Hansard

My statement to Parliament will cover three areas: I will set out the terms of the provisional local government finance settlement for 2010-11, I will confirm the business rate poundage levels for that year and I will announce the outcome of the review that I initiated last year of the distribution methodology for the local government settlement.

The local government finance settlement is an important element of our relationship with local government, which is set out in the concordat. We are now into the third year of the concordat. The key elements of that agreement, including the single outcome agreements that are now in place with every community planning partnership in Scotland, focus the work of national and local government on delivering for all our communities.

As part of the concordat, we are delivering on our commitment to increase year on year local government's share of the Scottish budget, despite the tightest financial settlement since devolution and the further cuts that have been imposed on the Scottish budget by the United Kingdom Government, and against the backdrop of the deepest economic downturn for a generation. I am pleased to be able to report to Parliament that the Convention of Scottish Local Authorities has been consulted on the terms of the settlement and that it agrees that it is a fair settlement for local government in the current extremely difficult circumstances.

The draft 2010-11 budget document that was published on 17 September confirmed our spending plans for the third and final year of the current spending review period, including the headline allocations for local government. Today, I can announce the provisional funding allocations to individual local authorities for 2010-11. Copies of summary tables that contain the key information in my statement are available at the back of the chamber.

The strength of our partnership with local government has allowed us to work closely with COSLA in moving towards the shared goal of doing all that we can to mitigate the impact of the global recession. The measures that we have jointly taken include capital acceleration, the provision of additional resources to allow councils to freeze their council tax levels, and the removal from many thousands of small businesses of the burden of paying business rates.

The total support for local government in 2010-11 will amount to £12 billion. In total, over the three years of the spending review, we will provide local government with £35 billion. Under the previous Administration, local government's share of the Scottish budget was declining; we have halted that decline. Local government's share of the budget will increase from 33.4 per cent in 2007-08 to more than 34 per cent in 2010-11. The total for next year would have been £174 million higher, had it not been for the cut in funding of around £500 million that has been imposed on the Scottish budget by the UK Government. Local government has worked with us in agreeing to accept its fair share of that reduction.

The total funding package of £12 billion includes revenue and capital funding. Within that total, our support for revenue will amount to £11.1 billion in 2010-11, which represents an increase in funding to local government of £308 million, or 2.9 per cent on 2009-10 levels. Among other things, that revenue funding makes available a further £70 million to enable councils to extend the council tax freeze for a third year, continues the removal of, or reduction in, business rates for the smallest businesses in Scotland and increases from £31 million in 2009-10 to £39.5 million in 2010-11 the provision to sustain the additional 1,000 police officers in our communities, which we promised in the concordat.

There are a few other changes to the local government budget that I can confirm since the draft budget was published. First, the addition to the settlement of about £5 million includes additional funding to support local authorities in improving waste recycling and landfill diversion performance, and to make further progress on the journey towards becoming a zero waste society.

Secondly, we have agreed with COSLA, police authorities and fire and rescue authorities new arrangements for a more transparent funding mechanism for pensions. Although the new arrangements change the way in which pensions are managed and accounted for, there is no change to the benefits that those schemes provide for police and fire officers. From 2010-11, the financial support for police and fire pensions will be paid directly by the Scottish Government to police and fire authorities. The pension funding will still be part of the overall support that we provide to the local government family, but the new arrangements will transfer the risk arising from the inherent variability of pension costs to the Scottish Government, where it can be better managed, which will provide greater certainty about pension costs, and give authorities a greater incentive to ensure good practice in managing ill health and injury.

The capital funding element for local government amounts to £0.9 billion for 2010-11. That takes account of the earlier acceleration of £100 million of capital expenditure by councils from 2010-11 into 2008-09 and 2009-10. The accelerated funds have enabled local authorities to maintain capital programmes that would otherwise have been at risk, which has helped to offset the downturn in the value of councils' capital receipts from the sale of assets, and has enabled councils to bring forward a wide range of projects, many of which are being delivered by local contractors.

As part of our economic recovery plan, local government also agreed to release from its capital budget, in both 2008-09 and 2009-10, £20 million to support affordable housing. That £40 million is being returned to councils in the 2010-11 capital budget allocation.

As I announced earlier, we have been working with COSLA to prepare a scheme whereby local authorities will be able to apply for consents to borrow to help them to meet the costs of settling equal-pay related back-pay claims. It will allow them to apply for consents to borrow in 2009-10 and 2010-11 in order to enable them to spread the exceptional costs that will be incurred over a number of years. Borrowing is, of course, not a panacea. Councils will still need to meet the cost of such borrowing, but the scheme will help them to manage the impact of that substantial one-off cost. Following consultation with local government, the terms of the scheme have been formally issued, and applications from councils by 30 November have been requested. We will process the applications as quickly as possible.

Councils across Scotland are already wrestling with how they can best protect services in their areas. Some tough choices will have to be made, depending on councils' individual circumstances, but it is clear that the cut that has been imposed by the UK Government is being felt by councils right across Scotland. Had our budget not been cut, council budgets would have been £174 million higher; there is a lot that councils could have done with that extra £174 million. The cut will impact on different councils in different ways, but we will work with local government to deliver on our shared commitment to protect and improve services, and we will make progress on delivery of the national and local outcomes that are set out in the single outcome agreements.

Members will recall that I initiated a review of the existing needs-based grant distribution mechanism last year. That review, which was undertaken jointly with COSLA, was completed in September this year. Commentary on the issue has suggested that the distribution mechanism is unfair, that it is biased in favour of a few councils, and that there should be a cap on the level of funding that one council receives in comparison with another. Although I am alert to those competing views, I have focused my consideration on the facts and the evidence in the report from the joint officer review group, whose membership included COSLA and a cross-section of local authority directors of finance.

As part of the agreed remit of the joint review group, COSLA invited all 32 local authorities to identify and evidence potential anomalies across the range of indicators that are used in the needs-based distribution methodology. Following consideration of councils' responses, the review group's report concluded that there were no genuine anomalies that needed to be addressed in the medium term for the next settlement. It said that

"the existing indicators were considered to be reasonable and generally a fair indication of need and"

recommended that they should "be retained unchanged."

The report made a number of further recommendations to inform distribution of resources. It said that a more fundamental review of the distribution process will be needed once the way forward is clearer on future local and national taxation systems, single outcome agreements have bedded in and the future impact of the medium to long-term financial situation is clearer. It also said that there should be a business-rates incentivisation scheme and that further work should be carried out to develop options for the implementation of such a scheme from 2011-12.

COSLA set up an all-party distribution task group, which consisted of elected members, to consider the work and final report of the joint officer review group. All the final recommendations in the report were agreed by the distribution task group and were formally accepted at a COSLA leaders meeting on 25 September. Having carefully considered the group's report, and in the light of its findings and the views from COSLA, I confirm that I accept all the recommendations in it. Those recommendations will be implemented in time to inform the next local government finance settlement, which will cover the period 2011 to 2014. A copy of the full report is available at the back of the chamber and in the Scottish Parliament information centre.

Business rates are a key issue for our business community. As part of our economic strategy, we made a commitment that we would not allow the poundage for business rates to rise above what it is in England during this parliamentary session. I confirm that the rate for 2010-11 will remain in line with that in England—it will be 40.7p for 2010-11. The poundage supplement that is paid by larger businesses will be set at 0.7p, which is, again, in line with that in England. My announcement confirms the lowest national poundage ever set for Scotland. Of course, the fact that we have again matched the English poundage rate means that, following revaluation, we expect that the rates burden on businesses in Scotland will be significantly lower than it would otherwise have been. We have estimated that the benefit to Scottish businesses will be worth some £220 million in total in 2010-11.

The regular five-yearly revaluation of business rates will take place in 2010, and the Scottish assessors will shortly release detailed information about the new rateable values. I confirm that all existing relief schemes, including the small business bonus scheme, will continue in 2010-11. I am considering the impact that the 2010 revaluation will have on rates bills across sectors and relief schemes, and I want to ensure that it will have no unintended consequences for the operation of the reliefs that we provide, and on which many businesses rely. I am specifically considering the proposal for a transitional relief scheme, and am looking in detail at the impact of revaluation across all sectors. In doing so, I will need to take into account the UK Government's pre-budget report and whatever emerges from our own budget process over the coming weeks. I will confirm the outcome of my deliberations as soon as I can, including the thresholds for the various existing rates relief schemes, such as the small business bonus scheme.

However, I reassure members that the revaluation is not about raising tax revenue, but about achieving a fair distribution of the tax burden. The overall result will be that we will not raise a penny more in income in 2010-11; indeed, we will raise less. As I have already said, businesses in Scotland will see a saving that will be worth almost £220 million in total as a result of our policy to match the poundage rate in England.

In conclusion, the provisional allocations that I have announced to Parliament continue our commitment to further increase the share of the Government's overall budget that goes to local government. We will work together to continue our focus on sustainable economic growth through targeting our investment to support households and business communities throughout the whole of Scotland.

The budget allocations include a further £70 million to enable local authorities again to freeze council tax. I hope that all local authorities will take up that offer and deliver a much-needed boost for hard-pressed families in these tough times.

I recognise that councils face a number of competing pressures on their budgets for 2010-11, which is why, through our partnership, we will work with local authority leaders to deliver on our shared commitments. The dialogue with our partners will continue as we look ahead to the challenges for 2011-12 and beyond.

In line with our economic strategy, I am delighted to have confirmed that, for 2010-11, the Scottish Government has again delivered on our commitment to businesses that we would not allow the business rate poundage to rise above that in England during this parliamentary session. Today marks the start of the normal consultation period with local government on the provisional allocations. I will bring the final figures to Parliament as part of the local government finance order early in the new year.