Scottish council funding: Business as usual won't cut it

Councils across Scotland are gearing up to balance budgets for the next financial year – and things have never really looked more dire for local government.

The Scottish Government is finally getting around to allowing councils to introduce a visitor levy – or tourist tax, to generate more funding for local government and offset the impacts tourism has on local services.

This sounds sensible, given a host of destinations across the world have had a tourist tax in place for years – but businesses have legitimate concerns it could add to their already-stretched costs or put them at a competitive disadvantage with other parts of the UK.

The delay to the visitor levy plans has mostly revolved around the pandemic and the fears raised by businesses about finances when many are still trying to recover from that nightmare.

Most councils will welcome the tourist tax plans, they do not have to introduce a visitor levy if they do not want to.

But local authorities will be drawing up plans when trust between central and local government in Scotland is in tatters.

Councils have, for some time, felt let down by the Scottish Government – mostly over its funding deal.

Local authorities have raised concerns that its core funding for basic and essential services has been reduced in order to pay for Scottish Government priorities such as the expansion of free childcare – large parts of budgets are ring-fenced.

Over recent months, that trust has eroded further when out of the blue, Humza Yousaf announced at SNP conference in October that there will be a freeze on council tax in the next financial year.

Council tax makes up less than one third of a local authority’s resources, but amid tightening budgets, it can be crucial.

The First Minister, who did not tell council umbrella group Cosla, or his Green government colleagues about the council tax announcement, has caused anger across local government.

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Mr Yousaf insisted the freeze would be fully funded by the Scottish Government, but what SNP ministers and council bosses believe that to be are somewhat different.

The anger this move generated from Cosla was amplified after SNP ministers published the Verity House Agreement with Cosla last year that set out a new, positive way of working with local government “based on mutual trust and respect”.

The arrangement still remains vague and focuses on shared goals, other than a commitment from the Scottish Government that “the default position will be no ring-fencing or direction of funding” from ministers.

A report published on Tuesday by spending watchdog, the Accounts Commission, starkly highlighted that the total budget gap in the country’s local authorities has risen to £725 million for the next financial year – almost double the £476 million from the year before.

The report added that the “financial outlook is extremely challenging, with Scottish councils facing unprecedented financial and service demand pressures which present real risks for the future”.

It is quite clear that a business-as-usual approach to local government funding is not going to cut it.

The tourist tax will be a welcome move, but it will be a mere drop in the ocean of what is needed to lift councils back to a sustainable financial position.

First Minister Humza Yousaf did not tell Cosla or his Green government colleagues about the council tax freeze announcement (Image: Newsquest)
From a council tax point of view, SNP ministers pledged back in 2007 to overhaul that charge and make it fairer. It is unclear, still at this stage, what that will look like – as well as whether that will hand local authorities more cash. It is unlikely it will.

Cosla has previously called for being able to raise “taxation without restrictions” where “councils would have the ability to raise their own revenue” and have the “freedom to explore and implement discretionary taxes”.

The initial plans drawn up by Cosla before the pandemic included revenue from income tax and VAT and local elements of national taxes such as landfill tax and building transition tax. The proposals point to councils being able to introduce new local charges, going beyond the workplace parking levy and tourist tax.

Back in 2020, when the plans were first touted, the Scottish Government said it “does not support a blanket power for local authorities to introduce new taxes”.

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For any of this to be a goer, the devolved Scottish Parliament is going to have to be more comfortable devolving powers, properly, to local government and letting them be more self-sustaining and autonomous.

That culture change is made more difficult when the Scottish Government is already operating under severe financial pressure.

So if things are to look brighter for the sustainability of local government, political will is required.