LOCAL GOVERNMENT COMMITTEE:
Inquiry into Local Government Finance
The Scottish Parliament's Local Government Committee
decided in June 2000 to hold an inquiry into local government
finance. The remit of the inquiry was to examine the current system
of local government finance, including systems of local taxation,
identify strengths and weaknesses, and make recommendations on
improving the system. UNISON was among the many organisations,
that gave evidence. On 20 March 2002 the Committee reported their
The Committee's Report:
The Balance between Central and Local Funding
The Committee believes that the present high
level of central funding is incompatible with strong local government
- It blurs local accountability, 80% of funding comes from central
- Councils and Council Tax levels are highly vulnerable to changes
in grant distribution.
- A 1% change in council spending results in a 5% change in
the Council Tax.
The Committee rejected transferring financial
responsibility for major services to central government. However,
the Committee recommends that the central / local funding balance
should change from the existing 80:20 split to 50:50 or as close
as possible, as soon as practicable.
The Council Tax
The Committee shares the views of many witnesses
that the Council Tax is sound, but to remain so properties need
to be re-valued on a regular basis. It recommends:
- A Council Tax revaluation in Scotland.
- A review of banding arrangements. New bands should be added
at both the upper and lower ends of the existing valuation range;
and the Council Tax should be made more progressive by changing
the relationships between the bands.
- In the interests of equity, the full Council Tax should be
levied on second homes.
To achieve a 50:50 balance, only one tax could
be introduced quickly – the non-domestic rate, that is returning
business rates to local authority control. Although the business
community has reservations about returning non-domestic rates
to local control, the Committee believes the legislation will
address these concerns by:
- Linkage of non-domestic rate with Council Tax.
- Rules to determine how the taxes on the domestic and non-domestic
sectors would change each year.
- The operation of the grant distribution system – and in particular
the arrangements for equalising for differences in Councils'
spending needs and their total local taxable income.
Additional Sources of Revenue
The Committee recommends that the Executive examine
the feasibility of introducing a Local Income Tax in Scotland
– and reducing either councils' dependence on government grants
or Council Tax.
The Revenue Grant Distribution System
The Committee concluded that the arrangements
for distributing revenue grant should be reviewed urgently. It
believes that the present high level of ringfenced funding restricts
councils' room for manoeuvre.
Local Authority Capital Finance
The Committee concluded: "the current
capital expenditure control system is flawed… it restricts councils'
ability to clear the backlog of major maintenance problems and
meet the needs of the 21st Century, and may lead councils
to enter into PFI/PPP contracts that may prove in the long term
to be more inflexible and more costly than conventionally financed
It believes there would be merit in developing
alternatives to conventional PFI/PPP schemes, and recommends the
- work with COSLA and others to develop a new capital finance
system based on prudential rules.
- introduce legislation to replace the existing capital expenditure
controls (Section 94 of the Local Government Act 1973), with
a new system based on prudential guidelines as soon as is possible.
- ensure the new capital finance system enables councils to
proceed with capital schemes that provide the best value for
money irrespective of how they are funded.
Business Improvement Districts
Business Improvement Districts (BIDs) are advocated
as a new way for councils, business interests and communities
to work together. Its suggested the Executive work with COSLA
and others to see how the BIDS concept could be developed and
modified to meet Scotland's rural, urban and community needs.
Fees and Charges.
The Committee recommends that the Executive should
extend to councils in Scotland the freedoms that will be extended
to Councils in England in relation to the setting of fees and
charges for discretionary services.
UNISON welcomes the overall theme of the Committee's
Report as concurring with much of what UNISON has said on improving
democracy, accountability and the responsiveness of local government
to local communities.
It is good that a proactive, representative committee
has carried out a thorough investigation, and made firm proposals
for change. We urge the Executive to adopt the recommendations
of the Report.
The balance between central and local funding:
Allowing councils to raise a greater proportion of funding themselves
gives local authorities the opportunity to engage more with local
people, restores local democracy, and rebuild local services.
This will enhance the fiscal responsibility and accountability
Council Tax: The review is welcome. The
Council Tax will only be perceived as fair if properties are regularly
re-valued and the bands reviewed.. Additional bands at the top
and bottom ends will help to ensure equity and fairness. Second
homes should be treated exactly the same as the main residence
with owners required to pay full Council Tax.
Non Domestic Rate: Local businesses should
have a stake in local services and we support the return of business
rates to local control as soon as possible.
Revenue Grant Distribution System: The
review is welcome, the ringfencing of expenditure has meant increases
in some areas, but to the disadvantage of others. Ringfencing
has impacted detrimentally on local accountability.
Capital Finance: The Committee's verdict
on the current system is welcome, and confirms UNISON's position.
PFI/PPP is expensive, secretive, skews priorities, damages workers
jobs, pay and conditions, and privatises frontline services. We
welcome the Executive's latest consultation on replacing the existing
capital expenditure control system (Section 94). UNISON would
like to see a review of the so called "level playing field
payments" and a move to a genuinely equitable system, where
councils can make a real choice between PFI and conventional funding.
Transparency: More could be done to make
the system of local government finance transparent to local people
so they can see where the money is spent.
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