (18.3%)

16. Figure 2 depicts the sources of revenue income, from CIPFA estimates 2008-09, as a proportion of total income.

Source: CIPFA (2008) ‘Rating Review’, p.16.

Capital Income

17. Local authorities obtain capital income from a wide range of sources. In 2008-09 the main sources of capital income were capital borrowing via the prudential code (also known as prudential borrowing), Scottish Government grants and use of capital receipts from asset sales/disposals. As a result of the recession the evidence suggests it is likely that the use of capital receipts from assets sales/disposals may decline5. Total capital income in 2008-09 was £2,600.123m.

18. In 2008-09 the sources of local authority capital income, in cash terms (and as a percentage of total income) were:

  • Capital Borrowing (Prudential Borrowing) - £1,210.75m (46.6%)
  • Use of capital receipts from assets sales / disposals - £441.718m (17.0%)
  • Other capital receipts - £10.452m (0.4%)
  • Capital receipts which were private/public Sector Contributions - £58.036m (2.2%)
  • Grants from EC Structural Funds treated as capital receipts - £4.139m (0.2%)
  • Revenue contributions to capital - £178.480m (6.9%)
  • Other Income - £105.558m (4.1%)
  • Government Grant - £590.990m (22.7%)

(Source: CIPFA, 2008, ‘Rating Review’, p.33).

Figure 3 depicts the sources of local authority capital income as a proportion of total income.

19. In its report “Scotland’s Public Finances” Audit Scotland notes that there is generally limited room for manoeuvre in adjusting budgets in the public sector, at least in the short term because most of the costs are fixed – such as the costs of salaries and pensions, running costs of buildings, costs of capital and essential supplies. While the report focussed on the public sector as a whole, this comment could equally be applied to local government.

20. The balance of funding was examined by the Local Government Finance Review Committee, which was established by the previous Scottish Executive. It commented in its 2006 report that:

“As recently as 1988-89 the balance of funding was almost 50:50 between Scottish Office and local funding. This balance shifted by 1996-97 to 87:13. More recently the proportion of local authority funding has increased and, in 2004-05, the balance of funding was 80:20…This average figure masks some extensive differences between authorities. Local authorities with a lower tax base and/or which face greater levels of need or higher costs to deliver services receive more grant from the Scottish Executive than other areas.”6

21. The balance of funding has been further changed with the introduction of the council tax freeze. Under the Concordat between the Scottish Government and local government, local authorities have frozen council tax levels in return for a share of £70m provided by the Scottish Government. The proportion of the £70m that will be given to a local authority is based on its proportion of total council tax income raised in Scotland in 2007-08.

BALANCE OF FUNDING

22. Witnesses at the round-table session considered whether they believed the balance was correct between central and local government funding and whether local authorities had sufficient financial flexibility to deal with the impact of the current recession.

23. The argument was advanced that local government never had enough flexibility7 and issues were raised over whether the local tax base was too narrow. Professor Stephen Bailey of Glasgow Caledonian University commented—

“Other countries have a broader range of local tax powers than exist in the United Kingdom where local taxation consists solely of property tax. If we wanted to change the balance between centrally and locally sourced funding, we would have to give local government increased tax powers…The way things are going, local government in Scotland is becoming more dependent on the centre for finance and not less.”8

24. Henry McLeish echoed this and went further by saying

“local government has been creating a lot of inflexibility for itself, especially in the past two years. All the concordats, single outcome agreements and other initiatives, culminating in the council tax freeze, suggest to me that local government is becoming more aligned with central government.”9

25. However, Angela Scott from CIPFA noted that the removal of ring-fencing and the introduction of the prudential borrowing regime for local authorities had provided some additional flexibility in recent years. Jo Armstrong also commented that “depending on what demands are put on them, local authorities will argue that they never have enough flexibility.”10

26. When asked whether he believed that local government was becoming more dependent on the centre and creating inflexibilities for itself, the Cabinet Secretary for Finance and Sustainable Growth responded that he viewed the current situation as providing better alignment stating that:

“There is better alignment between the work of public bodies and local government and the work of the Scottish Government at present, and I make no apology for that. To me, alignment is about ensuring that we avoid a situation in the public sector in which one group of organisations points one way and another group of organisations points another way.”11

27. In the round-table session, the point was made that because it is impossible to separate finance from function, the fundamental question of what role should be performed by local authorities and what services should be provided needed to be addressed to answer the question of finance. As Professor Richard Kerley put it – “until we know what we want local government to do, we cannot know what measure of money it needs to collect in order to do that.”12

cost pressures on local government

28. As noted earlier in this report, the Committee’s remit was to assess the potential effect of the current economic situation and other pressures on local authority finances. Given that a local authority’s ability to deal with financial pressures arising from the current economic situation will be, in part, determined by what other financial pressures they are facing, the Committee considered what those other pressures might be.

29. In its recent report, “Scotland’s Public Finances”, Audit Scotland sets out what it sees as the current cost pressures on local government. These are listed as follows13

  • the total local government pay bill is around £7 billion. Cost of living pay increases were 3 per cent and 2.5 per cent in 2008-09 and 2009-10 respectively.

  • Equal pay and related legal costs accounted for £181 million in 2007-08 (£233 million in 2006-07 and £280 million in 2005-06). This relates to one-off payments for equal pay. Audit Scotland’s estimate for the costs of single status implementation adds between one and eight per cent to the overall pay bill. This is an ongoing revenue cost, in contrast to the one-off costs of equal pay claims.

  • There have been increases in some operating costs such as energy use. Councils spent around £79 million on energy in 2004-05. The price of electricity and gas doubled between July 2004 and June 2008

  • National priorities such as reducing class sizes and introducing free school meals and pressures on social housing and social care services will increase costs

  • In 2007-08 councils spent a total of £340 million on waste management. In order to meet national targets councils will have to spend an estimated £580 million per year by 2020.

30. With regard to the impact of the recession on local authority finances, the City of Edinburgh Council commented in its written submission that local authorities were almost unique in the context of the wider economy in that most organisations would expect a downturn in demand during a period of recession whereas “in the case of councils the opposite phenomenon occurs”.14 The submission goes on to note that increased demand is apparent in areas such as debt advice, housing, economic development and social care services.

31. It goes on to contrast this upturn in demand with a loss of income, in the following areas:

  • loss of building warrant and property enquiry certificate income

  • reduction in sponsorship income

  • downward pressure on Section 75 developers’ contributions

  • reduced economic regeneration and level of return from the Council’s arm’s length development and other companies

  • a substantial reduction in interest accruing on cash deposits, and

  • a much reduced level of property and land sales

32. Dundee, Falkirk, Highland and South Ayrshire Councils raised similar issues about increased demand in areas such as advice and social care services in their joint submission. They went on to say that while coping with these financial implications emerging from recession that councils had to deal with a range of other existing financial demands and implications which they listed as including—

  • delivering efficiency savings year on year

  • social work service demand; demographics, child protection, community care, drug and alcohol abuse

  • education service demands; class sizes, school estate investment, school meals policy

  • equal pay and single status

  • rising pension costs

  • fuel and energy costs, including implications of climate change and carbon reduction commitments

33. During the Committee’s round-table discussion, witnesses raised the question of whether the problems currently facing local government are a result of the current recession or whether these problems would have occurred anyway. According to Professor Stephen Bailey “we must first decide what effects the recession has caused or is likely to cause. Otherwise it would be like saying that every time it rains is evidence of climate change.”15

34. Professor Bailey went on to critique some of the written submissions where he believed that there was a tendency to concentrate on the downside of the recession and an attempt to contribute a number of issues to the recession. He stated—

“the recession has caused energy costs to fall, not rise. There could be more competition in procurement because private sector businesses are getting more desperate for contracts. Falling property values resulting in local government being unable to get as much from land sales has been mentioned, but that has not been as big a problem in Scotland as it has been in England.”16

35. He went on to say that if it were the case that the current problems were all caused by the recession that would be a better situation because it would suggest the problems were short-term rather than long-term.

36. However, Professor Alan Alexander suggested that the recession will exaggerate existing financial pressures on local authorities, commenting that—

“One thing the recession will do is exaggerate the existing pressure that comes from having open-ended commitments that are funded by close-ended resources. I am thinking of things such as social care for the elderly, education and most aspects of social work. All those are demand led and the demand for them is almost certain to increase during a recession.”17

37. In the same session, Jo Armstrong pointed out that the pressures that local authorities would experience were not symmetrical and these would vary depending on factors such as local demographic trends and PFI/PPP commitments and suggested that small local authorities could be most at risk. As highlighted by Professor Bailey, a number of witnesses considered that the financial problems faced by local authorities were present before the current recession and required a long-term response. Angela Scott of CIPFA Scotland commented that—

“The issue is that local government does not yet know what the size of the pain will be…There is not a lot of time in which to turn the situation around and 2010-2011 might not be the worst year - the worst will likely come after that…Local government must focus on the long-term measures that can be taken and balance them against some of the short-term things that will have to be done. The acceleration of procurement and some of the non-salary issues represent some quick things that can be delivered to get us through 2010-11…There needs to be a clear strategy to take us forward and some short-term measures that will get us through 2010-11” 18

38. While it is obvious there is some divergence of opinion as to whether the current financial problems besetting local authorities are a product of the recession, a product of some longer-term malaise or a combination of both, it is also clear that local authorities are currently making decisions regarding jobs and services because of budget deficits, regardless of what has contributed to such deficits.

39. Therefore, witnesses in both the round-table session and in subsequent sessions were asked what action could be taken in both short-term and long-term to mitigate the current problems being faced by local authorities.

EFFICIENCY SAVINGS

Background

40. While it is no doubt argued that the public sector has always sought efficiencies, a formal Efficient Government Programme was introduced by the previous Scottish Executive in 2004. It detailed measures to deliver £745m of annually recurring cash-releasing efficiency savings and £300m of recurring time-releasing efficiency savings by 2007-08 with an ambition of going further and delivering £900m cash-releasing and £600m time-releasing efficiencies. The Efficiency Outturn Report 2006-07 published in November 2007 reported that £812.6m of recurring cash-releasing savings had been achieved together with £248.9m time-releasing efficiency savings.

41. The current Scottish Government announced in its Spending Review/Draft Budget that it intended to seek 2% of annual cash-releasing efficiency savings each year across all portfolios (including local government) amounting to £1.6bn by 2010-2011. This equates to a target of £534.4m in each year to deliver efficiency gains of at least two per cent (£534.4m) in 2008-09, four per cent (£1,068.8m) in 2009-10 and six per cent (£1,603.2m) in 2010-11 on the 2007-08 baseline.

42. The Efficiency Outturn Report 2007-08 published in October 2008 reported that £1,316.3m of cash-releasing savings had been achieved. The Outturn Report for 2008-09 published in November 2009 reported that £838.885m of cash-releasing savings had been achieved.

43. Under the previous Executive’s efficiency programme, the efficiency savings expected from local government were deducted at source from the local government settlement. However, under the current administration, local government is able to keep any efficiency savings it makes.

44. In its submission to the inquiry, COSLA stated that between 2005-06 and 2008-09, councils collectively delivered £726m of cash savings against a target of £501m. The submission goes on to say that “Of the savings achieved, £706 millions are recurrent. As well, councils delivered non-cash (productivity) efficiencies valued at over £100 million”.19 The Efficiency Outturn Report for 2008-09 included a letter from the President of COSLA, Councillor Pat Watters which stated that local government had made £237m cash-releasing savings in 2008-09.

Drivers of efficiencies

45. While local authorities and trade unions asserted that a great deal of inefficiencies had been driven out of the system, witnesses from the round-table session appeared more sceptical about the ability and desire of local authorities to implement efficiency savings. For example, Professor Alan Alexander questioned whether there were ‘credible drivers’ for efficiency within the system and in particular, considered that the current Single Outcome Agreement process did not encourage efficiencies as it was “an outcome-driven process, and little attention is paid to how one induces, persuades and pressurises local authorities, as large spending institutions, to spend their money more efficiently.”20

46. While Angela Scott from CIPFA Scotland commented that the Best Value regime could be used as a positive driver for efficiency, others questioned whether it had been such a driver to date. Professor Alan Alexander suggested that greater regulation could play a part in focussing on efficiencies. He cited the example of Scottish Water where he stated that 40 per cent was taken out of its operating costs in the first four years of its existence.

47. Professor Alexander did acknowledge that the same standards could not be applied to an “investment-led, capital-intensive single service provider as to a multiple service provider such as local government” but that he did not concede that “there is nothing to learn from having a clear regulatory framework that asks why it costs one local authority more to do a job than it costs another.”21

48. Not all witnesses agreed with this assessment and, on the issue of regulation, Mary Pitcaithly from Falkirk Council suggested that excessive scrutiny and audit could be burdensome. She further suggested that approaching efficiency through the prism of regulation might not be appropriate, stating that—

“An appropriate and proportionate amount of audit and scrutiny is essential, helpful and desirable – it is about getting the balance right. Audit should not be driving efficiency; efficiency should come from within the organisations and from communities, which can identify what is important for local people and consider whether the local authority is delivering that at an affordable cost.”22

49. On the issue of Scottish Water, Mary Pitcaithly acknowledged Professor Alexander’s recognition that local authorities could not be directly compared with an organisation such as Scottish Water. However she made it clear that local authorities believed that lessons could be learned from experiences such as that in Scottish Water, although those experiences might not be capable of being directly transferred to local authorities.

Benchmarking and Minimum Standards

Benchmarking

50. Colin Mair from the Improvement Service commented that the key point from the Scottish Water experience was the issue of benchmarking—

“In driving forward in performance terms, Scottish Water has recurrently stressed the importance of the regulatory function and of the benchmarks that it has compared itself against when driving efficiencies. That is entirely accepted. We have a common framework for benchmarking, which we developed with the 32 councils, but it now needs to be sharpened and tightened. We are working on that with SOLACE. There is an acceptance that very robust benchmarking against the best in class will be an important mechanism. That is evolving.”23

51. The Cabinet Secretary for Finance and Sustainable Growth acknowledged there had been significant improvements in quality and efficiency in Scottish Water and at a time where household charges had risen more slowly than the rate of inflation. However, he questioned Professor Alexander’s assertion that efficiencies could be achieved through further regulation and stated that—

“It was not just regulation that delivered the improvement in Scottish Water’s performance; it was also the leadership of the management, the board and the chairman and the active contribution of the workforce to that process.”

52. He went on to say that to replicate the regulatory environment in which Scottish Water operates would remove “any vestige of local flexibility”24. Reflecting on his earlier point that he believed the Concordat and Single Outcome Agreements provided greater alignment rather than removing flexibility he went on to state that—

“The advantage of single outcome agreements is that they no longer involve just local authorities; they involve a range of public sector partners at local level: the local authority, the police, the health service, the fire and rescue service, the third sector and a variety of others. The focus of single outcome agreements is now very much on ensuring that those bodies work together for a common purpose”25

53. Professor Alan Alexander spoke strongly in favour of the need for better benchmarking. He suggested that—

“Other than by using the rather blunt instrument of the Improvement Service, we have not managed to consider the well-performing authorities and say ‘Okay. What is it that’s making those authorities good? What’s making them efficient? Can we bottle it and send it to other parts of Scotland?”26

Minimum standards

54. Related to this discussion of having a greater understanding of best practice, the round-table session also considered whether it would be appropriate to set minimum standards for local government. For example, Jo Armstrong commented—

“If we need structural change, it is incumbent on the Parliament or local government itself to specify the de minimis service that the organisations must ensure is delivered and then to ensure that it is actually delivered. The benchmarking information, which is necessary to ensure that we understand who is good and bad at delivering services, is not good. The Accounts Commission would argue that that information cannot be used for league tables because the data are not necessarily all monitored or measured in the same way – they are not consistent across all local authorities. If we face a reduction in service provision, we need better data and need to ensure that they are comparable across local authorities if we want to ensure that we have the minimum necessary and want to know where best practice is”27

55. However, Richard Kerley sounded a note of caution, commenting that defining and achieving a minimum level of service would be ‘extremely difficult’ as, for example, in more rural authorities defining a standard level of service is problematic as ‘some services are simply not available to everyone’. Although he did consider that more could be done to enable local authorities to learn from each other. Further concerns were raised that in times of financial restraint, minimum standards could be taken to be the maximum. Finally, concerns were raised as to whether having minimum standards could impact on local democracy and local choices.

56. While it notes the arguments in favour of having minimum standards, the Committee also recognises the potential problems with using this approach such as the minimum being viewed as the standard to be applied and the potential impact on local democracy. The Committee’s view is that the best way to improve performance and efficiency is to make use of benchmarking. Therefore, the Committee recommends that the Scottish Government and COSLA should consider undertaking a review of how benchmarking is used within local government with a view to agreeing a template for the future.

Investing in efficiencies

57. In many cases, projects resulting in efficiencies might require an up-front investment and some projects may have a significant time lag between the initial investment and the realisation of benefits. Concerns were raised that in the current financial climate, local authorities may feel they have to seek projects with no requirement for an initial investment and where benefits may be realised in a relatively short timescale.

58. Given it is already recognised that there can be such a time lag – Colin Mair suggested that commonly it could be around 5 to 6 years – then consideration needs to be given to medium to long-term planning whereby potential efficiencies are identified for the future and the initial work undertaken now. The potential for seeking out projects with short-term gains would appear to be at odds with such an approach. As Colin Mair commented – “if it is becoming a struggle simply to deliver basic services from day to day, it will prove difficult to liberate that investment.”28

59. However, it could also be argued that if the pace of seeking efficiencies had been the same five or six years ago as it is now, then sufficient benefits might have been realised to ease some of the current financial pressures.

60. There appeared to be recognition among local authority witnesses that the pace of change would have to be stepped up given the financial pressures which local authorities would experience in the years ahead. Similarly, Sir John Arbuthnott commented that the pace of change had been slow to increase since 2000.

61. Witnesses suggested that best value should be the determining factor in deciding how to take forward projects to deliver efficiencies. Sir John Arbuthnott explained that—

“We cannot envisage the luxury of taking steps that look as though they might be helpful but which are not properly costed and which turn out to be more expensive and do not produce the goods. We must apply strict criteria. I will not go into this in great detail, but we have all heard of the cost of the UK NHS computer system. We cannot afford to do that kind of thing any more. We must make the best use of every pound of public expenditure and such risk must be clearly tested in the business planning process” 29

62. Colin Mair of the Improvement Service highlighted the issue of up-front investment and explained that previously an efficiency and reform fund was made available which public bodies could access to provide capital to kick-start certain types of shared services development30. He went on to say that—

“However, because of the financial circumstances, that fund will not be available in the future and we realise that we will need to look hard at other sources of investment. For example, should we bring in private partners, who would provide expertise and capital? Should we, quite properly, cash in existing elements of the asset base to fund transformation towards future benefits?”31

Monitoring

63. Since the Efficient Government programme was introduced, Audit Scotland has been involved in the development of efficiency technical notes and generally reviewing the methodology undertaken. This culminated in a progress report being produced in 2006 which considered the extent to which reported efficiency savings were based on robust processes and information. The report identified a number of areas where further work was required to improve the measurement of savings. Those areas were:

  • that there must be good baseline information on cost and service outputs to measure progress against efficiency targets.

  • that there must be monitoring in place to track the impact of efficiency savings to ensure that quality of services has been maintained (Audit Scotland noted this was prevalent in some areas but not in others and it also noted that quantification can be difficult).

  • that there needed to be robust methods employed to calculate efficiency gains.

  • that there should be better supporting information (eg, to provide audit trails).

  • that there should be consistency in the calculation of development costs – in some instances savings were shown gross of any development costs and in others, these costs were netted off. Audit Scotland believed the guidance was sufficient in these areas but that it had not been followed in practice.

64. In June 2009, Audit Scotland announced that it would undertake a further study of the delivery of efficiencies in the public sector. The aims and objectives of the study are to:

  • provide an overview of the 2005-06 – 2007-08 Efficient Government Initiative, including the reported savings from the programme; and

  • assess the readiness and ability of public bodies to deliver and monitor efficiency savings and highlight areas of good practice and areas for improvement

65. In assessing the readiness to deliver and monitor efficiency savings, Audit Scotland will undertake a detailed review of a sample of public bodies and will include examination of the commitment and leadership of bodies to deliver efficiency savings. Fieldwork will be carried out at 15 public bodies across central government, local government and the NHS with 5 bodies being selected from each. This report was due for publication in November 2009, but it is understood that this will be delayed until early in 2010.

66. The Committee notes that each individual local authority publishes an annual efficiency statement and that is made available for audit. It would appear that to date, no challenges have been made by Audit Scotland to these statements. COSLA considered that this could be taken as a ‘good sign’ considering that if the efficiency savings had been “egregiously wrong” then they would have been challenged.

67. The Committee appreciates that, as it is a report from Audit Scotland, the Public Audit Committee (PAC) will consider the study on efficiencies in the public sector. However, this Committee signals its intention to examine the study, after due consideration by the PAC, and to consider whether to take further evidence in this area.

Shared Services

Background

68. The issue of sharing services is an integral part of seeking efficiencies. In the absence of a published definition of shared services, Councillor Michael Cook described the shared services approach as that which “involves any co-operative arrangement that is designed to deliver services as efficiently as possible to meet customers’ needs”.32

69. Local authority witnesses suggested that such co-operative work may have taken place in the past but it might not necessarily have been characterised as a “shared service” and, according to Councillor Michael Cook, “we may not have waved the flag strongly enough to signal our success in driving forward efficiencies.”33

70. In his report on shared services in the Clyde Valley Area, Sir John Arbuthnott outlines what he sees as the significant challenges facing local authorities in the current economic climate and in the future. He states that the eight councils who formed the focus of this review and others—

“cannot meet this challenge with short term solutions, such as year on year efficiency savings or ‘salami slicing budgets’. The council and their public and private sector partners need to take a more strategic long term view.”34

Current activity

71. Sir John Arbuthnott who led the review of joint working and shared services in the Clyde Valley area, spoke about how the activities and spend of local authorities can be divided into three parts. The bottom part represents support services (also known as “back office functions”) and this constitutes about 15 per cent of spend. The middle part is what Sir John calls ‘civic infrastructure’ – involving the management of all kinds of assets and that has been calculated as constituting around 35 per cent of spend. Finally, the top part is front-line services. Sir John Arbuthnott commented that “If we are committed to maintaining the front line…we have to consider where else we can make savings.” He went on to say that—

“the front line is not static…Front-line health services have changed phenomenally during the past five to seven years and the same is true for education and social work. The extent to which people can work together to develop services is hugely important.”35

72. During the round-table session, Angela Scott from CIPFA highlighted that considerable savings had been made in the health service although this required a “massive cultural shift” in the sector. She highlighted that collaborative procurement across a number of public sector organisations was a relatively underdeveloped area of activity although she considered that centres of expertise were beginning to facilitate work in this area.

73. In terms of the capacity of local government to deliver shared services, Angela Scott considered that the focus to date had been on back office functions and she stated that savings in this area “will simply not scratch the surface of the challenges presented by the financial envelope that we are facing.”36

74. This comment appears to tie in with Sir John Arbuthnott’s calculation that such support services only account for around 15 per cent of total local authority spend.

75. COSLA’s written submission laid out a number of examples of shared services, notably Scotland Excel which is designated as “the local government procurement centre of excellence” and the national recruitment portal, known as myjobscotland. The submission goes on to say that Scotland Excel has 29 contracts available to all members with projected savings of £3.9m (5.9% of estimated spend) and by the end of 2009-10, 45 contracts will be in place with a £1b value. In terms of myjobscotland, the submission states that 700 jobs are advertised every week which will release £6m per annum for front-line delivery.37

76. Recent press reports suggest that Edinburgh, West, East and Mid Lothian, Borders and Fife councils will seek to pool a raft of services. Detailed proposals are due to be tabled early in 2010.

77. Sir John Arbuthnott’s review suggested there was considerable scope for shared services in the Clyde Valley Community Planning Partnership Area. His review’s recommendations included:

  • Local authorities and Health Boards should work together to create an integrated health and community care service in each local authority area

  • There should be an integrated approach to waste management

  • There should be a single social transport solution

  • Councils and partners should have a joint and streamlined approach to fleet management and maintenance

  • There should be a shared roads maintenance programme

  • There should be property sharing and management in local hubs

  • A joint approach to "back office" services should be developed

  • Joint workforce planning

  • A common charging framework.

Potential tensions

78. However, it was also recognised that there were other factors which needed to be taken into account when considering shared services. For example, Mary Pitcaithly from Falkirk Council spoke about concerns people have that shared services will lead to job loss and that was particularly pertinent in rural areas.

79. Rory Mair from COSLA considered the issue of shared services within the context of Best Value and emphasised that councils not only looked internally in applying Best Value but also considered wider impacts. Colin Mair commented—

“In the search for best value, councils will have to look across a broader spectrum. One of the reasons why we ended up with a telephone service for trading standards that is located in the Western Isles—if you phone that number, you get through to someone in the Western Isles—was that that created a reasonable amount of jobs there. Those jobs are vital to the place where the service is located because it is located in the Western Isles—creating 10 jobs in Glasgow would not have had the same impact. That shows that people cannot just think about best value within their own council. We find that we now have to say that, if people are going to centralise a service, which brings with it all the problems that are associated with a service not being local, they have to ensure that they get best value out of the place where they decide to centralise that service. Best value, therefore, is a genuinely important consideration”38.

80. Colin Mair, from the Improvement Service, also highlighted a tension in the shared services agenda that the aggregation of contracts or of service delivery mechanisms could drive efficiencies at a regional or national scale whilst at the same time having a detrimental impact upon local economies. He emphasised the importance of local decision-making, and in particular the role of local Councillors, in providing a mechanism to ensure that local communities were not adversely affected by the development of shared services.

81. The impact that efficiency agendas can have upon local communities and businesses was reflected in the recent response from the UK Government, to a report from the Scottish Affairs Select Committee, who stated that local authorities should not publish job advertisements and public notices solely online. The UK Government commented with regard to job advertisements that:

“While this recommendation is mainly addressed to local authorities, the Government takes the view that there should not be a policy of publishing notifications only online. Part of the duty when placing notices, such as job advertisements, is that they are effective in reaching their target population”39.

82. In relation to public notices the UK Government commented—

“While notifying bodies have a duty to be efficient, they must also use appropriate means to reach their target audience, and should not adopt a policy of publishing online simply to save money”40.

83. The Committee notes that the Scottish Government has recently announced a consultation on whether to allow public notices, such as planning applications and road closures, to be advertised online in place of newspapers. The Committee looks forward to the conclusion of this consultation and to scrutinising the statutory instrument which the Scottish Government intends to lay following the consultation.

84. Jo Armstrong also raised concerns over how far initiatives such as the pooling of contracts can go. She differentiated between the procurement of for example utility-type services and those services that are more personal in nature, such as care services. She commented that—

“It is not right to pool large contracts for care services, exclude the end users from the decision-making process and treat them like light bulbs. That does not fit with the personalisation agenda at all.”41

85. This echoes the Committee’s inquiry into home care services for the elderly where for example, it recommended that the process of e-auctioning should never be used for such services and that standard procurement terms such as “lots” were totally inappropriate to use in connection with these services.

86. Colin Mair from the Improvement Service made the point that there can be a “time lag of about five to six years between the initial investment and the realisation of benefits.”42 This was echoed by Councillor Michael Cook. However, it could be said that work on shared services should have begun in earnest much earlier, with the possibility of there being financial benefits coming to fruition now. Sir John Arbuthnott stated that “the fact is that the pace has been slow to increase.”43 The Committee recognises that increasing the pace of change during a recession is a challenging task facing local government and that earlier progress in this area, during the relatively benign financial environment in previous years, would have been beneficial. However the Committee considers it essential that increasing the pace of change in delivering shared services is essential if local government is to successfully meet the challenges of the changing nature of public sector finances.

The Role of the Scottish Government

87. The Scottish Government is committed to a shared services agenda. However the review by Sir John Arbuthnott comments that whilst money has been invested in previous shared services programmes, “measurable benefit from these programmes has often appeared difficult to verify or quantify. This has led to some understandable frustration about the value or the pace of change in shared services”44. It notes that there has been limited operational or frontline sharing of services between councils. The report states that as a result there are a range of legal and procurement challenges to sharing services between local authorities and other public sector organisations that have not been fully tested in Scotland.

88. The report highlights a range of support required from the Scottish Government including:

  • Overcoming any legal impediments, including clarifying the Power of Wellbeing, and considering statutory instruments or other legislation to enable new practices to go ahead;

  • Providing advice on equal pay issues when entering into a partnership with another authority or body where the terms and conditions are diverse;

  • Entering into a partnership or discussions about how resources can be freed up or councils allowed to borrow to pump prime elements of an evidenced shared service proposal;

  • Providing support and national solutions to service areas which affect not just the Clyde Valley but Scotland as a whole such as waste management and roads maintenance and repair;

  • Supporting the acceleration of integrated local health and community care services by addressing the ‘grit in the system’;

  • Adopting a joint approach nationally to business regulation and consumer protection; and

  • Providing specialist government or external advice or assistance to provide capacity or capability when breaking new ground or to sustain a programme of change.

89. In particular, the report stresses that it is ‘a matter of urgency’ that the Scottish Government clarifies the extent of the power to advance well-being. The discretionary power was created under the Local Government in Scotland Act 2003 and it enabled local authorities to do anything they considered was likely to promote or improve the well-being of their areas and/or people with those areas.

90. The report suggests that the Scottish Government could support secondary legislation to smooth the way for inter-authority shared services. The report indicates that councils are currently open to legal challenge when using the power in the context of shared services and therefore this is an additional risk for local authorities when considering shared services.

91. The Committee seeks further information from the Scottish Government on what action it intends to take in relation to the suggestion in the Arbuthnott report that secondary legislation could smooth the way for inter-authority shared services.

Staffing

92. During the round-table discussion, Angela Scott from CIPFA noted that “some 50 per cent of most local authorities’ budgets goes on salaries”45. Therefore, the question was raised as to whether further, significant efficiencies could be made without impacting on jobs and pay.

Local authority pay

93. There are separate pay agreements for different categories of staff employed by local government. This means that chief officers have a different pay agreement to staff in local government and teachers are also subject to a different agreement. The current position with regard to pay negotiations in local government is that there is already a settlement in place for teachers which will deliver an across-the-board increase of 2.4 per cent in 2010-11 and there is an existing settlement for chief officers which will deliver 2.5 per cent in 2010-11. There is no existing pay deal for the remainder of local authority staff. Trade union representatives for those staff have submitted a pay claim seeking an across-the-board increase of 3 per cent in 2010-11 with a minimum pay rate of £7 per hour.

94. Given the proportion of the local authority budget that is spent on salaries, it was suggested in the round-table evidence session that consideration should be given to an across-the-board pay freeze. For example, Jo Armstrong suggested that if salary increases were capped or if there were no salary increases, that would “at least in the short-term – free up a considerable amount of cash, which would help pave the way for future progress.”46

95. Local authority representatives appeared to take the view that there would be considerable pressure on local authority budgets in future pay rounds but that it was too early to be specific at this stage. For example, Alex Jannetta from Falkirk Council confirmed the following:

“If you look at the major components of a local authority’s budget, you will see that half of it goes to education. If you add on social work, police and fire, that takes you up to about 80 per cent. Pay for teachers and so on is therefore a major part. Future awards will undoubtedly apply pressure to local authority budgets. Until we get our settlement figures towards the end of the year, and we see how our budgets will work out in detail, the question of the affordability of pay awards cannot be fully answered .”47

96. Not unsurprisingly, the local authority trade unions were concerned about the implementation of a pay freeze. They acknowledged the financial pressures under which local authorities are operating but made the point that they wanted to defend their members’ pay and suggested that public sector pay rises had not exceeded private sector pay rises over the last 20 to 30 years.

97. Given that some categories of staff in local government already have implemented pay deals, the question was raised as to whether those deals could be re-examined, to avoid only one set of workers being subject to a pay freeze.

98. The unions were unanimous that existing pay deals should not be reopened. Glyn Hawker from Unison stated that—

“We also have to consider the national health service in Scotland, which is covered by a three-year pay deal that the Scottish Government implemented under a UK agreement. It would be an unacceptable unfairness for local authorities to revisit pay agreements for local government workers – indeed we would end up in far more of a mess. On the broader picture of public sector pay, we need to take into account that we are not talking only about pay rates that are determined in Scotland, even when separate bargaining is involved.”48

99. In relation to those workers for whom a pay deal has not yet been agreed, Rozanne Foyer from Unite stated that—

“There should be a fair settlement. If an employer pays 2.5 per cent to one section of the workforce, it should consider seriously where the money will come from to make similar settlements to all the people for whom it has responsibility, including indirect responsibility.”49

100. When pressed on whether it was possible to achieve this in the current financial situation, she commented that unions had not been consulted on a number of issues which had impacted on councils resources and that “where the money is going to come from is an issue for the employer.”50

101. Local government pay is not agreed by the Scottish Government nor does the Scottish Government’s public sector pay policy apply to local government. However, it was recognised that the public sector pay guidance issued by HM Treasury and the Scottish Government’s pay policy does set a tone for public sector pay more generally.

102. Given this and the fact that the Scottish Government funds approximately 80% of local authorities’ budgets, the Cabinet Secretary for Finance and Sustainable Growth was asked to comment on pay increases within local government. The Cabinet Secretary responded that it was for local government to decide what its approach would be to pay levels and that “they must take a decision that is sustainable within the resources that they have available, but that is entirely a question for local government to judge and not one for me to consider.”51

103. However, the Cabinet Secretary did make reference to the Scottish Government’s pay policy, pointing out that a pay policy covering 2010-11 would be published in the spring of 2010 and that “local authorities might consider and take cognisance of that policy, but they are free to consider another approach.”52

104. The current Scottish Government pay policy contains a number of elements but the current policy (2009-10) sets a cap of 1.5% on pay increases. In his Pre-Budget Report, the Chancellor of the Exchequer stated that there would be a cap of 1% on pay increases for 2011-12 and 2012-13. Regarding pay for senior staff, the Pre-Budget Report stated that the Senior Civil Service paybill would be cut by up to £100m over three years and that any new government appointment over £150,000 and all bonuses over £50,000 would require Treasury approval.

105. Given that staffing accounts for around half of local authority budgets53, the Committee recognises that freezing or cutting pay may seem an attractive option when seeking savings. However, this could also be viewed as a blunt management tool and it could be argued that there are other ways in which costs could be driven down. In addition, as with the issue of shared services, the impact on the local economy as a result of decisions taken should also be recognised. That said, it is properly the role for the trade unions and COSLA to negotiate a pay deal for staff in local authorities.

106. In looking at the example of Scottish Water, the Cabinet Secretary commented that one of the main driving forces behind the improvements was the leadership of the management in that organisation. While not seeking to compare local authorities with Scottish Water, the Committee notes that in the round-table evidence session a number of comments were made regarding the quality of management within local authorities and in particular, the ability to innovate. While local authorities themselves did not necessarily agree with this, it is an issue which local authorities could usefully examine.

Voluntary sector pay

107. The issue of pay in the voluntary sector was also discussed during evidence. This is directly related to Petition PE 1231 which was referred to the Committee and which the Committee agreed to consider as part of this inquiry. Essentially, the Petition calls for a national framework for public service contracts to ensure equitable wages and conditions between front line voluntary sector workers delivering public services and public sector workers.

108. The unions commented that many local authority services are now delivered by the voluntary sector and suggested that this has allowed local authorities to make savings by driving down the costs of these services, which has resulted in the pay and conditions of staff in this sector also being driven down. Glyn Hawker from Unison stated—

“pay and terms and conditions have often been flattened because the sector does not have the necessary level of funding.”54

109. Rozanne Foyer from Unite described the current situation as “a complete crisis”55.

110. This was echoed by representatives from the voluntary sector. Helen MacNeil from Glasgow Council for the Voluntary Sector said that her own organisation tried to continue to pay cost of living increases to staff and pay increments to allow staff to progress from the minimum to the maximum of their pay scale but that a lack of funding meant they were unable to do this. She went on to say “we would like to be able to reinstate them. Parity of pay and a recognition that workers in the third sector should be able to look for increases and increments are important. It is about respect.”56

111. During its evidence session on home care services for the elderly, the Committee was told that the voluntary sector provided as good or better quality services than local authorities. The question was therefore asked whether it would represent best value to direct more money into a sector which was already producing a high quality service.

112. Peter McColl from the Scottish Council for Voluntary Organisations responded that not only was there an issue of principle with regard to workers receiving equal pay for equal work, albeit in different sectors, but also a question of sustainability. He said that—

“The longer we go on paying lower wages, diminishing those organisations’ reserves and demoralising their workforces, the less likely it is that that situation will be sustainable. If we wish to sustain a situation in which we get the highest-quality services for lower costs, I suspect that providing slightly more money to do that would be a sensible move.”57

113. Given that local authority unions were arguing for pay increases in local government and simultaneously making an argument for pay parity in the voluntary sector, the question was asked as to how feasible it was, in the current climate, to bring pay levels into line. The unions recognised that it would be difficult in the current climate, but equally stated that it was their duty to point out where they believed pay discrimination existed. Peter McColl from SCVO noted that the pact between STUC, SCVO, Unite, Unison and Community Care Providers Scotland which dealt with pay in the voluntary sector among other issues was signed in 2007 and that perhaps it would have been easier to achieve pay parity at that time. However, he went on to say that “in principle and pragmatically, it would be prudent to move to a more sustainable model for the financing of voluntary sector organisations.”58

114. The Cabinet Secretary was asked about this issue and commented that resolving the differential rates of pay could not be achieved in the short term. However, he did state that the Scottish Government was taking steps to ‘remedy the situation’ and that a joint agreement had been secured between the third sector (as represented by SCVO), COSLA and the Scottish Government on the role of the third sector in public service delivery. He stated—

“Progress is starting to be made on some issues, although I do not for a moment suggest that the are all now resolved…the Government will do what it can, through the agreement that has been negotiated…to promote that fair and appropriate approach to remuneration in the third sector.”59

115. The Committee notes that even those who supported Petition PE 1231 recognised that it would be difficult to achieve pay parity in the current economic climate and also notes the Scottish Government’s statement that it is taking steps to remedy the situation.

116. The issue of pay parity also featured in the Committee’s evidence sessions on home care services for the elderly. The Committee was told by Community Care Providers Scotland that for voluntary organisations to provide these services, the mid-price range would be around £14-£18 per hour while in their view, local authorities would struggle to go below £20 per hour. The Committee considers that the difference between these hourly rates cannot be down to salary levels alone. Indeed the City of Edinburgh Council commented thatA high hourly rate does not necessarily equate to better pay for front-line workers.”60

117. The Committee also recognises that best value does not necessarily equate to the cheapest service and the Committee recommended as a result of its evidence sessions on home care services for the elderly that the process of e-auctions whereby contracts were awarded to the cheapest bid should be deemed wholly inappropriate.

118. The Committee believes that these issues should be examined as part of any ongoing discussions as a result of the agreement between the Scottish Government, SCVO and COSLA.

Staffing levels

119. Questions were raised over whether it was possible to maintain current staffing levels in the current climate, particularly if a pay freeze was not to be instituted.

120. Unison claimed that there were already 6,700 fewer workers in local government in Scotland than there were two years ago. However, it was not clear whether this was in part due to transfers of staff into arms-length companies rather than a decline in the actual number of staff carrying out particular functions. Unison’s subsequent response confirmed that these numbers were gleaned from Scottish Government statistics on public sector employment. These statistics do report the number of people employed by local authorities however they do not include employees of arms-length companies who were previously employed by local authorities.

121. In evidence, the Cabinet Secretary for Finance and Sustainable Growth confirmed that the Government publishes public sector employment statistics quarterly and went on to say that the Scottish Government had started to report an additional series of statistics on employment within public bodies at a “very disaggregated level, so it is possible to see the patterns of public sector employment down to a very detailed level.”61

122. However, it does not appear that such disaggregated statistics have been published and therefore the Committee asks the Cabinet Secretary to clarify the situation and recommends that, if plans are not already in place, that statistics should be disaggregated to give this level of information, including employment level of former local authority employees now employed in arms-length companies, in order that an accurate picture of employment within the public sector can be obtained.

123. The unions confirmed that they expected to see fewer jobs over the next 5 years either as a consequence of the recession or of having to seek further efficiency savings. Stephanie Herd from Unison summed it up by saying “savings might be made through services being outsourced or provided indirectly or through services simply no longer being provided.”62

124. Unison gave the example of Aberdeen City Council where 200 teaching assistant posts were being lost. However, the union stated that this was nothing to do with new technology or efficiencies but was “a reduction in front-line support for our children in school classrooms.”63

125. Dave Anderson from the City of Edinburgh Council reported that the council had instituted a vacancy freeze which he described as a “bit of a blunt instrument” and went on to say that undoubtedly the council would need to look towards selective voluntary severance in areas where income is falling short. However, he also cautioned that “we need to be prudent because, if we cut capacity too much and then there is a pick up, we might regret our decisions.”64

126. The Committee notes that since these evidence sessions took place on 9 September 2009, there have been a number of subsequent announcements of potential job loss in local authorities. For example, it was reported that Glasgow City Council are to offer a voluntary redundancy scheme to staff aged over 50 in an attempt to reduce costs and to cut up to 4000 jobs.

127. The unions counselled against cutting funding to front-line services (and therefore staff) at a time of rising unemployment where people were more likely to need local authority services and raised concerns that “severe financial cuts” would be made and “knee jerk reactions” would occur which would result in a loss of services and ultimately, a loss of jobs. Rozanne Foyer summed this up by saying—

“Let us not repeat the mistakes that were made in previous recessions by cutting vital public services that are provided to the most vulnerable people. In some ways, this is the very time when we should be putting the most into such services. We will see the effects in future generations if we make the wrong decisions now.”65

128. Commenting on his expectation that there will be a number of years of real terms reductions in future Scottish budgets, the Cabinet Secretary stated—

“It is inconceivable that we will see that pattern of real-terms reductions in budgets taking its course without reductions being made in public sector employment. I do not know what the exact numbers will be beyond 2010-11; I have no revenue budget numbers available to me beyond 2011 that allow me to give a definite answer on that point. However, as a general observation, that is my conclusion.”66

129. The Committee notes the Cabinet Secretary’s observation that there will be reductions in public sector employment in the future. The Committee also notes that there have been recent announcements by some local authorities regarding potential job loss (eg, Glasgow and Aberdeen) and that in the current economic climate, it is likely to be an issue faced by a number of authorities.

130. The Committee appreciates that while some authorities are not filling vacancies, some others may find that this is not sufficient to address the issue of staffing levels and may feel that they need to go further. The Committee notes the unions’ views about the need to avoid cutting front-line services and agrees that local authorities need to determine what their priorities are going to be in examining staffing levels to ensure that services vital to the local area are not jeopardised.

131. Local authorities will inevitably also need to consider the impact of any potential job loss on the local economy so that areas which are economically vulnerable from the impact of significant job loss are not further affected.

132. The Committee appreciates that these are difficult decisions to take and Dave Anderson from the City of Edinburgh Council made a valid point when he counselled against cutting capacity to the extent that front-line services could be affected in the future. The Committee also appreciates that local authorities are having to examine their budgets at a time when demand for many of their services is actually increasing.

133. The Committee further notes that the Arbuthnott Review signalled that the scale of the financial challenge cannot be met by short term solutions “such as year on year efficiency savings or ‘salami slicing’ budgets and that authorities should take a more strategic, long term view. The Committee’s view is that such an approach should also apply to the examination of staffing levels.

134. The Committee appreciates the desire to secure pay increases and to maintain current staffing levels and front-line services. However, in the current climate, it seems inevitable that trade-offs will need to take place because not everything can be achieved within current budgets. The Committee assumes that such discussions will take place between local authorities and trade unions during their forthcoming negotiations on pay and staffing levels.

Funding for redundancies

135. Given the desire to make immediate savings, some witnesses questioned whether making staff redundant would lead to reduced costs, particularly in the first year. Both Dave Anderson from the City of Edinburgh Council and Derek Cunningham from East Dunbartonshire Council commented on the cost to a local authority in one year of redundancy payments to staff. Dave Anderson further commented that “that approach would therefore not get us out of a hole in the current year, although it might help us to trim our cloth in future years.”67

136. Derek Cunningham suggested that consideration should be given to having a mechanism to allow local authorities to capitalise their redundancy costs over a certain period of time. Such a scheme has recently been approved by the Treasury to allow capitalisation of some equal pay costs.

137. When asked for his views on this, the Cabinet Secretary stated that “it is certainly an option”. He confirmed that while he had not discussed the issue with COSLA, local authorities had approached Scottish Government officials about the issue. He also commented that the Treasury could not reasonably be expected to agree to all capitalisation schemes that are put to it. He concluded by saying—

“We will endeavour to secure the mechanisms that allow us to be as supportive as possible in any question that is raised with us, but I have to be mindful of the requests that we place in the Treasury to support schemes of that type.”68

138. What this shows is that reducing staffing levels is not in fact a cost-free option and that redundancy packages (particularly where the people involved are on relatively high salaries and have long service) can be substantial.

139. In addition to the up-front costs of funding a redundancy package, there is also the question of the potential impact on local authority pension schemes as a result of the payment of early retirement pensions, the continuing liability to pay pensions to staff who have left and the reduction in employee contributions as a result of staff leaving. All of these factors can have a bearing on the cost of a pension scheme.

140. However, in his Pre-Budget Report, the Chancellor stated—

“Cap and share reforms to the Teachers, Local Government, NHS and Civil Service pension schemes will cap the contribution to pensions made by employers, thereby limiting the liability of the taxpayer as pensions become more valuable. Cost increases below the cap will be shared equally between employers and employees, and those above the cap met solely by employees. In addition, as part of cap and share, the Government will expect those earning the highest salaries to pay a greater contribution towards their pension.”69

Outsourcing

141. The outsourcing of services was considered to be one possible way in which to seek efficiencies. Local authority representatives made the point that outsourcing should be seen as part of the solution but that there was “no obvious evidence that, in itself, outsourcing would reduce costs significantly.”70

142. The unions suggested that contracting-out to the private sector could be more costly in the long-term. However, they also said (as noted earlier in this report) that staff who are not directly employed by local authorities and who have been contracted-out either to the voluntary or private sector have much lower levels of wages.

143. In the round-table sessions, Professor Richard Kerley made it clear that he did not advocate the wholesale contracting-out of local authority services however he did believe that lessons could be learned from the contracting process. In citing an example of the management of urban car parking he concluded that “enforcement, fine collection and general practice improve, but I argue that they do so not because of bringing in a contractor but because of a different way of looking at what we are doing.”71

144. The Committee examined the issue of outsourcing and the re-tendering of services in its evidence sessions on home care services for the elderly. During evidence, Community Care Providers Scotland suggested that the prime motivation for local authorities re-tendering and outsourcing services was to reduce costs. Annie Gunner Logan stated—

“Our members' experience of bidding in procurement exercises is that the procurement process is simply not adequate to assess sufficiently the quality of the service or the capacity of the bidder to deliver it. That has risks for the wellbeing of the people who will end up at the receiving end of these services.”72

145. South Lanarkshire and the City of Edinburgh Council on the other hand, made clear that one of the main drivers for their tendering exercise was to rationalise the number of providers to reduce turnover. Jim Wilson from South Lanarkshire Council stated that—

“By moving from having 27 providers to having only six, we were looking to stabilise the market and give a smaller number of companies longer-term security of employment and, therefore, greater stability for their staff.”73

146. What was apparent from these evidence sessions was that while there can be a place for outsourcing, it is extremely important to ensure that the quality of the service remains high. A number of concerns were raised that quality was being sacrificed in order to reduce costs, and in particular that wage levels and conditions were depressed to keep costs down.

147. Therefore, the Committee is of the view that if outsourcing of any services is to be considered, that it should be undertaken in the context of a strategic review to determine how best to deliver a service, rather than viewed as a cost-cutting exercise.

Council Tax Freeze

148. Throughout the inquiry, a number of witnesses raised the issue of the current council tax freeze, with some questioning whether it was sustainable. In a joint submission to the Committee, Dundee, Falkirk, South Ayrshire and Highland Councils stated that the current freeze should be reviewed, stating—

“This measure may not be sustainable and reduces the flexibility to local authorities in relation to generation of funding, and puts added pressure on the grant settlement which is providing funding to local authorities in lieu of increasing council tax. Extending the council tax freeze will require additional funding to be allocated by the Scottish Government, which will in turn lead to higher levels of efficiency saving required and additional pressure on pay awards to maintain service levels.”74

149. In oral evidence, David Dorward of Dundee City Council commented that the arguments for a council tax freeze had been “very persuasive”75 and that if the council had not frozen its council tax for three years they “would not have received the cumulative effect of the grants and [they] would be sitting with £5 million less at the starting point in 2010-11.”76 Later he stated that it would be up to the Scottish Government to determine whether or not the freeze is to continue but concluded that local authorities could probably manage in the short term but that it would be difficult to see a council tax freeze for 2013-14.77

150. The Cabinet Secretary for Finance and Sustainable Growth viewed the situation differently and asserted that the way in which money has been provided to local authorities to freeze council tax would help local government in relation to their finances. The Cabinet Secretary stated—

“The Government is providing £70 million to support a council tax freeze. The gross domestic product deflator in the budget is 1.5 per cent. Essentially, the £70 million would equate to a 3.2 per cent increase in the council tax. Councils will get their share of that £70 million, but inflation will be running at less than half that rate so there is a financial benefit to local authorities in the council tax freeze funding support that we are making available. I am sure that that will help local government to manage the pressures that they wrestle with in relation to public finances.”78

151. The Cabinet Secretary was asked whether local authorities and COSLA had accepted this argument that there is essentially an ‘inflation bonus’. He confirmed that he had not discussed these numbers with COSLA and went on to say—

“I have no reason to have that conversation with COSLA because, at the outset of the spending review, I set out the approach that we would take to the £70 million. At no stage did I say to local government that the money that I made available for the council tax freeze would depend on the rate of inflation at any given time. I could have introduced variability and said that the proportion of the budget for the council tax freeze would be driven by the retail prices index at, for example, September each year. If that had been the case, I would have set it at -1.3 per cent this year, but I did not do that. Instead, I put in a fixed sum of £70 million each year because that was the calculation that was driven at the start of the spending review. We have had no reason to re-examine that because I have never cast any doubt on whether local government would receive that amount.”79

152. On the other hand, Councillor Michael Cook questioned whether, over time, the £70m funding from the Scottish Government would be considered adequate. He stated—

“we have to acknowledge that, as time goes by, the adequacy of that compensation will…become a matter of increasing consideration. Given all the pressures that are loaded in the system, local authorities will want to reflect on whether £70 million will continue to be adequate. “80

153. When the Scottish Government announced its plans to freeze council tax levels, it was clear that this was part of its preparations to replace the council tax with a local income tax.81 This suggests that a freeze was never intended to be sustainable in the longer term. What is also clear is that the economic situation is markedly different to 2007 when the freeze was first announced.

154. Local authorities have frozen council tax levels for the past two years and the 2010-11 local government settlement provides a further £70m for authorities to extend the freeze for another year.

155. It is not possible to state categorically what will happen to the council tax beyond this Parliamentary session, given that this will be determined by the outcome of the next Parliamentary elections and the policies of the parties within the Parliament. However, the Committee notes that the current Scottish Government will have responsibility for setting the 2011-2012 budget and it is not clear whether there is an expectation that council tax will continue to be frozen in that financial year. While the Committee appreciates that the level of the Scottish budget is not known beyond 2010-11 (particularly as this is beyond the current Spending Review period), the Committee seeks clarification over whether the Scottish Government intends to continue the council tax freeze into 2011-12.

Charging for services

156. There does not appear to be a uniform charging policy across local authorities, nor is there a comprehensive list of which local authorities use which fees and charges. The “Scottish Local Government Financial Statistics 2007-08” represents the most recent figures on the revenue being raised by local authorities through sales, rents, fees and charges. In 2007-08, sales, rents, fees and charges which are allocated to local authority general funds accounted for £1,202m.

157. The same publication provides a breakdown on the level of sales,82 fees and charges by service area for the period 2003-04 to 2007-08. This indicates that the service areas contributing the largest proportion of local authority sales, rents, fees and charges income are social work (21.3%), roads and transport (12.1%) and planning and economic development (11.8%).

158. In his report on shared services, Sir John Arbuthnott also identifies that there is no uniform national charging policy and the 8 authorities which were the subject of his review do not “individually appear to have a corporate charging framework for their own services, although they have individual charges for specific services.”83

159. The analysis of charges in the review gives some indication of the lack of consistency with regard to charging. For example, South Lanarkshire Council makes no charge for domestic waste special uplifts, whereas Inverclyde Council charges £50.20 per half hour as a minimum charge.

160. In the round-table session, Jo Armstrong suggested that apart from reducing spending through the freezing of salaries, that local authorities should consider reintroducing charging for services where these had been removed.

161. Rory Mair confirmed that COSLA had debated this issue a number of times and made clear the view that it was for individual councils to decide the level of fees and charges that they levy. He did, however, offer this view on services charges—

“Charging additional fees for necessary services may just put more pressure on people who are already suffering because of the downturn. It is not enough to ask whether we can charge for a service. As Sir John [Arbuthnott] said, if we are putting the citizen first, we must ask whether they would expect us to charge more for a service or to impose a new charge at a time when they are already being hit by the effects of the downturn.”84

162. Business representatives were asked for their views on charges for services and functions such as licensing and regulation. The FSB commented that a cost-neutral approach should be taken and that they accept there are costs involved and that these should not be subsidised. However, they also stated that they were concerned about the proportionality of charges and that they would “like the costs to be a bit more proportionate than they are at the moment.”85

163. In his review, Sir John Arbuthnott suggested the local authorities should consider new or increased fees and charges and he recommends that the 8 authorities within the review should work together to introduce a standard charging framework. The report does not advocate introducing charges for what Sir John Arbuthnott describes as “statutory or essential services” but for non-statutory services where it can be demonstrated that a charge “reflectsa reasonable cost for the service and where there is a ‘safety net’ for those who cannot afford to pay.”

164. He goes on to say that—

“the sustainability of continuing to provide certain services to all citizens without imposing any charging regime of those who do genuinely have the ability (if not desire) to pay needs to be reviewed). There is an opportunity to create choice and access to an extended range and quality of service through off-setting the cost of certain services by either charging a fee for the first time or increasing the level of fees already in place.”86

165. His report makes some initial proposals in relation to charging, which are:

  • An automated / self service transactional website where citizens can request and book chargeable Council services;

  • Single routing of telephone enquires about chargeable Council services through a Customer Contact Centre; and

  • Collection of as much income as possible in advance of service delivery.87

166. The Committee recognises that there are inherent problems in having a general approach to charging, given that each local authority will want to take account of its own circumstances. However, it agrees with Sir John Arbuthnott’s recommendation that councils should work together to introduce consistency “where this does not cut across local priorities to make this more easily understood by citizens and to avoid a ‘postcode lottery’ for fees and charges in neighbouring authorities.”88 The Committee further recommends that the Accounts Commission should undertake an audit of local authority charges across Scotland.

FURTHER ACTION REQUIRED

167. Witnesses from the round-table discussion tended to suggest that in a period of financial challenge, there would be a degree of protectionism, with Professor Alan Alexander making reference to the “sacred cows that have to be herded up”89.

168. It is not at all surprising that trade union representatives will want to protect wages and jobs and that businesses will want to keep costs to a minimum, but the question is whether everything can remain intact while budgets are being squeezed. It is debatable as to whether sufficient resources can be saved through efficiencies and while everyone agrees that the principle of sharing services is a good one, it is also recognised that sharing services in itself will not provide all the answers.

169. It is fairly obvious from the various announcements that have been made by local authorities during the course of this inquiry, that authorities are having to focus on the services they provide and the staffing levels they require. However, whether this is being done in a strategic rather than a reactionary manner remains to be seen. As will be seen from this and other sections in this report, the key issue appears to be prioritisation and this issue is addressed later in the report.

Effect on Voluntary Sector

170. A major concern raised during this inquiry was the impact . of the current economic situation on the third sector. During the round-table session, Professor Richard Kerley suggested that local government is saving money by putting cost-reduction burdens onto the voluntary sector. This was echoed by the unions and perhaps unsurprisingly, by the voluntary sector itself. This also chimes with the evidence that the Committee received during its inquiry into home care services for the elderly.

Effects of cost-cutting

171. During that inquiry, it was suggested that the prime motivation for local authorities re-tendering and outsourcing services was to reduce costs rather than the trigger for retendering being the performance of the service. The Committee had recommended that the Scottish Government should issue a statement to local authorities stating that saving money should be balanced by the quality and continuity of care. The Cabinet Secretary responded that guidance on the procurement of social care services underlined the need for local authorities to have a strategy for the procurement of social care services which recognises the need to maintain the quality and continuity of services. He went on to say that revised draft guidance would be issued as a result of work being undertaken by the Joint Improvement Team and the Scottish Government’s procurement directorate.

172. The Committee will consider this guidance and will decide whether it wants to undertake further work in this area.

173. Mary Pitcaithly from Falkirk Council took issue with the view that local authorities’ main priority was cost-cutting to the detriment of a quality service. She stated—

“We recently carried out an exercise on commissioning of home care services…We were clear that our primary aim had to be to minimise disruption for service users…Cost was an issue, but it was by no means the determining issue. Quality and continuity of care were every bit as important, if not more so.”90

174. This view was echoed by Rory Mair of COSLA who commented—

“The concern is that, given the financial situation that we are in, we might dump services on the third sector on the basis that it would be cheaper. However, that is not a reason for using the third sector; we should use the third sector when it has the best skills to offer the service that communities need, and it should be properly financed.”91

175. In discussing the agreement reached between the Scottish Government, SCVO and COSLA on the role of the third sector in public service delivery (which, as mentioned earlier in the report, looks at comparative pay among other issues), the Cabinet Secretary also spoke about the need to contract services to the voluntary sector when it has the relevant skills, stating—

“There is compelling evidence that demonstrates that the voluntary sector’s support to vulnerable individuals can deliver better outcomes than public sector support can in a variety of different areas, simply because the third sector is able to provide services in a more flexible and appropriate fashion, which meets the needs of individuals.”92

176. However, Peter McColl from the SCVO commented that—

“there is a perception in the third sector that third sector services get cut first. Many of our colleagues presume that that is the case, but there is a real need for information on that. We have tried to gather that information, but serious effort is required to drill down and find out exactly how cuts in third sector services compare to cuts in public sector services. It is difficult to gather that information.”93

177. He went on to say that even perception alone can be problematic because it leads to a reluctance or inability to plan for the long-term and provide sustainable services.

178. The Committee agrees that there should be better information on the comparison between the services provided by the third sector and the public sector as outlined by the SCVO. The Committee recommends that the Scottish Government should undertake such an information gathering exercise in tandem with COSLA and SCVO.

Community Benefit Clauses

179. Representatives from the Scottish Social Enterprise Coalition (SSEC) suggested that they wanted to see more local authorities being encouraged to let more of their contracts using community benefit clauses. As its name suggests, a community benefit clause is a clause in a tender or contract that aims to achieve a community benefit or social consideration as part of the procurement process. SSEC argued that having such a clause would allow their members (third sector organisations trading for profit but which feed profits back in for ‘social, environmental and wider benefits’) to compete on a level playing field with the private sector for contracts. They also suggested that this would enable the private sector to “embrace community benefit clauses in tendering for contracts.”94

180. In evidence, the Cabinet Secretary confirmed that community benefit clauses now played a much more significant part in the negotiation of contracts.

181. The Committee recommends that community benefit clauses should be integrated more into contracts to help protect jobs in the local area etc. It recognises, however there will need to be an evaluation of potential benefits as part of the procurement process.

A ‘Perfect Storm’

182. Voluntary sector representatives described to the Committee a ‘perfect storm’ resulting from the current recession where not only do they lose funding from local authorities but also from the private sector and a range of other sources. The current dispute between the Lloyds TSB Foundation for Scotland and Lloyds TSB and the potential affect on charitable funding is a recent example of the types of pressures facing the sector.

183. In their written submission, SCVO pointed out that local government was responsible for around 28% of the funding acquired by the voluntary sector in 2006-07. Therefore, questions were raised as to whether this perfect storm was being exacerbated by other funders, rather than only by local government’s grant funding. There was a general acceptance that funding from the Scottish Government and from the private sector and reduced income from donations all played their part, but Helen MacNeil from Glasgow CVS additionally commented that local government “disproportionately funds more small to medium-sized organisations and organisations that are run purely by volunteers.” Adding that there were a number of organisations such as sports, arts and community learning that were “100 per cent local government funded.”95

184. Sir John Arbuthnott expanded on the notion of a perfect storm. As a trustee of the Lloyds TSB Foundation for Scotland, he commented that he has noticed that voluntary sector organisations are finding it increasingly difficult to put together the funding packages necessary to deliver their services. The result of this is that “an organisations’ particular voluntary project will depend more and more heavily for support on the local authority; it will become almost local authority provision, because organisations cannot get the money from anywhere else. However, local authorities cannot afford to take that on.”96

185. Colin Mair of the Improvement Service drew a distinction between large voluntary organisations, frequently delivering contract-based services, with substantial multi-million pound turnovers and small, volunteer-run services. He considered that the bureaucracy surrounding the accessing of funding for small organisations was overly laborious and required streamlining whilst also suggesting that local voluntary organisations had to become more ‘imaginative’ about their use of funds and relationships with other bodies.

186. The Committee notes the potential for this “perfect storm” and for local authorities to be viewed as the funders of last resort. Since the Committee took evidence on this inquiry, further issues have arisen such as the ongoing dispute between the Lloyds TSB Foundation for Scotland and Lloyds TSB which has the potential to have a significant impact on the voluntary and charitable sector. The Committee intends to hold an evidence session on this issue in the near future.

ECONOMIC DEVELOPMENT

187. The inquiry also sought to look at the role local authorities have to play as economic drivers, particularly in light of their expanded remit following the transfer of the Business Gateway function from Scottish Enterprise to local authorities and to assess the actions that local authorities can take to assist local businesses during the current recession.

The Economic Development function

188. In the round-table session, Henry McLeish questioned whether local authorities would be able to provide an effective economic development function, commenting—

“when Scottish Enterprise was reviewed and reformed, we decided to give part of its economic development function to local government. We cannot have a demonstration model and compare it to a placebo but, basically, if the economic development function disappeared from the 32 councils in Scotland tomorrow, with the exception of Glasgow and Edinburgh councils, would we notice a difference in the outcomes for jobs, prosperity or housing? To be controversial, I hazard a guess that the answer is no.”97

189. David Anderson from the City of Edinburgh Council partly echoed this point when he commented that “economic development has been a bit of a Cinderella function in local authorities outside the major cities.” He went on to say that—

“When SE [Scottish Enterprise] had a strong local presence through the local enterprise company network, a small number of people in each authority could always work with it to make things happen. To some extent, that arrangement has been undermined by the changes that have been made to the enterprise network.”98

190. Business representatives were asked whether there was an argument for the economic development function being reserved to larger cities than given to all local authorities. The representatives tended to shy away from suggesting there should be a further reform of enterprise services, with Garry Clark from the Scottish Chambers of Commerce suggesting that more information was needed about how delivery was taking place throughout Scotland.

191. Derek Cunningham from East Dunbartonshire Council commented that there needed to be a local perspective to economic support and development. He made the point that given his authority’s close proximity to Glasgow that “there needs to be a local perspective to ensure that the interests of East Dunbartonshire businesses are understood.”99 Although he acknowledged that the local versus regional or national debate was one that was inherent in any type of shared service.

192. While local authority representatives stated that economic development was a key issue for their respective councils, there was also an acknowledgement that this development role would come under pressure in a challenging economic climate and that demands on services from businesses would increase.

193. David Anderson outlined that in the City of Edinburgh Council, his department has a budget of £83m, however £59m of that is income dependent from areas such as car parking charges, building warrant fees and planning applications. However, the council’s economic development service has a budget of around £5m which, as Mr Anderson put it, “is not a huge amount of resource.”100 He went on to say that “what councils have available for discretionary spend on economic development is limited.”101

194. The main issue which came through the evidence chimed with the evidence received throughout the rest of the inquiry which was that, in a time of financial turmoil, local authorities would need to make some hard choices and the process of prioritisation had to begin. David Anderson, in recognising the increasing demands of business, stated that “our commitment throughout the council to start to move more money into economic resilience and development requires hard decision to be made about cuts elsewhere.”102

195. However, when asked what his members’ priorities would be for example between business rates being cut or having wider support for economic development, Colin Borland of the FSB suggested that would probably be a false choice. Adding that, “you have to ask whether there is so little fat elsewhere in the public sector that we have to come down to the choice between either reimposing a disproportionate and unfair burden on the smaller businesses, which will be key to producing jobs, or cutting all sorts of vital services.”103

196. Although representatives from local authorities spoke about a number of initiatives that had been set up to aid business, it was not entirely clear whether the hard choices, of which they had spoken, were actually being taken. The issue of prioritisation is addressed later in this report.

Business gateway contracts

197. The Business Gateway is the primary mechanism for engaging with and supporting SME businesses in Scotland. It operates through a national web service, call centre and a series of regional contractual arrangements. The Business Gateway was transferred from Scottish Enterprise to local authorities in 2008.

198. There appeared to be a degree of scepticism over the operation and effectiveness of the business gateway contracts and additionally, questions were raised as to whether there were sufficient resources to support it.

199. It was noted that the Business Gateway contracts were drawn up at a time of economic growth and that they were focussed (appropriately at that time according to witnesses) on business start-ups. However, as stated by Colin Borland of the FSB, “now that the focus is on business survival, the model has to change.”104

200. This view was echoed by David Anderson who stated—

“One of the challenges is that we are constrained by the terms of the existing business gateway contract, which is predicated on start-ups. The demand that is now coming from business is much more about the survival of existing companies and help with things like getting bills paid on time, cash flow management and fuel efficiency. We are responding as best we can within quite tightly constrained resources to make every penny count, from our own spend and from that of other public agencies.”105

201. The Cabinet Secretary was asked whether he shared this view that the current business gateway contracts were too rigid to be able to deal with the changing economic circumstances and priorities. He confirmed that the issue had been raised with him by the FSB and confirmed he would be happy to listen to any further evidence on the issue because it was necessary to ensure that the business gateway services are “appropriate for the times and people’s requirements.”106

202. The Committee is concerned by the evidence it has received that there is not sufficient flexibility within the business gateway contracts to deal with the current challenges in this economic climate. The Committee also notes the Cabinet Secretary’s willingness to listen to further arguments on this subject and recommends that the Scottish Government review the current business gateway contract, in conjunction with local authorities and business organisations, to ensure that it does have sufficient flexibility to deal with changing economic circumstances and priorities.

TIF and LABGI

203. In written evidence, both the Scottish Property Federation and CBI Scotland supported the introduction of Tax Increment Financing (TIF). TIF refers to a taxation tool used to finance current improvements in infrastructure which are expected to result in wider gains for public and private assets, primarily property, which will generate increased tax revenue in the future, termed the “tax increment”. Within a designated area, the increase in the value of property and associated increase in tax revenues is used to service the debt on the infrastructure supported. TIF has been widely used in the United States, as a means of regenerating localities, and the Chancellor of the Exchequer stated in the 2009 Budget that the Treasury was interested in working with local authorities and city-regions to see how the method could work in the UK.

204. In evidence to the Finance Committee during scrutiny of the 2009-10 Draft Budget, the Cabinet Secretary explained that the Scottish Government was exploring the issues and practicalities associated with TIF.

205. CBI Scotland and the Federation of Small Businesses also suggested that the Scottish Government should consider whether there was a case for introducing the “Local Authority Business Growth Incentive Scheme” (LABGI) which is currently operating in England. This scheme financially rewards local authorities who directly promote the greatest levels of economic growth in their area by allowing the local authority to retain all or a proportion of increases in revenue in business rates in their area. The scheme in England is run by the Department for Communities and Local Government.

206. In oral evidence, the FSB outlined that the theory of the LABGI is that it will incentivise authorities to promote economic activity. The FSB concluded that such a scheme should be seriously considered by the Scottish Government. This was echoed by the Scottish Chambers of Commerce who stated they would support a debate on the issue.

207. When asked about TIF and LABGI, the Cabinet Secretary confirmed that there had been discussions with local government about the model for TIF; that the City of Edinburgh Council had approached the Scottish Government about a model and that there had also been discussions with COSLA, given that the model raises questions about the current approach to the distribution of business rates which, in the words of the Cabinet Secretary “causes a frisson of debate across the land.”107

208. In his statement to Parliament on the Local Government Finance Settlement 2010-11, the Cabinet Secretary reported the recommendations of the joint officer review group whose membership included COSLA and a cross-section of local authority Directors of Finance. This group was tasked to examine the current distribution of resources to local authorities and one of its recommendations was there should be a business rates incentivisation scheme and that further work should be carried out to develop the options to implement a scheme from 2011-12. The Cabinet Secretary confirmed that he had accepted this recommendation.

209. The Committee recognises that local authorities need to find solutions to their economic problems in the short-term and therefore, schemes such as TIF and LABGI may not be able to provide these short-term solutions. However, the Committee asks the Scottish Government to provide it with updates as this development work progresses.

PRIORITISATION

210. It has been clear throughout the course of this inquiry, that the current financial situation in local authorities is such that there needs to be a more fundamental debate about prioritisation. From the round-table discussion and other evidence sessions it is clear there is a difference of opinion as to whether the current financial problems are a direct result of the recession or whether they are symptomatic of longer-term problems within local government.

211. Whatever the reasons underlying the current difficulties local authorities are experiencing, it is clear that they are having problems in balancing their budgets and that discussions are taking place over what ‘has to give’.

212. The unions raised concerns that authorities might use the recession as an excuse for a ‘knee-jerk’ reaction to cut jobs and services. Local authorities argued that difficult decisions would need to be taken, but would be taken in a considered way.

Role of elected members

213. In the round-table discussion, Henry McLeish suggested that elected members should take on a far more prominent role in the management of local government, saying that—

“I would like to think that the vision is to try to get councillors more involved. There is a curious paradox in that we are arguing for better management, but in many councils the senior officials are too much in control and not much political leverage is exerted. I would rather trust local politicians than some senior officials to be alive to what is happening in the community – whether or not there is a recession.”108

214. Local authority representatives were questioned as to whether their elected members were playing a leading role in dealing with the current financial crisis. All the representatives present assured the Committee that their elected members were fully engaged in the process and individual examples, such as what was described as a “politically-led recession action plan” in Highland Council were given.

215. Alan Geddes from Highland Council outlined the process in his authority where elected members have asked for three-year projections and that these projections will—

“let our politicians understand what those target reductions might actually look like and feel like for service delivery and to allow them to exercise their political discretion over the various choices and options.”109

Provision of services

216. Concern was expressed during the inquiry that local authorities would look to cut services which were considered ‘easier’ to cut, rather than taking a more strategic overview. Earlier in this report, the issue of whether the voluntary sector would bear the brunt of such an approach was discussed.

217. Local authority representatives confirmed that they were undertaking a process of prioritisation and Mary Pitcaithly, from Falkirk Council outlined a list of issues which were considered to be priorities. She stated that “indeed, the list of priority services is hugely long, but at the moment the priority is to ensure that our community comes through the recession stronger and better placed for what lies ahead.”110

218. However, this raised concerns that everything was considered to be a priority and that that situation was not sustainable. Mary Pitcaithly responded that –

“if we protect education and health…the CPPR predicts that other services will have to bear cuts of 40 per cent. That suggests that a lot of services that are perhaps discretionary, but which are important to quality of life and which make a difference to communities – libraries, sports facilities and community education – would have to bear incredibly difficult cuts.”111

219. Councillor Michael Cook appeared to make a distinction between what might be termed mandatory and non-mandatory services. He explained that—

“Ultimately, local authorities will be governed by the requirements of statute, to a large extent. If services are mandatory, local authorities will have an obligation to continue to provide them. They will need to make judgements about non-mandatory services.”112

220. When further questioned about this, Councillor Cook commented that local authorities were currently having to make judgements about what services they can provide but that discussions were unlikely to be polarised around whether the provision of a service is statutory or discretionary or indeed, that if a service is discretionary that there would be an assumption that it would no longer be funded.

221. Colin Mair from the Improvement Service suggested any such debate needed to be set in the context of the current focus on outcomes and that many services, whether statutory or not, will contribute to the same outcomes. He added—

“we need to ensure that we do not lurch back into a polarised debate in which the provision of a primary school is statutory but investing in the community is not. We should invest where the outcomes need to be achieved instead of having a rather sterile debate about the extent to which the provision of a service is statutory.”113

222. When asked about this issue, the Cabinet Secretary said that he detected “no enthusiasm in local government for providing only statutory services.” Adding “councils want to do much more than they are obliged to do by statute and they do that.”114

223. Professor Richard Kerley counselled against trying to distinguish between statutory and discretionary services. He echoed Colin Mair’s point that many activities in local government involve a mix of statutory and voluntary provision.

224. Councillor Michael Cook hinted that the Concordat might need to be revisited when he said—

“We must be realistic and acknowledge that, in light of local government’s significant burdens, we need to consider timescales and the level of some commitments – I refer to our national commitments. We must also acknowledge that all those things will not be sufficient to bridge the gap that we face, and that it is likely that, at some point down the line, councils will have to do less than they are currently doing.”115

225. On that specific issue, the Cabinet Secretary responded that he understood that COSLA, at its convention in June, had “reaffirmed its view that it [the Concordat] was a desirable and effective basis for a relationship with the Government.” He went on to say that he was “not aware of any desire to move beyond that position.”116

226. The Committee notes that local authorities do not appear to be having a debate over what are statutory and non-statutory services, however it is concerned that no-one seemed able or prepared to speculate on what basis discussions over prioritisation of services were taking place.

227. In the round-table discussion, Henry McLeish commented that there had not been a significant debate about service provision priorities.

228. Rory Mair made the point that local authorities should now be looking over a 10-year timescale rather than over a three year spending review timescale as was previously the case. He suggested that strategic decisions would need to be taken by saying that “we have to consider how we can ensure that the decisions we make now do not adversely affect the direction of travel in that 10-year timescale.”117

229. He also made the point that this was a new debate for COSLA and that “leaders must address the general trend over a much longer timescale and how to react to it”. However, he also said that “the debate has not yet focused on which services we will be able to provide, but we will have to assess every service”.118

230. The Committee is concerned that at the end of September, COSLA was not yet having a debate about the services that local authorities should provide. Given that local authorities have made the case that their finances are being stretched now and their problems are immediate, the Committee is concerned that local authorities may undertake ‘knee jerk’ reactions to cutting costs if a more strategic discussion about what can and cannot be provided is not being undertaken.

231. Sir John Arbuthnott stated that—

“local authorities face a real challenge, because they have to do their budgeting for the coming year and the year after in the here and now. Hopefully, given that they will have been advised by COSLA and influenced by the work of the review [Sir John’s review of shared services in the Clyde Valley], they will take into account the longer-term implications.”119

Role of local government

232. The Committee recognises that the debate about service provision is one that is required both for the short and the long-term. As Henry McLeish stated “although there are huge pressures from the recession in the short term, they will be insignificant relative to the pressures that local and central Government will face over the next decade”.

233. In relation to this, he stated—

“We have 32 this and 32 that, but we have to balance local democracy and local accountability. The obvious point is that every service could go to central Government. However, I am not arguing for that; I am arguing for a better sense of what we need to provide and what we are providing so that local government can be world beaters in the service provision areas that it is good at.”120

234. It was generally agreed that the fundamental question is whether local government should be the deliverer or commissioner of services. Professor Stephen Bailey went further, suggesting that local government might not even need to provide nor commission services, citing Canada as an example of where the local community produces services itself.

235. Witnesses in the round-table session questioned whether some of these fundamental questions and the issue of shared services lead into a discussion about the structure of local government. Professor Alan Alexander argued that the more local government relied on shared services, the more that the question of structure is “inevitably raised”; adding that “the two cannot be separated.”121

236. He went on to say that he believed it was a mistake for the Concordat to rule out a discussion on the structure of local government. However, Henry McLeish made the point that in his experience, once a debate on structure took place, “all the real issues disappeared – it became a case of shuffling the deckchairs on the good ship local government.” He concluded by saying—

“I agree that we want to avoid – at times of crisis now and in the future – the issue of structures becoming a convenient way out for those who do not want to think about the serious problems.”122

Conclusion

237. The debate over the services that local authorities should provide is key to their financial health. This is echoed in Sir John Arbuthnott’s review of shared services in Clyde Valley where one of his key messages is that authorities should revisit current priorities, with partners and with the Scottish Government and make sure they are focussing on the right outcomes for their communities.

238. While the Committee is not advocating an examination of local government boundaries, it is acutely aware that the decisions that are taken now on prioritising services will have a significant impact on the people of Scotland and everyone will have to live with the consequences. While there is some evidence of discussions beginning to take place, it is imperative that there is a wider debate on the issue of how and what services are provided by local authorities.

239. The Committee notes the comments from COSLA and Sir John Arbuthnott that local authorities need to start planning over a longer period (say ten years). It also notes the comments from the round-table discussion that elected members need to take on a far more prominent role in the management of local government. The Committee questions whether it is realistic to expect local authorities to develop ten-year plans and considers that such plans raise fundamental questions regarding democratic accountability within local authorities.

240. The Committee also recognises that the idea of ten-year plans and sharing services across local authorities has the potential to fundamentally affect the shape of local government services and indeed, the shape of local government itself.

241. The Committee appreciates that it has not been possible to conduct an in-depth examination of these fundamental issues in the context of this inquiry. Therefore, it signals its intention in the future to undertake an inquiry into how local authorities deliver services.

LOCAL GOVERNMENT FINANCE – GLOSSARY OF TERMS

Total Revenue Support – Revenue funding from the Scottish Government to local authorities. Total revenue support comprises general revenue funding, non-domestic rate income and ring-fenced grants.

General Revenue Funding – a general revenue grant from the Scottish Government to local authorities which local authorities determine how to allocate across local authority service areas.

Non-Domestic Rate Income – A form of taxation which applies to businesses in Scotland, which is levied at the same rate across Scotland with monies billed and collected by local authorities.

Ring-Fenced Grants – Revenue grants which are distributed from the Scottish Government to local authorities and which must be spent on certain functions or service areas as determined by the Scottish Government.

Total Support for Capital – comprises all capital support provided by the Scottish Government to local authorities comprising General Capital Grants, Specific Capital Grants and Supported Borrowing.

General Capital Grant – a general capital grant from the Scottish Government to local authorities with local authorities able to determine how the monies are spent.

Specific Capital Grants – Capital grants which are distributed by the Scottish Government to local authorities and which must be spent to implement a particular policy objective set by the Scottish Government.

Supported Borrowing – the Scottish Government sets a amount which local authorities can borrow up to and the Scottish Government provides the funding to meet the loan charges in any given year

Prudential Borrowing – borrowing which is made that adheres to the ‘Prudential Code for Capital Finance’. Local authorities are required to finance such borrowing through their own accounts in line with the terms of the prudential code. Such borrowing relies largely on self-regulation by local authorities although Scottish Ministers retain reserve powers to intervene in circumstances where local authorities are perceived to have contravened the prudential code.

Council Tax – a compulsory property based form of local taxation. Properties across Scotland are allocated to one of eight ‘bands’ based on the value of a property and local authorities set a council tax level for each of the eight bands and collect the tax.

Sales, Fees and Charges – revenues which local authorities generate as a result of services which councils provide such as, charges for leisure facilities, parking fees etc.

Revenue Expenditure – Current expenditure, the benefit from which is received in one financial year.

Revenue Income – Income received by a local authority from council tax, total revenue support, fees and charges, benefit subsidy and housing rent.

Capital Expenditure – expenditure to fund the acquisition of a new asset or the enhancement of an existing asset. The asset is expected to yield benefits for a period of more than one year. Capital expenditure is funded through a variety of sources including prudential borrowing, capital receipts, general capital grants, supported borrowing and specific capital grants.

Annexe A: EXTRACTS FROM THE MINUTES OF THE LOCAL GOVERNMENT AND COMMUNITIES COMMITTEE

15th Meeting, 2009 (Session 3), Wednesday 20 May 2009

1. Decision on taking business in private: The Committee agreed to take item 3 in private. The Committee will also agreed to take the consideration of a draft report on equal pay at future meetings in private.

3. Local Government finance (in private): The Committee agreed its approach to an inquiry into Local Government finance.

20th Meeting, 2009 (Session 3), Tuesday 1 September 2009

1. Decision on taking business in private: The Committee agreed to take item 5 in private. The Committee also decided to consider the evidence heard on its inquiry into local government finance at future meetings in private.

2. Local Government Finance inquiry: The Committee took evidence in a roundtable discussion from—

Professor Alan Alexander;

Jo Armstrong, Independent Consultant;

Professor Stephen Bailey, Professor of Public Sector Economics, Glasgow Caledonian University;

Professor Richard Kerley, Professor of Management and Vice Principal, Queen Margaret University;

Rt Hon Henry McLeish;

Angela Scott, Head of the Chartered Institute of Public Finance and Accountancy in Scotland.

5. Local Government Finance inquiry (in private): The Committee considered the main themes arising from oral evidence heard.

21st Meeting, 2009 (Session 3), Wednesday 9 September 2009

Local Government Finance inquiry: John Wilson declared he was a member of Unite.

The Committee took evidence from—

Stephanie Herd, Chair, and Glyn Hawker, Scottish Organiser, Bargaining and Equal Pay, Unison Scotland;

Rozanne Foyer, Senior Regional Organiser, Unite;

Jacqui Watt, Board Member, and Craig Sanderson, Board Member, Scottish Social Enterprise Coalition;

Peter McColl, Policy Officer, Scottish Council for Voluntary Organisations;

Helen MacNeil, Chief Executive (Glasgow), and Kenny Murphy, Chief Executive (Falkirk), Council of Voluntary Services;

Kevin Hutchens, Aberdeen Trades Union Council;

David Dorward, Deputy Chief Executive, Dundee City Council;

Alan Geddes, Deputy Chief Executive, Highland Council;

Mary Pitcaithly, Chief Executive, and Alex Jannetta, Director of Finance, Falkirk Council.

Local Government Finance inquiry - witness expenses: The Committee agreed to delegate to the Convener responsibility for arranging for the SPCB to pay, under Rule 12.4.3, any expenses of witnesses in the inquiry.

Local Government Finance inquiry (in private): The Committee considered the main themes arising from oral evidence heard.

22nd Meeting, 2009 (Session 3), Wednesday 16 September 2009

Local Government Finance inquiry: The Committee took evidence from—

David Anderson, Director of City Development, City of Edinburgh Council;

Derek Cunningham, Director of Development and Infrastructure, East Dunbartonshire Council;

Colin Borland, Public Affairs Manager Scotland, Federation of Small Businesses;

Garry Clark, Head of Policy and Public Affairs, Scottish Chambers of Commerce.

Local Government Finance inquiry (in private): The Committee considered the main themes arising from oral evidence heard.

23rd Meeting, 2009 (Session 3), Wednesday 23 September 2009

Local Government Finance inquiry: The Committee took evidence from—

Sir John Arbuthnott, Chair, Clyde Valley Review of Joint Working and Shared Services;

Rory Mair, Chief Executive, Councillor Michael Cook, Spokesperson for Strategic Human Resources Management, COSLA; and Colin Mair, Chief Executive, Improvement Service.

Local Government Finance inquiry (in private): The Committee considered the main themes arising from oral evidence heard.

27th Meeting, 2009 (Session 3), Wednesday 4 November 2009

Local Government Finance inquiry: The Committee took evidence from—

John Swinney MSP, Cabinet Secretary for Finance and Sustainable Growth, Bill Stitt, Assistant Team Leader, and David Henderson, Deputy Director, Local Government Finance Division, Scottish Government.

31st Meeting, 2009 (Session 3), Wednesday 25 November 2009

1. Decision on taking business in private: The Committee agreed to take item 5 and future consideration of a draft report into local government finance in private.

5. Local Government Finance inquiry (in private): The Committee considered a draft report.

32nd Meeting, 2009 (Session 3), Wednesday 2 December 2009

Local Government Financeinquiry (in private): The Committee agreed to defer this agenda item to next week's meeting.

33rd Meeting, 2009 (Session 3), Wednesday 9 December 2009

Local Government Finance inquiry (in private): The Committee considered a draft report and agreed to consider it again at its next meeting.

1st Meeting, 2010 (Session 3), Wednesday 13 January 2010

Local Government Finance inquiry (in private): The Committee considered a draft report and agreed certain changes.

2nd Meeting, 2010 (Session 3), Wednesday 20 January 2010

Local Government Finance inquiry (in private): The Committee considered a revised draft report. Various changes were agreed to, and final agreement to the revised report was delegated to the Convener and Deputy Convener.


Footnotes:

1 Scottish Parliament Local Government and Communities Committee. Official Report, 1 September 2009, Col 2208

2 Clyde Valley Review. (2009) Clyde Valley Review 09

3 Institute of Fiscal Studies. (2009) The Public Finances and the age of austerity. Available at:http://www.ifs.org.uk/publications/4571 [Accessed 15 December 2009]

4 Audit Scotland. (2009) Scotland’s Public Finances. Available at: http://www.audit-scotland.gov.uk/work/central_national.php [Accessed 15 December 2009]

5 An increase in capital receipts does not impact directly upon the capacity to borrow prudentially, howeverit can reduce the needfor prudential borrowing to be used to support capital expenditure. The capacity of any local authority to borrow prudentially is driven by a range of indicators relating to prudence, affordability and financial sustainability.A key element within this processrelates to the futurerevenue resourcesof a local authority as these willdetermine whether the cost of interest charges and the repayment of debt can be met.

6 Scottish Government. (2006) A Fairer Way: Report by the Local Government Finance Review Committee. Available at: http://www.scotland.gov.uk/Publications/2006/11/06105402/27 [Accessed 15 December 2009]

7 Scottish Parliament Local Government and Communities Committee. Official Report, 1 September 2009, Col 2205

8 Scottish Parliament Local Government and Communities Committee. Official Report, 1 September 2009, Col 2205

9 Scottish Parliament Local Government and Communities Committee. Official Report, 1 September 2009, Col 2206

10 Scottish Parliament Local Government and Communities Committee. Official Report, 1 September 2009, Col 2206

11 Scottish Parliament Local Government and Communities Committee. Official Report, 4 November 2009, Col 2532

12 Scottish Parliament Local Government and Communities Committee. Official Report, 1 September 2009, Col 2207

13 Audit Scotland. (2009) Scotland’s public finances. Available at: http://www.audit-scotland.gov.uk/work/central_national.php [Accessed 15 December 2009]

14 City of Edinburgh Council. Written submission to the Local Government and Communities Committee.

15 Scottish Parliament Local Government and Communities Committee. Official Report, 1 September 2009, Col 2239

16 Scottish Parliament Local Government and Communities Committee. Official Report 1 September 2009, Col 2239

17 Scottish Parliament Local Government and Communities Committee. Official Report 1 September 2009, Col 2211

18 Scottish Parliament Local Government and Communities Committee. Official Report, 1 September 2009, Col 2241

19 COSLA. Written submission to the Local Government and Communities Committee

20 Scottish Parliament Local Government and Communities Committee. Official Report, 1 September 2009, Col 2212

21 Scottish Parliament Local Government and Communities Committee. Official Report, 1 September 2009, Col 2212

22 Scottish Parliament Local Government and Communities Committee. Official Report, 9 September 2009, Col 2289

23 Scottish Parliament Local Government and Communities Committee. Official Report, 23 September 2009, Col 2355

24 Scottish Parliament Local Government and Communities Committee. Official Report, 4 November 2009, Col 2539

25 Scottish Parliament Local Government and Communities Committee. Official Report, 4 November 2009, Col 2539

26 Scottish Parliament Local Government and Communities Committee. Official Report, 1 September 2009, Col 2234

27 Scottish Parliament Local Government and Communities Committee. Official Report, 1 September 2009, Col 2235

28 Scottish Parliament Local Government and Communities Committee. Official Report, 23 September 2009, Col 2368

29 Scottish Parliament Local Government and Communities Committee. Official Report, 23 September 2009, Col 2368

30 This fund was created in 2006 and merged the existing Efficient Government Fund with the Modernising Government Fund. The total value of the Fund (since its inception in 2006) was £64,385,286. In 2007-08, local government was allocated a total of £10.247m from this fund (£6.045m revenue and £4.202m capital). In fact, in 2008-09, this allocation was rolled up into the overall local government settlement

31 Scottish Parliament Local Government and Communities Committee. Official Report, 23 September 2009, Col 2368

32 Scottish Parliament Local Government and Communities Committee. Official Report, 23 September 2009, Col 2349

33 Scottish Parliament Local Government and Communities Committee. Official Report, 23 September 2009, Col 2355

34 Clyde Valley Review. (2009) Clyde Valley Review 09

35 Scottish Parliament Local Government and Communities Committee. Official Report, 23 September 2009, Col 2351

36 Scottish Parliament Local Government and Communities Committee. Official Report, 1 September 2009, Col 2230

37 COSLA. Written submission to the Local Government and Communities Committee

38 Scottish Parliament Local Government and Communities Committee. Official Report, 23 September 2009, Col 2364

39 House of Commons Scottish Affairs Committee. Crisis in the Scottish Press Industry: Government’s Response to the Committee’s Fourth Report, Third Report of Session 2008-09. Available at:

http://www.publications.parliament.uk/pa/cm200809/cmselect/cmscotaf/981/981.pdf [Accessed 15 December 2009]

40 House of Commons Scottish Affairs Committee. Crisis in the Scottish Press Industry: Government’s Response to the Committee’s Fourth Report, Third Report of Session 2008-09. Available at:

http://www.publications.parliament.uk/pa/cm200809/cmselect/cmscotaf/981/981.pdf [Accessed 15 December 2009]

41 Scottish Parliament Local Government and Communities Committee. Official Report, 1 September 2009, Col 2234

42 Scottish Parliament Local Government and Communities Committee. Official Report, 23 September 2009, Col 2353

43 Scottish Parliament Local Government and Communities Committee. Official Report, 23 September, Col 2354

44 Clyde Valley Review. (2009) Clyde Valley Review 09

45Scottish Parliament Local Government and Communities Committee. Official Report, 1 September 2009, Col 2208

46 Scottish Parliament Local Government and Communities Committee. Official Report, 1 September 2009, Col 2240

47Scottish Parliament Local Government and Communities Committee. Official Report, 9 September 2009, Col 2283

48 Scottish Parliament Local Government and Communities Committee. Official Report, 9 September 2009, Col 2261

49 Scottish Parliament Local Government and Communities Committee. Official Report, 9 September 2009, Col 2262

50 Scottish Parliament Local Government and Communities Committee. Official Report, 9 September 2009, Col 2263

51 Scottish Parliament Local Government and Communities Committee. Official Report, 4 November 2009, Col 2527

52 Scottish Parliament Local Government and Communities Committee. Official Report, 4 November 2009, Col 2527

53 Scottish Parliament Local Government and Communities Committee. Official Report, 1 September 2009, Col 2208

54 Scottish Parliament Local Government and Communities Committee. Official Report, 9 September 2009, Col 2260

55 Scottish Parliament Local Government and Communities Committee. Official Report, 9 September 2009, Col 2254

56 Scottish Parliament Local Government and Communities Committee. Official Report, 9 September 2009, Col 2273

57 Scottish Parliament Local Government and Communities Committee. Official Report, 9 September 2009, Col 2277

58 Scottish Parliament Local Government and Communities Committee. Official Report, 9 September 2009, Col 2278

59 Scottish Parliament Local Government and Communities Committee. Official Report, 4 November 2009, Col 2530

60 Scottish Parliament Local Government and Communities Committee. Official Report, 3 June 2009, Col 2101

61 Scottish Parliament Local Government and Communities Committee. Official Report, 4 November 2009, Col 2543

62 Scottish Parliament Local Government and Communities Committee. Official Report, 9 September 2009, Col 2264

63 Scottish Parliament Local Government and Communities Committee. Official Report, 9 September 2009, Col 2264

64 Scottish Parliament Local Government and Communities Committee. Official Report, 16 September 2009, Col 2308

65 Scottish Parliament Local Government and Communities Committee. Official Report, 9 September 2009, Col 2265

66 Scottish Parliament Local Government and Communities Committee. Official Report, 4 November 2009, Col 2528

67 Scottish Parliament Local Government and Communities Committee. Official Report, 16 September 2009, Col 2308

68 Scottish Parliament Local Government and Communities Committee. Official Report, 4 November 2009, Col 2529

69 HM Treasury. (2009) Pre-Budget Report December 2009. Available at: http://www.hm-treasury.gov.uk/d/pbr09_completereport.pdf [Accessed 15 December 2009]

70 Scottish Parliament Local Government and Communities Committee. Official Report, 9 September 2009, Col 2281

71 Scottish Parliament Local Government and Communities Committee. Official Report, 1 September 2009, Col 2219

72 Scottish Parliament Local Government and Communities Committee. Official Report, 10 June 2009, Col 2077

73 Scottish Parliament Local Government and Communities Committee. Official Report, 10 June 2009, Col 2104

74 Dundee Council, Falkirk Council, South Ayrshire Council, Highland Council. Written submission to the Local Government and Communities Committee

75 Scottish Parliament Local Government and Communities Committee. Official Report, 9 September 2009, Col 2284

76 Scottish Parliament Local Government and Communities Committee. Official Report, 9 September 2009, Col 2284

77 Scottish Parliament Local Government and Communities Committee. Official Report, 9 September 2009, Col 2297

78 Scottish Parliament Local Government and Communities Committee. Official Report, 4 November 2009, Col 2529

79 Scottish Parliament Local Government and Communities Committee. Official Report, 4 November Col 2534

80 Scottish Parliament Local Government and Communities Committee. Official Report, 23 September 2009, Col 2375

81 Scottish National Party (2007). Early Actions of an SNP Government. Available at: http://www.snp.org/system/files/manifesto+first+steps.pdf [Accessed 15 December 2009]

82Sales refer to areas of incomes such as sales from local authority shops in museums, theatres and libraries, school meals, lunch clubs and staff canteens

83 Clyde Valley Review. (2009) Clyde Valley Review 09

84 Scottish Parliament Local Government and Communities Committee. Official Report, 23 September 2009, Col 2360

85 Scottish Parliament Local Government and Communities Committee. Official Report, 16 September 2009, Col 2337

86 Clyde Valley Review. (2009) Clyde Valley Review 09

87 Clyde Valley Review. (2009) Clyde Valley Review 09

88 Clyde Valley Review. (2009) Clyde Valley Review 09

89 Scottish Parliament Local Government and Communities Committee. Official Report, 1 September 2009, Col 2228

90 Scottish Parliament Local Government and Communities Committee. Official Report, 9 September 2009, Col 2288

91 Scottish Parliament Local Government and Communities Committee. Official Report, 23 September 2009, Col 2358

92 Scottish Parliament Local Government and Communities Committee. Official Report, 4 November 2009, Col 2531

93 Scottish Parliament Local Government and Communities Committee. Official Report, 9 September 2009, Col 2267

94 Scottish Parliament Local Government and Communities Committee. Official Report, 9 September 2009, Col 2278

95 Scottish Parliament Local Government and Communities Committee. Official Report, 9 September 2009, Col 2269

96 Scottish Parliament Local Government and Communities Committee. Official Report, 23 September 2009, Col 2380

97 Scottish Parliament Local Government and Communities Committee. Official Report, 1 September 2009, Col 2227

98 Scottish Parliament Local Government and Communities Committee. Official Report, 1 September 2009,16 September 2009, Col 2313

99 Scottish Parliament Local Government and Communities Committee. Official Report 16 September 2009, Col 2311

100 Scottish Parliament Local Government and Communities Committee. Official Report 16 September 2009, Col 2302

101 Scottish Parliament Local Government and Communities Committee. Official Report 16 September 2009, Col 2302

102 Scottish Parliament Local Government and Communities Committee. Official Report 16 September 2009, Col 2303

103 Scottish Parliament Local Government and Communities Committee. Official Report 16 September 2009, Col 2327

104 Scottish Parliament Local Government and Communities Committee. Official Report 16 September 2009, Col 2322

105 Scottish Parliament Local Government and Communities Committee. Official Report 16 September 2009, Col 2302

106 Scottish Parliament Local Government and Communities Committee. Official Report 4 November 2009, Col 2540

107 Scottish Parliament Local Government and Communities Committee. Official Report 4 November 2009, Col 2544

108 Scottish Parliament Local Government and Communities Committee. Official Report 1 September 2009, Col 2238

109 Scottish Parliament Local Government and Communities Committee. Official Report 9 September 2009, Col 2294

110 Scottish Parliament Local Government and Communities Committee. Official Report 9 September 2009, Col 2295

111 Scottish Parliament Local Government and Communities Committee. Official Report 9 September 2009, Col 2296

112 Scottish Parliament Local Government and Communities Committee. Official Report 23 September 2009, Col 2358

113 Scottish Parliament Local Government and Communities Committee. Official Report 23 September 2009, Col 2374

114 Scottish Parliament Local Government and Communities Committee. Official Report 4 November 2009, Col 2546

115 Scottish Parliament Local Government and Communities Committee. Official Report 23 September 2009, Col 2357

116 Scottish Parliament Local Government and Communities Committee. Official Report 4 November 2009, Col 2543

117 Scottish Parliament Local Government and Communities Committee. Official Report 23 September 2009, Col 2373

118 Scottish Parliament Local Government and Communities Committee. Official Report 23 September 2009, Col 2373

119 Scottish Parliament Local Government and Communities Committee. Official Report 23 September 2009, Col 2374

120 Scottish Parliament Local Government and Communities Committee. Official Report 1 September 2009, Col 2215

121 Scottish Parliament Local Government and Communities Committee. Official Report 1 September 2009, Col 2232

122 Scottish Parliament Local Government and Communities Committee. Official Report 1 September 2009, Col 2232