Council leaders call for new funding model to give local authorities more power

Cosla, the umbrella organisation for Scottish councils, is drawing up plans for a new funding model for local government where authorities could generate money from local taxes without having to obtain permission and legislation from Holyrood.

The thinking behind the new way forward is to “ensure local government is empowered to deploy resources locally without government restriction”.

The proposals, yet to be agreed by council leaders or considered by Holyrood ministers, include a set-up where “councils would have the ability to raise their own revenue” and have the “freedom to explore and implement discretionary taxes”.

The new funding streams could include revenue from income tax and VAT, and local elements of national taxes such as landfill tax and building transition tax. Under the proposals, councils could be able to introduce new local charges, going beyond the workplace parking levy and tourist tax.

The paper, drawn up for Scottish council leaders, indicates that a new framework could be in place for the next parliament – but is likely to involve “incremental steps” to be implemented.

But the Scottish Government said it would not welcome the radical tax plans.

The plans have been tabled to address the unsustainable funding partnership which is leading to councils making savings from their core budgets and hiking council tax in a bid to mitigate the cuts.

Between 2013-14 and 2019-20, total revenue funding for local authorities has fallen by six per cent in real terms.

The Accounts Commission has warned that Scottish councils need “to think differently about how they deliver and fund services” and face “an increasingly complex, changing and uncertain time ahead”.

Gail Macgregor, Cosla’s resources spokeswoman, has stressed that years of under-investment for local councils is now taking its toll on frontline services.

She said: “Investments in roads infrastructure, 10 years ago, might have been a priority – but that budget has decreased. We can see it from the state of the roads – it’s no question that the state of the roads is dreadful.

“To reverse that, we need additional investment and that’s what we are not seeing. Not only are we at a standstill now, but if we don’t start to address a lot of the under-investment in infrastructure due to previous cuts, which we acknowledge were part of the austerity agenda, in five years’ time, what state will our roads be in? What state will our social care delivery be in?

“We now need additional money to almost catch up with all the cuts that have been previously made as well.

“The reality is that demand is changing – social care is a prime example, it’s a proper ticking time bomb.”

The Scottish Government has estimated that an extra £683m will be needed by 2023-24 to meet additional social care demands amid an ageing population.

Council day-to-day spending on roads and transport fell from £432m in 2017-18 to £381m in 2018-19 – an 11.8% cut.

Local authorities have been given permission by the Scottish Government to raise council tax by 4.84% this year. Ms Macgregor thinks most authorities will put up council tax by or close to the full amount.

She said: “Council tax always sat very separately to the budget and was applied by each local authority at a level they felt their area could sustain or cope with.

“People can buy into paying a little bit more if they can see that 12 schools are being built. About three years ago, that council tax figure almost became the balancing figure.

“If every council raises their council tax by 4.84%, that will raise an additional £135m across Scotland – but that’s money that councils need to be able to make local decisions on and spend locally – it’s not a balancing figure.”

Ms Macgregor also pointed the finger at councils being instructed to implement more and more Scottish Government priorities, with shrinking budgets.

Cosla claims that £121m is needed from local authorities’ capital budgets next year to meet nursery expansion commitments by the Scottish Government, but Edinburgh City Council is cutting all qualified teachers from nurseries in order to balance its books.

Ms Macgregor hopes an overhaul of how councils are funded will see about a return of locally tailored services being provided.

She added: “We don’t feel as if we have been the priority in respect of funding for quite a long time now. We don’t seem to be feeling valued in the way that our communities should feel valued.

“We have lost a lot of localism in the last 10 or 15 years – that ability of having money in a local area and spending it on local needs. The agenda has centralised more and more over a 10-year period.

“Now we are being directed to do what the Scottish Government feels is a priority – and those priorities do dovetail with ours. But the more centralisation we have, the more difficult it becomes to have flexible local options where you can get the best bang for your buck.”

Ms Macgregor criticised the Scottish Government after councillors have been forced to make “can’t sleep at night decisions” over what to cut from budgets, only for ministers to “ride in on a white horse” years later with emergency funding when the situation spirals out of control.

Vicki Bibby, head of resources at Cosla, warned that the current relationship between the Scottish Government and local authorities is “not sustainable”.

She added: “We are at a crisis point in a lot of areas and we can’t continue with a model that just responds to the crisis – we need to prevent those crises happening.

“You are storing up problems for the future. We have been talking about it for a long time and now the problems are being realised. We need to see a budget that recognises that.”

Ms Macgregor said that if further funding is handed over to Holyrood from the UK Government when it sets its budget on March 11, she will be calling on Finance Secretary Kate Forbes to give council bosses more funding for next year.

She said: “We all appreciate we have had 10 years of austerity – nobody disputes that. We understand that budgets have been cut, pretty much consistently, for 10 years now.

“We are at a turning point where the UK Government are beginning to turn the taps on a little bit. The block grant that has come to Scotland has increased a little bit last year and if hopefully going to increase significantly this year. Yet we are still seeing disproportionate cuts.

“If there’s additional consequentials that come to Scotland, we have to get back around the table with Government immediately and local government has to be maintained as a priority because capital funding has taken a massive hit this year as well.

“All these big capital pressures on local government and we have had a 17% cut to our capital budget. If there is additional money that comes after March 11, you can be assured that we will be knocking on Ms Forbes’ door expecting to be fairly high up the priority list, if not the top.”

A Scottish Government spokesperson said: “The Scottish Government does not support a blanket power for local authorities to introduce new taxes. We are, however, already working on delivering greater devolution of powers to local government through a range of measures, including delivering a package of local tax reforms which, should they be agreed by Parliament, will deliver the most significant empowerment of local authorities since devolution.

"We have also empowered councils across Scotland by giving them the power to regulate short-term lets, devolving Non-Domestic Rates empty property relief in time for the next revaluation in April 2022 and the consultation on the visitor levy or tourist tax closed last year, with the next step being introducing legislation later this year that will give local authorities the discretion to apply such a levy.

“Our local governance review is key to delivering local and national governments’ shared commitment to subsidiarity and local democracy by considering how power and resources are shared across the public sector and with our communities, and working in partnership with Cosla we have also agreed to develop a rules based fiscal framework for local government funding.”