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Inquiry into Local Government Finance

April 2002

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 findings.

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 because:

  • It blurs local accountability, 80% of funding comes from central government.
  • 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.

Non-Domestic Rate

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 schemes".

It believes there would be merit in developing alternatives to conventional PFI/PPP schemes, and recommends the

Executive should:

  • 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's Response

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 of councils.

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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