Seòmar agus comataidhean

Thanks, convener, and thanks for the opportunity to make some brief opening remarks.

This year’s budget invests in the wellbeing of our society and seeks to ease the pressure on families and family budgets by continuing, and expanding, the best cost of living support package available anywhere in the UK.

With regard to local government, we have made significant joint investment in the engagement process throughout the financial year, and the local government settlement delivers what I would describe as a fair outcome for councils. The budget provides a real-terms increase in the settlement, including £253 million of unrestricted general revenue grant. I could have considered targeting all or some of that increase at social care, but instead I chose to provide it as flexibly as possible to councils and to give them full discretion in allocating that money to meet local priorities. I also confirm my intention to provide councils with full discretion over council tax; indeed, that was the most frequent request of COSLA leaders throughout our extensive engagement.

When I appeared before the committee to give evidence on the 2025-26 budget, the local government settlement was just over £15 billion. In this year’s budget, the settlement for 2026-27 is £15.7 billion. That represents an increase of £650.9 million, or 4.3 per cent in cash terms; in real terms, it is the equivalent of a 2 per cent increase. Those figures represent a true like-for-like comparison and are transparently set out in table 4.15 of the Scottish budget document.

Additional funding was, of course, made available to councils throughout the year, as it has been in every previous year and invariably will be in the years to come. However, factoring in that 2025-26 funding without any crystal ball to confirm what will happen in 2026-27 does not provide a like-with-like comparison and risks being misleading.

It is also not possible to know, or to second guess, what else will happen over the course of the spending review process, as it sets out high-level spending envelopes for portfolios to support medium-term planning. Those envelopes are intended to provide multiyear planning assumptions, and do not represent multiyear budget allocations.

I recognise that the envelopes will be extremely challenging for local government, as they will be for all public services, but I want to offer the committee a few points of context. First, the Scottish Government remains committed to working with councils and COSLA to ensure the sustainability of local services, including exploring local government’s role in delivering our broader public service reform agenda.

Secondly, the portfolio approach adopted for the spending review does not take into account the impact of in-year transfers. I have baselined more than £2 billion into the local government settlement since the Verity house agreement was published, but it remains the case that hundreds of millions of pounds of funding in the health and education portfolio spending envelopes is likely to be transferred to local government over time to support joint priorities.

I appreciate that those might sound like warm words, but I believe that the evidence supports my case. The 2022 spending review indicated a core revenue allocation in 2026-27 of £10.7 billion. In contrast, the Scottish budget delivers almost £14 billion.

Finally, I want to acknowledge that the Scottish budget also sets out a strong non-domestic rates package in the context of our revaluation. I remind the committee that the Scottish Parliament welcomed the move to three-year revaluations, and that revaluations are administered by assessors who are independent of the Scottish Government and local government, another move that was widely welcomed at the time. With average growth in rateable value of 12.23 per cent, the Scottish budget confirms that I have lowered the basic, intermediate and higher property rates, delivering the lowest basic property rates since 2018-19. I have also maintained the most generous small business support relief anywhere in the UK.

It is true that some rateable values have increased. As a result, we have introduced transitional reliefs to ensure that the increases in net liabilities will be capped significantly lower than the percentages that are often quoted. In total, the budget supports a domestic rates relief package worth an estimated £864 million in 2026-27. As a result of the measures in the Scottish budget, the total revenues raised from NDR will actually be 6 per cent lower than they were before Covid.

I hope that those points have been helpful to set the context for this morning’s session, and I look forward to your questions.

COSLA’s ask was for £750 million of new money for social care for 2026-27. That is more than the entirety of all the resource consequentials that the Scottish Government has available for the whole spending review period. Money of that quantum simply did not exist.

With regard to what did exist—the quarter of a billion pounds—I could have said, “That money’s for social care,” but local government would have said, “We’re supposed to be getting away from ring fencing—you should give us flexibility.” My decision was that it was better to put the £253 million in the general revenue account, as that would allow local authorities to spend it on social care or on other priorities as they see fit. They also have full discretion over council tax.

Our spending review outlook is determined by what we know that we have in front of us from the UK spending review, which is very tight. We can put out our assumptions only on the basis of what we know.

However, I re-emphasise the point that no Government spending review in history has ever remained as it was set out, because funding shifts. There is a Scottish Parliament election coming up, and there will be a general election in 2029, which I suspect will lead to additional funding flowing. History tells us that assumptions are assumptions, but the actual funding that is available moves significantly. I set all that out in my letter to the COSLA to provide some reassurance around the flat cash spending outlook, and I will continue to provide such reassurance.

The first thing to say is that all commentators acknowledge that the local government settlement represents a real-terms increase. The issue then is whether you compare this year’s figures with the ABR figures or with last year’s budget.

The local government settlement is subject to a large number of in-year transfers and in-year funding shifts. I agree with the Scottish Parliament information centre. On the front page of its briefing, it says:

“Comparing Budget document 2026-27 to the previous Budget document, as SPICe has done in the past, we see both cash and real terms increases in the overall revenue allocation to local government”.

The SPICe blog sets out why you should not use the comparison with the ABR. There are two fundamental reasons why the comparisons are different. If you compare the budget figures with the ABR figures, you need to remember the two significant funding moves that took place in 2025-26. The first was the £144 million that was added to the 2025-26 budget for employer national insurance contributions. That was done after the budget was published. On top of that, there is the £109 million that was added to the 2025-26 budget for pay. Those additions inflated the ABR position.

If we compare it to the ABR with that additional funding in it, it gives us a different comparison than comparing budget to budget. Similarly, there will be movements in 2026-27—some of which we know about and some of which we do not—that will shift the comparator to the 2027-28 budget.

11:45

My contention is that, as the Scottish Parliament information centre has set out, because of the uniqueness of local government, we cannot really make a comparison to the ABR. I point members to table 4.15 in the budget document, which, for transparency, sets out all the areas of funding that move. That is why we have that table: instead of making a comparison to the ABR, it shows why we are saying what we are saying. We did not know, for example, when the employer national insurance contribution money would come and what level it would be. To compare it to that, considering that that funding came after the draft budget, is not to compare apples with apples. That is our position. Because of the uniqueness of the local government budget, we have done it like this for many years. SPICe seems to think that that is a reasonable way to compare.

First, let me reiterate that that is a guide—it will not be the final budget or settlement for local government. When I pointed out what had happened at the previous comparable point, which was the 2022 spending review, I said that the figure for what, at that point, was a flat cash outlook, was £10.7 billion for 2026-27, compared to £14 billion now—a difference of almost £3 billion. Obviously, the flat cash outlook that was foreseen is not what transpired. The shift might not be of that magnitude, because that also takes into account what happened when there was a change of UK Government, when the Chancellor of the Exchequer reset budgets, because they had not been set in line with inflation. That resetting of budgets was very welcome. There is that element but, even setting that aside, there would still have been a material change compared with the spending review.

The other point is that the portfolio approach that was adopted for the spending review does not take into account the impact of in-year transfers. Despite the flat cash outlook, there will be in-year transfers that make that position look different.

Finally, there is the truth that, as in the rest of the public sector, there will have to be transformation and a different approach to the way in which services are delivered. The health service is being challenged to do that at pace, as are all our public bodies. Head count will need to be reduced for operating and corporate costs.

Local government will have to find its path and look at things such as shared services. The three Ayrshire councils are very far ahead on that; they are in advanced discussions about taking a fairly maximalist approach to sharing services across the three councils. Other groups of local authorities are looking at that, too, and some local authorities provide services for their neighbours, from which there have been considerable savings. That is before we get into digital, automation and all that. We want to support local government to up the pace of change, because the rest of the public sector is doing just that.

On the areas that you referred to, we have made a clear commitment on passing on health resource consequentials. We have put in additional funding to tackle waiting lists in the national health service, and that all flows through. Our social security legislation demands inflationary uplifts to social security spending, as agreed to unanimously by the Parliament, so some of the costs are fixed, if you like.

All I can say is that we will make sure that we work with local government on all those things, but local government will have to play its part in changing the way in which things are done.

As I said, I have provided more than £0.25 billion in extra revenue to support local services. I do not underestimate the challenged financial environment that everybody is facing. However, if we look at the settlements for local government over the years, that is a pretty big increase in completely discretionary and flexible funding. Actually, I think that it might be one of the highest general revenue grants—

The targeted revaluation is only at the higher end, to create the two new high-value property bands. That is not being done to replace the consultation on wider reform and transformation in how local taxation is to be taken forward. I am still keen to build political consensus on that—that still stands.

I guess that our policy builds on the mansion tax proposals down south. Given the different property base in Scotland, we have taken the view that it would apply to houses with a valuation of over £1 million. That would make the system fairer. We know that the difference in council tax liability is not fair, the further people go up the bands proportionate to their income. Creating the two new high-value property bands will help to make that fairer while the wider consultation is on-going.

The measure will not apply until 2028, so there is time for discussion with COSLA and local government about how it will work in practice. They may wish to consider distributional impacts. Clearly, some local authorities will be bigger beneficiaries than others. It is up to local government whether it uses a different distribution formula to take account of that, but there is plenty of time to discuss that and work it out. The revenue estimates from all that will be published once the policy is finalised, but the aim will be a fairer contribution from the highest-value properties. Local government will get to keep the money, unlike the position down south.

I will bring in Ian Storrie in a second. My understanding is that part of the issue, or the stooshie, if you like, down south has been because the Covid supports have come to an end, which is where the 40 per cent relief for the RHL sector emanated from. The sector ended up with an equivalent relief of between 10 and 12 per cent, I think, for permanent support—it is not based on the same system, but that is the percentage that it translates to. We have done an analysis on various sectors both north and south of the border and it is fair to say that our offer of 15 per cent compares reasonably well to some of the reliefs.

I should also say that the permanent change in England has been subsidised by an increase in the very high property rates in the city of London. They are able to garner a lot of additional revenue from that, but we do not have that property base in Scotland, so we could not have the equivalent. Our reliefs are having to come out of the public purse, rather than being subsidised by very high property rates. It is very important to put that on the record.

Within the percentage increase, is there a difference between retail, hospitality and leisure that may cut that 12.23 per cent?

I think that it is part of the overall commitment to sport. I will bring in Ellen Leaver in a moment, but I should correct myself and make it clear that this is not a one-off but a multiyear commitment. It is an important intervention with regard to safety and other such issues.

It is part of the wider sport offer, Ellen, isn’t it?

But it will mean additional funding for local government that currently is not in the local government settlement. This goes back to the point that when we have policy development—whether in the child poverty space or the sport space—a lot of the funding will find its way to local government once agreements are made on delivery and what will be delivered. That is a good example of why local government funding can be more complex.