Scottish Churches Parliamentary Office, Edinburgh - Briefing Document Thirteen

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Parliamentary Officer:Rev Graham Blount
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Briefing Document No 13 - Page 1 of 4

Local Government Finance

Local Government is undergoing a period of rapid change. Since becoming unitary authorities, councils have sought to improve local services and adjust to a positive way of working with a Government that believes in the importance of local government. Now further changes are being made to improve accountability, accessibility and local participation following on from two reports into local government. However, the Executive is reluctant to follow the recommendations of the McIntosh report by commissioning a full independent inquiry into local government finance. This paper explores the issues surrounding local government finance, the response of the Executive and the resulting relationship with local authorities.

McIntosh and Kerley
The McIntosh Inquiry ("Moving Forward, Local Government and The Scottish Parliament") reported in June 1999. It examined how local government could be improved, in light of the coming of the new Parliament which some feared might suck power away from councils. It made several recommendations about how local government could be made more accessible and participative as well as more professional in the way it runs its business. Because of these suggestions the Kerley report (Renewing Local Democracy) was commissioned to look at issues of local government elections, local participation and pay, among other things. The two reports make several recommendations about improving local democracy that the Executive has been acting upon. However, one major omission in that response remains an independent inquiry to look at local government finance. What then are the issues for local government finance?

Why is there a need for a review?
"The present system of local government finance confuses accountability, creates dependency and has too many central controls - and any review of the system must take a holistic approach" CoSLA (the Convention of Scottish Local Authorities) said in recent evidence to the Parliamentary Committee. Local Authorities currently receive around £11bn annually in total, about 40% of total government spending in Scotland. This is raised through (a) revenue support grant and other grants £5bn, (b) rent and other income £3.5bn, (c) council tax £1bn and (d) non-domestic rates £1.5bn.

Only the level of the council tax is controlled locally. This means that the level of the council tax is very sensitive to changes in local authority spending (a 1% rise in spending roughly equates to a 6% rise in council tax). At one level, this may keep the authority accountable to the local people for any overspending, but it also means that, if central government grants are inadequate, the local authority is blamed for council tax rises rather than the central government being held accountable. Arguably, this undermines local democratic accountability by confusing responsibility; CoSLA therefore argues for at least 50% of local government income being raised from local taxation.

Capping of council tax rates has caused a withering of non-statutory services, like libraries, as funds have been re-allocated to central governments' main priorities rather than locally controlled priorities, and capital spending has seriously suffered from centrally imposed restrictions as well.

The formula used to allocate the main grant takes account of key factors determining councils' relative expenditure needs, including population levels, deprivation, sparsity, etc. Following a commitment by the Executive in 1999 to review this formula in consultation with CoSLA (particularly to take more account of deprivation), a new "simpler and fairer" system was announced in December. This has led to a major dispute between Glasgow City Council and CoSLA, with Glasgow feeling that CoSLA failed to argue strongly enough for a formula which takes proper account of deprivation or of city services used by commuters from surrounding authorities.