05.02.2009

So it looks like the vast majority of Scotland’s councils will end up with what, realistically, was the only option – no rise in council tax.

For most this was the second year running of tax freeze, although Glasgow is now onto its fourth successive year. The £70 million added to Scotland’s 2009/10 local government grant settlement, which was dependent on councils agreeing to no increase, was too much for councils to miss out on. For most, their share of the £70 million equated to what would have been a council tax rise of around 3%. For any council breaking the concordat and going against the wishes of the SNP government there would have had to be a significant increase in council tax well above inflation to see any net increase in council revenues. Increases of this size would be unpalatable and unacceptable to council tax payers already suffering under a worsening economy.

For many in the general economy a rise of income in line with the level councils will receive in 2009/10 is wishful thinking. But for Scotland’s councils an increase of this magnitude will bring with it some hard choices. The pay award for 2009/10 for local government staff is likely to be 2.5%, although even this has yet to be agreed by all trade unions. The actual costs of employment have gone up significantly more, however, when employer pension contribution increases are factored in. The latest valuations of the local government and teachers’ pension schemes have had to reflect increasing life expectancy and reductions in investment yields. These factors, together with changes to fire and police pension arrangements, have meant councils are facing significant increases in pension costs. Further reform of public sector pension arrangements seems inevitable and, in the longer term, the future of final salary council pension schemes must be in doubt.

But rises in employment costs are only one of the cost pressures. Demand from the public and from politicians for local government services continues to increase. In particular, social work departments not only have to respond to a higher demand in numerical terms given the growing number of elderly people and other vulnerable groups, but also to the significant profile that cases such as baby P attract. And all the general price rises the public are so aware of - increases in utility, food and building material prices - also impact on councils. Funding increases will not cover these higher costs and councils will, quite properly, be required to deliver significant efficiency savings to meet ongoing commitments.

It is not only on the expenditure side that councils are experiencing pressures. Generating other sources of income has become ever more important for councils. However, the recession has impacted here as well. Investment returns from temporary or reserve cash balances have fallen as interest rates have been cut. Likewise, income from recycling, planning applications, building warrants and contributions from property developers has been adversely affected.

With company bankruptcies increasing by 30% in Scotland and individual insolvencies rising by 70%, recovering money from the public whether this is council tax, rates or rents from council houses has not got easier and bad debt costs will undoubtedly go up. John Swinney’s announcement to drop plans for a local income tax at least safeguards the future of council tax and prevents it becoming a dead-tax where non payment becomes common-place – a fate that befell community charge in its short life time.

Therefore, there are significant pressures on local government. But there are also real opportunities, given these constraints and the reduction in Scottish Government ring-fenced funding, to ensure there are effective systems in place which prioritise spending according to policy commitments. Too often, as Audit Scotland has found in successive Best Value audits, councils have been unable to demonstrate that they use the priorities identified in their corporate plan as a basis for setting budgets. A focussed look at what areas of spending really do meet the council’s statutory and priority commitments, and which areas are discretionary and are of less priority, can bring a real clarity and accountability to Scottish local government. This is certainly the time to try.

This article first appeared in The Scotsman's Government & Public Affairs pages. Feb 2009.

Nick Bennett is Managing Partner, Scott-Moncrieff, and Chair of CIPFA LASAAC