Local Government and Communities Committee

Meeting date: Wednesday, February 10, 2021

Official Report 624KB pdf

---

Budget Scrutiny 2021-22 (Local Government Settlement)

Under agenda item 6, the committee will take evidence from local government representatives on the financial settlement for local government, as set out in the Scottish Government’s budget for 2021-22.

I welcome Councillor Gail Macgregor, who is the resources spokesperson for the Convention of Scottish Local Authorities; Martin Booth, who is the executive director of finance at Glasgow City Council; Eileen Rowand, who is director of finance at Fife Council; and Sarah Watters, who is the chief officer for local government finance at COSLA.

I thank the witnesses for being present today and for their written submissions. For information, I point out that we have allocated about 70 minutes for the session.

I will provide some brief technical information before we start. There is a pre-arranged questioning order. I will call each member in turn to ask their questions, which will be for up to nine minutes. It would help broadcasting staff if members could indicate to whom their questions are addressed.

Because there are four witnesses, I ask that you indicate clearly when you wish to answer a question—by raising your hand, for example. Do not feel that you need to answer every question if your views are generally in line with points that have already been made. Please give broadcasting staff a second to operate your microphones before you speak.

We move to questions. I call Sarah Boyack.

I thank all the witnesses for the evidence that they submitted in advance of the session. It has been incredibly useful.

I have a couple of initial questions about some of the figures. I am keen to get clarity on the extent to which witnesses think we have non-ring-fenced funding. What service pressures are of particular concern during the pandemic and in relation to what will happen afterwards? I want clarification about non-ring-fenced services, which I know are vulnerable to cuts.

Also, what are the financial implications for local authorities of the Cabinet Secretary for Finance’s proposal to freeze council tax? What is your view on the principle of the proposal, given that council tax is a matter for local authorities? I ask Gail Macgregor to lead off, and for the other witnesses to add any comments that they have.

I will defer to Sarah Watters on the specifics of ring fencing. However, in the past few years, we have seen a significant shift from funding that can be used locally with local decision making to funding that is ring fenced. This year is another prime example of that.

On the surface, it looks as though the overall budget is going up by half a billion pounds, which seems to be welcome. However, once we dig down into the additional money, we see that £160 million of it is ring fenced, and when Covid funding of £259 million is taken out, we are left with only an additional £95 million in the core budget, which represents 0.9 per cent of the budget. Therefore, there has not been a significant uplift in our core budget, and a significant proportion of this year’s additionality is, again, already allocated and ring fenced by the Scottish Government for its policies.

I will quickly mention council tax, because I am sure that Martin Booth will have a view on that. Leaders have consistently said that council tax is a local tax and should be determined locally—they have maintained that position throughout. The current challenge is that there is, on the table, £90 million that is, in essence, being offered as compensation for freezing of council tax. The pressure will be on leaders to do that.

In the current financial climate, council leaders are very aware of household pressures and the pressures on communities and individual family budgets, and I very much doubt that they would penalise households in the first instance. However, we are obviously now being pushed down the route of having to freeze council tax and take the compensation, which—to me—is a somewhat political decision.

Our challenge on council tax is that our not raising the base this year will keep it artificially lowered. Then, as we go into next year, if that £90 million is not baselined in the budget, we could have to apply a much higher level of council tax—say, double what we would have increased it by this year—which, when we are recovering from Covid, would hit households.

Our plea to the Government is that it ensures that the £90 million is baselined to ensure that our base continues as it is and we do not penalise households in the future.

I defer to Sarah Watters on additional ring fencing.

On the question about ring-fenced funding, the issue will probably be more acute in some areas this year. As Councillor Macgregor rightly said, a lot of what has been packaged as an uplift—the £365 million—from the Scottish Government will go on specific purposes, which will leave about £94 million for dealing with pressures that are already in the system.

This year, the key pressure points with regard to Covid and coming out the other side of it with recovery during 2021-22 are in relation to areas including economic development, employability services, support services, community learning and development, and youth work. Those are the services that COSLA has, over multiple years, highlighted as suffering when the core budget is not funded properly. We know that the £94 million uplift will not cover the existing pressures on pay, for example. Councillor Macgregor is about to go into pay negotiations: money has to be taken from somewhere, so it will come from the types of services that I have just mentioned.

The latest available economic development figures are for 2018-19, when local authorities supported 15,000 unemployed people back into work. I imagine that such support will be crucial, as we move into next year. However, if we do not have enough to fund core services, those are the types of services that will, unfortunately, suffer. We have good data on those services and the impact over the years on their budgets.

Eileen Rowand wants to come in.

[Inaudible.]—look at the construct of the budget. We have talked about ring-fenced funding, but there is also protected spending. Items such as the pupil to teacher ratio and teachers’ pay and pensions are protected, and money that we are given for social care has conditions set on it. About 60 per cent of our budget is now protected—it was about 40 per cent, in the past. The rise in the amount that is protected puts a lot of pressure on our unprotected budget.

10:15  

Sarah Watters highlighted some areas that are important in trying to recover our position. There are big issues for local government to deal with—anti-poverty measures, economic recovery and community wealth building—so a reduction in our core budget, once the pay policy has been taken into account, puts pressure on our sector.

Councillor Macgregor, Sarah Watters and Eileen Rowand have covered most of the relevant points, including on the services that will be under pressure.

Two services in Glasgow will be under most pressure. One is culture and leisure services. People’s physical and mental health have been under severe pressure during the pandemic, so culture and leisure will be important in helping people to recover and get back to normal.

I am sure that Councillor Macgregor would confirm that local councillors’ mail bags are busiest with issues around neighbourhood and sustainability services, such as refuse collection and street cleaning. Those are the other big services that are left, after the protected spend on social work and education is taken out. Those services will suffer as a result of the increase in grant not being enough to fund the public sector pay policy, never mind the demands of trade unions.

That is all helpful.

On the point that Martin Booth just made about services such as culture and leisure, I want to ask about the gap between the income that local government normally expects and the income that it has been able to achieve during the pandemic. How much compensation has the sector been able to get from the Scottish Government? My understanding is that there is a significant gap. I am not sure whether Martin Booth, Sarah Watters or Gail Macgregor is the best person to clarify that issue.

I am happy to start off.

In Glasgow and around Scotland, lost income has been a significant element—in particular, income that has been lost from culture and leisure services. The funding that has been provided—even with the uplift that is part of the Scottish budget statement, which lifted the funding from £90 million to £200 million—is significantly shy of the lost income for the first six months of the year. From memory, it is £227 million, so there is a £27 million gap, with another six months still to come.

In Glasgow City Council’s case, the lost income from culture and leisure services alone is £38 million. That income will not be recovered quickly; it will not recover from 1 April or the first day after unlocking. We anticipate that it will take several years to fully recover, although I hope that it will happen as quickly as possible.

I want to ask a quick question. Before I do, I point out that not everybody has to answer every question, because we have a lot to get through. I know that everybody will have opinions on the questions that we ask, but if a question has been answered, please do not feel that you, too, have to answer it.

What evidence is there that local authorities’ priorities are not the same as the Scottish Government’s when it comes to ring-fenced grants, the bulk of which relate to the expansion of early learning and childcare, as well as to pupil equity?

We have acknowledged in the past, including at the committee, that a huge number of such policies have been developed with COSLA. Early learning and childcare is one example, but over and above that, we have ended up with lots of small ring-fenced pots of money that do not always align across the 32 local authorities. In some cases, it would be better if we were given that money and allowed to make local decisions. We are discussing that with the Government, at the moment.

The £259 million of Covid funding does not seem to have the same restrictions as have been applied over the past few months. That is very welcome, because it will enable councils to make local decisions. We work in partnership with the Government regularly to develop policies, but sometimes we are not fully consulted, then there is a fairly high-level announcement that does not always align with the individual priorities of the 32 councils, or with weighing up of urban and rural demographics. As the committee will appreciate, one size does not fit all.

Sarah Watters might wish to comment on that.

On pupil equity funding, for example, there is no way that local government would not agree with that policy intent. However, the scaffolding that goes around those types of services is necessary. There is a feeling that ring-fencing of pupil equity funding, for example, means that the services that sit around it cannot be utilised to best effect because they are among the services in which we have to make cuts. Pupil equity funding is very classroom focused. There is a place for that, but there is also a place for the scaffolding of support services that sit around it, including children’s social work services, youth work services and other services that add value outwith the classroom and make a difference to the attainment gap.

On the pupil equity funding, when I was convener of the Education and Skills Committee, we did visits from which it seemed to us that there was a great deal of flexibility in how schools used that funding. Does that differ from one local authority to another?

The funding is used differently, but there are restrictions around it in terms of how far it can go. For example, a child is part of a family, and family support might be required in order to get the most from pupil equity funding. It is used differently in different local authorities, but strict conditions and reporting requirements still come with it. That funding is not as flexible as some local authorities would like it to be in relation to family support and support outwith the classroom.

Okay. Thank you.

The nub of your question, convener, was whether we are broadly aligned policy wise on the ring-fenced funds. The broad answer is yes.

The real challenge comes where we agree with a policy intent and funding is provided for it, but there is a cut to our core budget, which means that we cannot support the base. For example, Councillor Macgregor mentioned the expansion of early learning and childcare expansion to 1,140 hours. That expansion was funded, but the budget for the core 600 hours that already existed was not protected. We are therefore facing cuts in our core funding, but the bit on top is being funded, which means that the two aspects do not align. We must first have the core protected, then have the expansion. The core not being protected undermines the foundations of the policy.

I am not sure exactly what you mean. If you were funded for the 600-plus hours in previous years, is not that funding still there?

We have had real-term cuts in our funding. We had a cut in funding last year, but have a small increase this year. We appreciate our increase, but it is still lower than the amount by which our core costs will rise. Pay inflation, based on the public sector pay policy, will be just over 2 per cent, but growth in funding is less than 1 per cent, which means that money must come from somewhere else. Early learning and childcare, as a grouping, will probably have north of 2 per cent pay pressure, but the 600 hours in the core budget is not protected. The expansion to 1,140 hours is funded, but we have to make savings to balance our budget and are not getting enough resources to protect the core.

So, it is really about the decisions that you make about the money that you have. What you are saying is that you do not have the option of cutting funding for the 1,140 hours and using those funds elsewhere.

Yes. We have to cut elsewhere to implement the policy. In reality, the policy is therefore not fully funded.

The issue is that you would like to be able to decide whether you want to continue to fund that policy or fund something else with the budget that you get.

Yes.

Okay. Thank you. Does Jeremy Balfour want to come in now?

Yes, thank you. I have a couple of questions. We have been talking a lot about the revenue budget, but the capital budget has not gone up at all, as far as I can see. What effect will that have on local authorities, particularly in the longer term? I am happy to put that question to whoever wants to take it.

Convener, would it be easier if I flagged the question to whoever I think is best placed to answer?

I am more than happy with that—we have done it that way in the past.

Okay.

The capital budget has not increased. The five-year plan that was announced last week basically sees our capital budget flatlining for the next five years. I will defer to Sarah Watters to give you some examples of the impact that that will have on councils.

We highlighted in our written submission the interrelationship between capital and revenue. For example, the ability to borrow is impacted by our revenue funding. I will bring in Eileen Rowand to provide more detail.

The capital that has come to local government in the past few years has varied. There has been money for specific items such as early years education, but Audit Scotland’s report suggests that there is a significant real-terms reduction in capital and highlights that councils are having to borrow more, so our net debt went up by 4 per cent in 2019-20. That puts into context the affordability of our investing in existing assets and ensuring that they are fit for purpose, and of our investing in new assets in order to deliver on the outcomes that are required. As Sarah Watters said, it is important that there is a level of capital that allows us to do that to meet life-cycle costs and have assets that are fit for purpose. Looking at our finances going forward, we hope that there will be an increase in capital, but we understand that that has to come from within the overall resources at the Scottish Government’s disposal. However, we are seeing pressures in the system on our borrowing costs.

That is helpful, thank you.

I will change tack and move on to another area, which relates to councils with a growing population, such as Midlothian, Edinburgh and East Lothian in my region. How does the budget reflect the pressure on a local authority area that has an increasing number of people coming to live in it, particularly when it comes to services such as schools, which need to be funded? Does the budget take account of that? If not, how can that be dealt with?

Population is an issue, but the budget does not pay particular attention to population increase in areas such as East Lothian, where I am aware that there is an issue.

One of the things that we must do is pick up the work that we were doing at pace around the fiscal framework, which Covid halted. It is key that we pick that back up, probably after the Scottish Parliament elections in May, and begin to look at a medium-term to long-term structure for local government funding. I hope that we will look at multiyear funding, and then we can perhaps look at our distribution models and the process that we use to determine them.

There are areas of Scotland where the population is increasing sharply, which is not fully accounted for in much of our current distribution. There are pressures in those areas, and we must ensure that the fiscal framework is fit for purpose and serves the needs of all 32 local authorities.

10:30  

In an earlier answer, you gave a little information about what happens in the next financial year if council tax is frozen this year. What sort of council tax increases might we see in the next year if your needs are not met by the Scottish Government?

That is a difficult question to answer as each council will make its own decisions about the next year’s council tax, assuming that that £90 million is not baselined. It might be helpful to bring in Martin Booth, who has some examples of the impact that the freeze on council tax had first time round.

Council tax was frozen several years ago for three years. The figure at that point was about £70 million per year. That was baselined, but not until the following year, which made planning more difficult.

If the £90 million is not baselined, the approximately 3 per cent of council budgets that that represents would have to be funded before we started next year, whatever the pressures were. Councils would need at least 3 per cent to fund a standstill budget, but we have not had a standstill budget for a long time.

Council tax is a small percentage of a council’s total budget. The amount varies from council to council, and is about 14 per cent in Glasgow. If we have to use council tax to fund a 1 per cent pay rise, that will equate to a rise of around 5 per cent in council tax. We gave an example earlier about the difference between what is public sector pay policy in Scotland and the increase in our core resources. If that was all to be funded from council tax, it would equate to a 6 per cent increase.

We are too dependent on too many other factors for me to be able to give a more accurate answer.

Most committee members are former councillors or council employees—in some cases, both. We are all keen to know whether the proposed budget is fair to and equitable for local authorities. We all accept that there is pressure. The information that we have been given suggests that there is a 2.4 per cent real-terms reduction in revenue since 2014-15. I am trying to work out whether that is fair, given the resources that are available to the Scottish Government.

In evidence to the Finance and Constitution Committee, COSLA compared the Scottish situation unfavourably with that in England. COSLA has talked about councils in England getting “tranches” of money from central Government to help them address problems. That jars with information I have had from colleagues down south, where councils are going bankrupt and there is talk of 60 per cent cuts. Could the COSLA representatives tell us more about the comparison between Scotland and other parts of the UK?

The comparisons that we made in our submission related specifically to Covid funding and the way in which Covid consequentials flowed through to local government. In England and Wales, local authorities were allocated four big tranches of funding that were awarded flexibly. The Local Government Association called that “general purpose funding”. It is the sort of funding that councils need for paying overtime or for extra vehicles or cleaning costs—all the extra costs that are in the system due to Covid.

The situation in Scotland has been different. We had one or two tranches of general purpose funding early on in the pandemic, but, after that, there have been more than 30 separate pots of funding for specific purposes. That has put a lot of pressure not just on Scottish Government officials but on local government, 32 times over, as those grants make their way down into councils.

We have welcomed a move by officials over recent weeks to look at some of those grants to see where money can be put into general revenue funding. That gives us flexibility: if a bit of money is left in one pot, it can be used to respond to some other local need. For example, there was little flexibility between our community food fund and the school meals fund. If that money was part of the general revenue fund and there was an issue with family food but not with school food, we could respond accordingly. We made that comparison in our submission. We would have preferred large tranches of undirected, general purpose funding, as opposed to more than 30 pots of specific grant for specific purposes.

That does not really answer my question, which was about the general situation. I mentioned the 2.4 per cent that is said to have been cut since 2014-15 and the general funding situation for councils in England, where we are seeing councils go bust. My question was about the general comparison between Scotland and England, rather than a specific Covid-related comparison. What can COSLA tell us about that?

I think that I have answered that previously. It is very difficult to make comparisons, because councils in England have different structures and different responsibilities from those in Scotland. I can speak only on behalf of Scotland. For us, the challenge is that we have seen an increase in the Scottish Government’s budget, as you have said—it has risen by more than 3 per cent in the past seven years—but our budget has decreased by more than 2 per cent. That brings challenges in and of itself.

As you are aware, my key focus is on ensuring that local councils in Scotland have sufficient core funding to continue to deliver services in social care, education and communities. However, we also need to be assured that all additional policy commitments are not just fully funded but, if they are to continue into the future, baselined into core budgets.

Covid funding requires to be fully funded at the moment. We have an allocation of £259 million. We do not know where that figure has come from and it is only a projection at this stage, but if we require additional funding as we go into the next financial year, I will expect to have a conversation with the cabinet secretary to ensure that that funding happens.

Over and above that is loss of income, which was mentioned briefly and which is one of our biggest challenges at the moment. We know that we have a £220 million-ish shortfall in this financial year alone, but we also know that community and leisure services are not going to reopen any time soon, so that pressure will continue into next year.

For us, coming from the fairly weak base of having had a reduction in our core budget for a number of years, the key thing is to ensure that that budget is protected as we go forward and that the additionality is covered. That will enable us to do exactly what we have done for the past 10 or 11 months: deliver the key services that we always deliver, but also pick up the baton and run, and really help our communities during a very difficult time—and that is before we even get into recovery.

Thanks. For those of us who want to try to be supportive of local government, simply picking an example that suits from down south and professing ignorance of everything to do with the general situation is not helpful. It might be useful for the committee to get comparative information on England and Wales, if COSLA does not have that.

If COSLA’s position is that local government has been unfairly treated because it has had a reduction and—according to the allegation that was made just now, which I am not sure can be substantiated—the Scottish Government’s income has gone up, where does COSLA think that the Scottish Government money that should be coming to local government is going? For example, as far as I am aware, for the past five years, or for even longer, there has been no amendment to the budget from any Opposition party in the Parliament to say that money should come from elsewhere to go to local government. Where is that extra money—that bounty—going?

The figures that I quoted were produced by the Scottish Parliament information centre in its recent briefing, but I will bring in Sarah Watters on that point.

Actually, Eileen Rowand would like to come in. As Councillor Macgregor said, our submission quotes the SPICe figures.

I will consider the wider question. I meet the directors of finance in England and Wales as part of my role as chair of the Scottish directors of finance group. It is quite evident that, given in-year funding received for Covid and concerns about the budget for the coming financial year, they are more optimistic than we are in Scotland.

The work that Audit Scotland has done in its overview report indicates that the Government has provided 60 to 70 per cent of the funding for Covid costs. Therefore, there is still a way to go and a number of councils are struggling. I am aware that councils are struggling down south as well—I have been in discussions with the Chartered Institute of Public Finance and Accountancy about that—but that is partly due to some of the commercial decisions that they have taken in the past, so it is a different issue. It is important to get more evidence on that.

On where the funding should come from, I think that that relates to the relative increases to different parts of the Scottish budget. What happened with the budget for health and sport is significantly different from what has happened with the budget for local government.

In local government, we would call for an appreciation of the role that we play when considering the importance of improving health and wellbeing, for example. If we are to improve the health of the nation, local government will play an important part in that. It is about considering the consequentials for health that are received and asking whether they could be used more widely. That is probably an area where there is agreement with the aspirations in the Government’s medium-term financial strategy. We are asking for that to be followed through in the budget.

I have a lot of sympathy with the point about better use, between local authorities and health boards, of the money that goes to health.

My final point is about what local government would like to see in indicative multiyear budgets. The Scottish Government says that it gets no information from the UK Government—its budget will not even be set until after local authority budgets are set. Is there more that the Scottish Government should do, despite the fact that it does not know what it will get, to give more indicative information to councils for future years?

We are having discussions about the fiscal framework and longer-term budgets—we have to do that. I completely sympathise that we do not always get clarity in multiyear budgets from the UK Government to assist the Scottish Government. However, we could perhaps be given a longer-term projection for parts of our budget—certainly around integration joint boards and health and social care funding. That is an element of councils’ work where we could look for a bit more sustainability. We started to have discussions about that, but they have also been in abeyance.

There is now a five-year capital plan, which is quite an ambitious plan for the Scottish Government. If it can do a five-year capital plan for the next parliamentary session, it is not inconceivable that it could give us a little bit more certainty. The reality is that the sooner councils know what they can project to spend, the easier it is for us to make decisions about long-term investment in capital and sustainable services on the revenue side.

Any certainty is better than none, and that must form part of the work on the fiscal framework.

I want to follow up on that answer from Gail Macgregor. What progress is being made on the development of the fiscal framework? Where are we with the talks on that? What elements, if any, have been agreed and what is the timescale?

As you know, we were engaged with the work on the fiscal framework prior to Covid, but I have to say that it has been completely put in abeyance since last February or March and has not been picked up again. There is probably an aspiration to do that fairly quickly after the May election but, obviously, given the crisis that we have been in, there has been other work to focus on.

In the past few months, COSLA released its local government blueprint, which gives a clear aspiration for local government for the next few years. It is a sort of medium to long-term plan. We need to pick up those discussions with Government at the earliest opportunity.

10:45  

To reiterate what Councillor Macgregor said, we got to a good position with our leaders, in that we had an agreement on scope and had shared that with the Scottish Government. There has not been a huge amount of progress on the entirety of the local government review, although we are doing some work on that now that we have a little capacity that is not dealing with the huge amounts of Covid funding and grants. We are now looking at local taxation and the innovative financing elements of the fiscal framework.

That is challenging, given what we have come through. Covid has thrown risks into the mix and shone a light on them, and we have to be cognisant of those. Our members want us to pick up the issue again, although they recognise the capacity issues at the moment. We are starting to do some preliminary work on that.

My next question is for Gail Macgregor. What impact will the proposed reduction by 0.8p in non-domestic rates poundage have on the local government settlement? Was COSLA consulted about that proposal? Have there been any further conversations between COSLA and the Scottish Government about handing back rate-setting powers for non-domestic rates?

I personally have not had any such discussions, so I will defer to Martin Booth on that.

The reduction in the rate poundage will mean that councils will make a small saving on the rates that they pay. That is a small positive—for Glasgow, it will save a few hundred thousand pounds—but it does not have an impact on our overall settlement, because the rates that we collect are netted off from our settlement from the Scottish Government, which means that the risk for that sits in the Scottish Government budget, not in local government’s budget. Other than the small benefit in relation to the rates that we pay, the reduction in poundage has no impact.

Audit Scotland has found that long-term financial planning is not well enough developed in many councils. Does COSLA agree with that? What steps are being taken to ensure that longer-term financial planning is better developed?

I suspect that Eileen Rowand will probably want to come in on that.

Longer-term financial planning is important and is something that we, as directors of finance, strive to do.

Many councils have revenue plans that look five years ahead. We have to make assumptions in those plans, because we do not know about items such as grants or pay, but we must look at factors such as changing demographics and how we plan to respond to them.

Councils are in different positions, but long-term planning has been improving. In Fife, we have a 10-year capital plan and we look three years ahead for our revenue budget. It is difficult to have revenue budget solutions for two or three years ahead, but we can make planning assumptions. We should do more of that.

The Scottish Government faces the same issues with its long-term financial plans. The report that was published recently mentions more clarity about capital aspirations; we would ask for more clarity about revenue aspirations.

For most councils, longer-term financial planning also involves huge transformation programmes, and those programmes have been impacted this year. The programmes were intended to create in-year savings. Some of the pressures that councils face come from the fact that those savings have not been released this year. That may recur.

As Eileen Rowand said, councils are looking to carry out long-term financial planning, but Covid has caused so much instability. Transformation planning is a key part of that, but it is having to be transformed as we speak to cope with the situation that we are in this year. Martin Booth articulated the situation with regard to leisure services not recovering into next year, the following year or potentially the year after that.

Before I ask my questions, I want to go back to the point that Jeremy Balfour raised about capital expenditure. I am not sure whether I picked up the witnesses correctly, but the Audit Scotland report that was published last month for the past financial year says in the key messages:

“Councils had the highest level of capital expenditure of the last five years.”

Is it correct that the expenditure was substantially higher in 2019-20 than in previous years?

If we look at the settlements back to 2013-14, we find that 2019-20 had one of the highest capital settlements, not least because the expansion of early years provision was included. As that expansion goes on, additional capital has gone into local government budgets. There was a particularly high capital settlement in 2019-20, which was contributed to by the activity in relation to early years expansion and the on-going school building programmes.

I think that I covered that in a previous answer. I have the Audit Scotland report in front of me, and it shows that, between 2013-14 and 2020-21, the capital funding jumped around a lot. Between 2019-20 and 2020-21, there is a 30 per cent reduction in funding, but that is because of investment in things such as the expansion to 1,140 hours of child care—it is to do with specific items that have been funded. The figure has changed significantly over the past six years; it has not been a smooth line.

Councils’ borrowing is increasing and there is more pressure to maintain assets and meet life-cycle costs. That is a challenge, and at the same time our revenue budgets are under pressure.

The Audit Scotland report is quite plain in relation to capital budgets. In point 6, it says:

“Councils had the highest level of capital expenditure of the last five years”,

at £3.6 billion. The Audit Scotland report of 2006-07 shows that the capital expenditure budget was £1.9 billion, so there has been a substantial amount of capital expenditure on councils for things such as the early years provision, which you mentioned, upgrading councils’ housing stock—we are now building substantially more than before—and increasing the number of schools that are in good or satisfactory condition. The reality is that councils have had substantial amounts of capital expenditure over the past 14 years.

I do not disagree with that. The figure has increased in specific years to do specific new things, such as the early years expansion, but I flag that the figure has dropped for 2020-21, and that has been baselined into the budget for 2021-22. We are seeing real pressures from maintaining our existing assets and life-cycle costs.

I will move on to the questions that I wanted to ask. Can somebody tell me how much usable reserves councils have and when you use those usable reserves?

I will pick up on that first, and Sarah Watters or Eileen Rowand might wish to come in.

The levels of reserve that local authorities have vary, and the issue depends on what is in their committed reserves and what is uncommitted. There is a lot of variation across the councils.

The question about when to use the reserves is key. Everybody has always said that we should use them on a rainy day, and it has been chucking it down for the past 10 months. However, we do not want to exhaust reserves and put councils under even more pressure in the next financial year. That is why we have worked constructively with Government on fiscal flexibilities that might assist councils to plug a budget gap this financial year and next financial year.

That work has been constructive, although it has not provided a perfect solution or a replacement for cash. There is a general understanding that some reserves will require to be used in this and the next financial years, alongside the flexibilities and additional cash that we get for Covid funding over and above that.

The challenge will come in future years. We do not want to reduce reserves to a point at which Audit Scotland is not comfortable with them. The situation varies a lot, and I cannot give you an exact figure for every council.

I appreciate that, and the Audit Scotland report is helpful in that regard.

I am sorry, convener: I should have declared that my wife has been a councillor in local government for 14 years. I am well aware of the issue, as I get my ears nipped on a regular basis about council funding.

How many councils increased their revenue reserves in the last financial year?

I will bring in Sarah Watters on that. Where they have done so, there are specific reasons for it.

I think that Eileen Rowand and Martin Booth want to speak about reserves.

The Audit Scotland report highlights that 22 councils increased their reserves in 2019-20, to a scale of £65 million. I think that the largest increase was in Glasgow, where there was a significant equal pay claim.

Reserves are there to deal with one-off shocks in the budget; they are not there to deal with on-going costs. All councils carry a number of risks. The reserves in my council have significantly reduced in recent years. The Audit Scotland report flags that up and says that, if the situation continues, there will be issues of sustainability. Obviously, I will ensure that that is not an issue, but it is important to have a level of reserves, because there are things that councils must deal with that are not funded by the Scottish Government, given our autonomous nature.

We need to hold a level of reserves. That is even more important in times of uncertainty. I actually expect to see an increase in reserves at the end of this financial year, which is partly because of some of the funding that is coming from the Scottish Government—we are being asked, potentially, to carry that forward to next year to deal with Covid, education, health and social care and so on.

We are also considering fiscal flexibilities for dealing with Covid costs in future. If councils access those flexibilities, the reserves will increase in the short term so that councils can deal with the medium-term impact of Covid, which will be substantial and wide ranging.

There is a mixture of earmarked and unearmarked reserves. On the reserves that are earmarked for specific purposes, Glasgow had a significant reserve built up to deal with its equal pay challenge and how that was to flow through the accounts. Glasgow’s policy is to have unearmarked reserves of 2 per cent of net expenditure. We are below that target, albeit not by very much, as we are at about 1.9 per cent. In Glasgow’s case, that is about £30 million.

Our pressure from Covid, prior to the allocation of the lost income of £200 million, is sitting at about £80 million so, as Councillor Macgregor said, it has been raining pretty hard this year, from that point of view. That is the scale of the problem. Our reserves are not big enough to deal with the current issue. That figure will reduce, with the lost income figure and other issues that we are dealing with, but we are not awash with reserves, and I think that that is pretty common across local government.

11:00  

On that point, what is the total value of councils’ usable reserves? I accept that each council is in a different place, and that there is fluctuation year on year, but where are we when it comes to usable reserves, which can be used either to fund specific projects or general expenditure or to reduce council tax?

—[Inaudible.]

Your microphone is muted.

I cannot give you that answer here and now. We would have to gather the information and I do not have time to look in the Audit Scotland report and respond.

However, the position on reserves varies significantly across councils, as do their risks. There is no one-size-fits-all position. I do not think that we would say, “This is the level of reserves that councils require,” because that changes with the risks that each of them carry. We need to look at reserves in that vein.

I have another question—

If you have another question, make it short.

I will.

Depending on which year is taken, councils’ usable reserves across Scotland amount to between £2 billion and £2.5 billion, which I would say is substantial. Now that it is absolutely pouring out there, given Covid and the Brexit situation, is it not time that councils were using reserves to support services?

I cannot disagree with that. I said at the start of my earlier answer that it is pouring, and that councils will use their reserves. Absolutely.

I thank COSLA for its analysis, which is very useful. It has been made evident today that councils are suffering. They have suffered over the years when it comes to funding, but Covid has added even more pressure. Witnesses have talked about a loss of income, a reduction in core funding, and how Covid has exacerbated those pressures.

Many questions have been asked already, but I want to talk about how councils are having to adapt and adopt new ways of working to support their service delivery. It has been evident for nearly a year that councils have had little opportunity to do anything but adapt to new ways of working. That puts some pressure on what is taking place.

I ask COSLA, how likely are those new ways of working and service delivery that are being looked at to continue, as we move into and come through this pandemic?

The answer to that comes in a number of parts. As you are aware, we have been firefighting for a number of months, and I cannot commend our staff enough for the tremendous effort across councils—indeed, across all the public sector—in the past few months. It has been incredible.

As we touched on earlier, some of the transformation programmes that were going through the process within councils have had to be put in abeyance, up to a point. Obviously, different ways of working have meant a lot more of our staff having to work from home, and pressures have come with that. There have also been massive challenges in digital connectivity, support and mental health.

You will be aware that I am just about to launch a new digital strategy in conjunction with the Scottish Government. From a transformational point of view, having good digital connectivity as well as ensuring that all our communities have the right devices, will assist us. The world is not going to get back to the normal of customer-facing services in person.

Councils have been incredibly good at adapting, but we have been firefighting. We are now just trying to take a breath—I say trying, because it is challenging—and look at what services we will need to deliver. For instance, we have talked about the challenges around loss of income. We do not know how the public will feel about going back into community centres and leisure facilities, so we might need to look at what offer we have for them in the coming months. Obviously, we will need to reprofile some of the work in transformational ways.

At the moment, we need to protect our communities and ensure that they are looked after, but we will then look at how we deliver key services to get us out of the current situation. After that, we will go into economic development and recovery. Councils will be at the heart of that in supporting people through employment and skills teams, and easing our recovery.

The councils’ role has three parts: we have been in a crisis and we are now in a holding pattern and keeping going, but we will be going into a phase of looking forward to ensure that the services that we provide down the line for the recovery are what our communities need, which I think councils are brilliant at.

I concur with all that. I believe that people have gone the extra mile and I commend them for that. Audit Scotland talked about the possibility of changes and of looking at workforce planning, and said that much more of that needs to be addressed. How can that be achieved during the pandemic? Things will not be the same. We cannot expect people to switch from what they have done during the past year to where they will need to be in the next year or two, as if just switching on a light.

The funding crisis that you have identified today, whereby your core funding is being reduced and there is a 21 per cent reduction in capital expenditure, will have an impact on the effective running of councils and how they support their communities.

I agree. I do not know whether anyone else wants to come in on this point. I do not want to monopolise the discussion, but fortunately, in my brief, I also have the employers portfolio, which cuts across finance and the whole of local government. We have been doing significant work with the unions in the past 11 months and I have met them regularly to ensure that their members and our employees are supported. We also want to ensure that we get the right guidance out to heads of human resources and to line managers to ensure that staff are supported.

Going forward, however, we will need to look at workforce planning, because the landscape will not be the same. We will have a higher proportion of people who might choose, if it is possible, to continue to work part time from home or part time in a face-to-face situation. We will need to look at the challenges around that in respect of mental health, isolation and supporting our staff. Certainly, the one positive that has come out of Covid is the use of digital, such as in this meeting. It might not flow as well as in-person meetings, but it is manageable. The way that we work will therefore have to change. As part of my employers brief, we are working with the joint trade unions across the piece on that, particularly in schools and with teaching and non-teaching staff. It has been a massive effort and a very different way of working. As I said, though, there is much more to be done.

My final question is for Martin Booth. He has identified the potential devastation to culture and leisure services, given that facilities are unable to support services at present, and what those services are likely to look like after Covid. My take on what is being said by Martin Booth and others who have a role in that area is that support mechanisms will be much reduced and many of them might disappear from communities because the financial strain that they are under will not be sustainable.

Yes, it is a really challenging area. My expertise in the area is that I was previously finance director for Glasgow Life, which is the biggest culture and leisure trust in the country. The impact of lost income is potentially devastating. We must take a much more medium-term view, if not a long-term one, to rebuild the services and people’s confidence in using them. As Councillor Macgregor said, we are not sure how the public will react and how long it will take them to recover that level of confidence where they are comfortable about visiting the services.

We are doing quite a lot of engagement in Glasgow around that. We have just completed a staff survey and found that our staff’s confidence in visiting leisure centres as members of society rather than members of staff is still relatively low. We are also carrying out research through our household survey to gauge the public’s level of confidence and assess what we can do to rebuild it. However, as has been said, we anticipate that it will be a two to four-year programme and we will need the resources to rebuild that confidence. Leisure services are critical for the health of our citizens and nation.

In reality, if that resource does not come into the services for the future, you will not be able to support or progress them.

Yes, that is undoubtedly a significant risk.

Thank you.

That completes our question session. I thank the witnesses for taking the time to speak with us today and giving us some issues to ponder as the budget bill continues through the Parliament. We will hear from the Scottish Government on the budget next week.

The witnesses can leave the meeting by pressing the red telephone icon. I remind committee members that the meeting will remain in public session for the next agenda item.