Hard times for local goverment

Budget struggles - Picture credit: ‘Comme Sisyphe’ by Honoré Daumier, Published in Le Charivari, 25 February 1869

Local government is a major employer and an important economic driver in many Scottish communities. However, in cash-strapped times its role in boosting the local economy become very difficult as it is faced with the prospect of budget cuts which often prompt job losses. For years, our 32 local authorities have been tasked with providing vital services, tailored to communities across the country, in the face of falling budgets. But with an ageing population and the ever-present spectre of poverty and low incomes placing huge strains on public services, councils are struggling.

In May, Scotland will take to the polls for the local government elections and local government finances will be an important campaign issue. In the middle of December, Finance Secretary Derek Mackay published his draft budget. In the week prior to this, the Convention of Scottish Local Authorities (COSLA), the umbrella body representing 28 of Scotland’s councils, released statements each day pointing out how a reduction in the local government settlement would affect services.

The Scottish Government provides around 60 per cent of councils’ total income.

COSLA president David O’Neill said: “All too often when we talk of cuts to local government, these are seen in the abstract. The reality is that we are talking about real cuts to services and jobs.

“The simple truth is that a cut to local government means a cut in teaching assistants, a cut in levels of care for all our elderly relatives, cuts for the homeless as a freezing winter starts to bite, and cuts to gritting of the roads at a time of freezing temperatures when trains and the wider transport network is struggling to cope.  

“The Government cannot simply bat this away by claiming that they are treating local government ‘fairly’ and ‘providing enough cash’.”

Derek Mackay is no stranger to these problems – he was local government minister between 2011 and 2014 – so when he announced the local government settlement as part of the draft budget, undoubtedly he must have expected a backlash.

On 15 December, Mackay announced that local government and public services would be better off by up to £240.6m in 2017/18. He said £111m of additional council tax revenues, expected to be raised from reform of the upper bands, would be available to be spent locally. He also announced that the Scottish Government would use its own resources to fund £120m going to schools to close the attainment gap.

This funding will replace plans to use council tax revenues to tackle the attainment gap, with Mackay instead stating local authorities will keep extra cash raised as a result of council tax reforms.

He said: “The measures I have announced mean that the total support from the Scottish Government and through local taxation provides an increase in spending power on local government services, not of £59.6 million, but of £240.6 million or 2.3 per cent.

“Local government will receive £120 million from central government to fund our shared ambitions to close the attainment gap.

“In addition, we will maintain councils’ share of capital spending with an increase of £150 million compared to 2016/17.

“Councils will keep the full value of the revenue from council tax re-banding – every penny raised locally will be spent locally as councils see fit.

“And local authorities will also be free to increase the council tax generally by up to three per cent next year, generating – if they so choose – a further £70 million.”

However, despite this, opposition parties said the amount of money going directly to councils was being cut in real terms. 

Scottish Labour leader Kezia Dugdale said the budget would “see the heart ripped out of public services”.

Speaking in the chamber after the announcement, she said: “However the Finance Secretary tries to spin it, this budget means a real-terms cut of £327 million from the SNP government to local services – it is there in black and white on page 91 of the budget document and SNP members would do well to read it.

“The SNP government is making up the difference by holding councils to ransom and forcing them to use their tax powers while it refuses to use its own. It could have asked the richest one per cent to pay a little more, with a 50p top rate of tax, but, again, it refused to do the right thing.

“The budget passes on Tory cuts to the people of Scotland and makes Derek Mackay no better than a Tory chancellor. We have the powers to do things differently; let us use them. Let us stop the cuts and ask those who have the broadest shoulders to pay a bit more. Let us protect local services. Let us grow the economy and create well-paid jobs. Labour cannot support a budget that has more than £300 million of cuts to local services at its heart.”

This is where it gets complicated. With all the claim and counter claim, who is correct? Opposition parties can quote figures which indicate that the budget is down. However, looking at funding for services, ministers can point to figures which show financial support is up.

The end of the council tax freeze in April will mean that local government leaders can increase the charge by up to three per cent. Mackay insisted the proposed local government finance settlement and changes to local taxation would mean £240m of additional money to support local government services.

While budget papers show a new chunk of cash going directly from the government to local services such as schools and social care partnerships, they also show a decrease in the pot of money that goes direct to councils. The key here is the wording: the difference between funding services and funding for councils.

Discussing the budget, David O’Neill said: “COSLA can never endorse a reduction to the core local government settlement as announced as part of the budget statement today. 

“It is our understanding that the Scottish Government had significant additional cash for 2017/18 and therefore this decision will impact on services delivered by local government.

“We fully recognise that the Scottish Government has made efforts to improve the settlement through their offer of a wider package including a major change on the council tax proposals. COSLA had lobbied the Scottish Government on their previous proposal and we are pleased that the Scottish Government has acknowledged this.

“Councils will now consider the whole package as part of their budget considerations and COSLA remains committed to working with Scottish Government across the range of common interests including public service reform.”

The SLGP – which includes Aberdeen, Glasgow, Renfrewshire and South Lanarkshire councils – said Mackay had used “smoke and mirrors to try and disguise the SNP’s slash and burn economic strategy”.

The formula used to work out how much each individual council receives is extremely complex and some local authorities will actually receive an increase in the amount of money they get from the Government. However, at the same time, they may still have less that they can decide how to use. 

When individual local authorities talk about cuts, they are not always talking about the amount they receive from central government. Cuts could come from councils trying to find savings in one part of the organisation in a bid to bolster another, for example, where demand is rising.

In November, the Accounts Commission published its financial overview report, stating that funding for councils has fallen by 8.4 per cent over the past six years. However, the report said the funding drop was approximately the same as the reduction in the Scottish Government’s total budget over the same period.

The commission said Scottish local authorities had managed their finances well but “significant challenges” lie ahead.

The report stated: “Councils’ budgets are under increasing pressure from a long-term decline in funding, rising demand for services and increasing costs, such as pensions.

“Councils need to change the way they work to deal with the financial challenges they face. All councils face future funding gaps that require further savings or a greater use of their reserves. There is variation in how well placed councils are to address these gaps.

“Long-term financial strategies must be in place to ensure council spending is aligned with priorities, and supported by medium-term financial plans and budget forecasts.”

It added that councils had remained within their overall budgets, increased their reserves slightly and reduced their debt in 2015/16.

However, the commission warned that local authorities need to change the way they work if they are to make the savings required. 

Ronnie Hinds, deputy chairman of the Accounts Commission, said councils are “generally doing a good job with their finances in difficult circumstances”.

“But pressures continue to increase on a number of fronts at the same time as they face the prospect of further reductions in their funding.

“It’s vital that councillors and officers set medium and long-term financial plans based on clear priorities for the services they provide to their communities,” he added.

As all parties start to think about this year’s election, it’s clear council finances are going to remain an important and divisive topic. Local government elections notoriously receive less attention than those at Holyrood or Westminster but this year, with fears of service cuts, it looks like all eyes will be on 4 May.