Seòmar agus comataidhean

I will begin by agreeing with something that Meghan Gallacher said earlier this year. She said:

“I agree with Graham Simpson that it is absurd that we use valuations from 1991 … A wider piece of work would need to be undertaken … which would need to decide whether to introduce legislation on council tax reform.”—[Official Report, Local Government, Housing and Planning Committee, 6 May 2025; c 61.]

Therefore, we all seem to be in a space in which we agree that it is not correct for us to use the 1991 valuations, but we should not go straight from that to saying that we will put up council tax for people on the higher council tax bands, because that would immediately break any potential consensus.

I said earlier, and I repeat, that we would not be in favour of a proposal that, on its own, without any mitigations, would lead to a significant increase in council tax in any particular area. That is our starting point. We do not believe that the council tax of people in any particular area or on any particular council tax band should increase significantly. If there were to be changes, there would have to be mitigations over a number of years that would smooth out those changes.

We could go for a local revaluation, in which the starting point would be to reflect the higher prices of homes in that area. We could do that rather than have a national revaluation. That would take account of the point that has been made in relation to Edinburgh and the Lothians in particular, which I am very sympathetic to.

Rather than moving straight to a debate about whether we are going to do one thing or another, I point out that I am not advocating anything. I have said that we do not endorse any of the potential solutions that are set out in the consultation, for the very reason that, if we were to set out our position, someone would immediately disagree with it.

I am neutral and agnostic on what the solution is here, other than to say that I adhere to the principles that I have set out—that there should be no significant increase in council tax in any particular area and that any solution must be revenue neutral. Beyond that, I am up for a discussion about whether we can find some consensus on a landing zone.

It will take a number of years. Revaluation itself would take three years, and that does not have political agreement.

The first thing to do—before we get into what we do—is to see whether genuinely people think something needs to change. I could read out all the Opposition comments: no party in this place has not said that.

The next question is: where might there be a level of agreement? We will not agree on everything, but where is the potential for agreement? That is where the discussion will be taken forward, by someone other than me, and the next Parliament could begin to shape and plot out over a number of years the changes it would make.

The IFS pointed out that we could give soft landings to any change in a number of ways over a number of years. Gradual transitional arrangements could span as long as we wanted them to span, so that any changes take place gradually over a number of years, but we need to have a starting point. I have been clear—because I do not want political opportunism to scupper this reform—that we have to have a starting point of agreement. Otherwise, council tax reform will get lost in the noise of political opportunism. That is the challenge, and we are keen to hear what people have to say.

As you pointed out, we consulted on the matter, and we are looking at primary legislation on a general power of competence or something similar. One option would be to use the local democracy bill that is currently planned for year 2 of the next session of Parliament, but I recognise that that is quite far down the line.

Given that timescale, we are looking at more immediate measures that could be introduced through secondary legislation in the current financial year or early in the next financial year to deliver greater empowerment for local authorities to innovate while we consider future primary legislation. I am happy to come back to the committee with more detail.

We know from talking to local government that it is keen to have some of those flexibilities. During today’s session, we have talked a lot about revenue raising. We recognise that there are some commercial opportunities in areas that local government operates in where there could potentially be options for them to take forward within a framework. Work is on-going on that. I do not know whether Ellen Leaver has anything to add.

We absolutely must be proactive and think differently. That requires leadership at all levels and it requires a willingness to do things differently. We need to oil the wheels of that, and that is why we have the invest to save fund, which is in its first iteration. I put it on record that I am keen for that to be a strand through the spending review, as it can be a supportive vehicle for further change.

We are not starting from scratch on reform. Over the years, we have seen major reform in the justice system that reduced the number of young people being prosecuted in adult courts. We have seen investment in childcare, which helps parents to get back to work. We have seen the reform of policing with the introduction of a single body that has demonstrated the ability to respond, particularly with serious organised crime. In local government, we have seen shared services in many parts of the country.

However, we are only scratching the surface of the potential. We must all realise that reform is not a nice to do; it is absolutely fundamental, because the spending outlook is very tight indeed. We therefore need to look at the investment that is already in the system, whether it is for local government or health and social care, and consider how we maximise the resource that goes the front line. We need to do things differently through automation and digital to ensure that the money goes as far as possible and we continue to provide good-quality services. That is the challenge.

We can see great examples of that being done and efficiencies being created so that the money can be reinvested. I want the savings through the invest to save fund to be a catalyst for more transformation across the public sector, as there is far more scope.

There is always the coalition of the willing. In every part of the public sector, you always get those who are first out of the starting blocks and you then get those who are a bit slower to come to the table, but the whole public sector needs to go in that direction.

It is a complex formula that is designed to make an objective assessment of need. It uses the most up-to-date information and looks at indicators such as population, which you referred to, as well as rurality and deprivation.

The formula is kept under constant review, and is agreed with COSLA on behalf of the 32 local authorities, which sometimes have 32 different interests. That is the challenge. Trying to get everybody to agree changes when there will be winners and losers is incredibly difficult. I am always open to suggestions about how we can improve the funding formula, but any proposals for change need to be generated through COSLA in the first instance, and we need to try to come to a consensus that recognises some of that.

We have tried to work with local authorities in different ways through things such as the whole family wellbeing fund. We are working with local authorities to try to address deprivation and do upstream prevention work, and some funding streams try to recognise some of that. We have also worked with our island authorities to recognise some of their needs and costs. We have tried to do that directly with island authorities.

We have recognised some of the challenges. However, on the core funding formula, if I was to pitch up and say, “I will decide,” I can imagine that I would hear 32 voices, some of which might be happy and some of which would definitely not be happy. I come back to the point that there is always room for improvement, but it would certainly not be in the spirit of the Verity house agreement if I were to overrule local government consensus on the issue. However, we continue to discuss the matter. Around the edges and around some of those other funds, we might be able to address some of the issues that you have referred to.

I am very aware of that, and it was a difficult decision. We thought long and hard about the options but, given that the UK budget is so late and given the requirement for the Scottish Fiscal Commission to provide the critical information and analysis that it provides, it was not going to be possible to do that in a shorter timeframe.

I referred to unknowns. We do not know whether there will be changes to taxation at the end of November that could impact on the Scottish Government. Those might add a layer of complexity as we might require to take some time to analyse and come to our conclusions on them. The timeframe is unfortunately challenging.

I have been engaging with political parties around this, and I am keen to continue to try to see if we can reach early agreement around the draft budget so that any changes beyond that are not major. If we are able to do that, that will give local government more clarity about the envelopes that it can assume, which will allow it to plan and move forward on that basis. However, it will require the good will of other parties to reach more or less the landing space for the draft budget, with only minor changes beyond that. I am engaging in good faith with Opposition spokespeople on that basis. So far, discussions have been quite positive, so we will see where we get to with that.

I reiterate the fact that there has been a real-terms increase to local government funding against a difficult financial backdrop across all public services. I cited the figures earlier; those are independently verified by the Accounts Commission, which confirmed the real-terms increase. However, the whole public sector is facing pressures from inflationary impacts on the costs of delivering every single service, whether by local government or the health service. Of course, pay, too, is driven by inflation, and we have been working with local government to navigate that challenge.

I should say and put on record that I very much recognise and value the significant contribution that all local government workers make to delivering public services across Scotland. I am pleased that we have managed to support local government in getting to the fair and affordable two-year pay offer that COSLA made earlier in the year. That will give some stability and the opportunity for local government to engage with staff around the reforms that they might wish to take forward in local government. We have given funding flexibilities and additional funding to help COSLA to make an offer such as that and to prevent costly industrial actions. We have been working with local government, with a difficult financial backdrop, to manage the issues.

In the spending review, we as a Government will set out our choices and the envelopes that we think are affordable and appropriate for all parts of the public sector. The Scottish Fiscal Commission has challenged the Opposition parties to set out their envelopes as an alternative if they feel that the envelopes that we set out are not adequate to meet needs, whether in local government or health. Those alternatives would mean difficult choices, but those choices are there for others to make. We will set out our budget envelopes, and we will be judged on those.

The whole public sector is having to reform, which is why we have set out a clear reform strategy. Doing things in the same way as we have always done them will not be sustainable, which is why we have such a focus on public service reform. We recognise the issue and need to ensure that, through reform, the funding goes further. Of course, local government will have to play its part in that, as well.

It is very close. We were pleased to see local government represented at the Minister for Public Finance’s recent PSR operational summit on 14 October, with more than 140 public service leaders attending. Local government is absolutely at the heart of the reform agenda, in terms of not just local authorities’ relationships with one another but, as I said earlier, their relationship with the wider public sector. There is real scope for sharing back-office functions, support and estate—perhaps taking a place-based approach in that. Progress has been made, but loads more can be done in that space. I assure the committee that local government is very much at the heart of things, which is exactly where it should be.

I contend that local government has been given a fair funding settlement; it has received a real-terms increase, meaning that the pressures of inflation, which have impacted all parts of the public sector, have been recognised. The funding is the funding; a real-terms settlement and more flexibility have been provided. I am keen to look at further flexibilities, and we are keen to work with local government on that, but, ultimately, the decisions of each individual local authority and the priorities that they set are for them as autonomous bodies elected by their local population.

Returning to reform, I note that one reason why I am keen to support local government reform relates to Meghan Gallacher’s point about how services are delivered. We need more shared services across local government boundaries and we need better use of digital and automation to provide better or more easily accessible services to the public. All those things are challenges for all parts of the public sector, and we are keen to work with local authorities, many of whom are getting on with looking at all that. We are keen to support that work because it is how we will make the money go further.

On the outlook—you can see what has been set out by the UK Government—there is an average increase in funding of 0.8 per cent over the spending review period. There is not lots of money sitting about doing nothing; it has all been allocated, and the outlook is very tight, indeed. Decisions need to be made because, if, beyond the real-terms increases that we have already given to local government, we were to give further funding to local government, it would have to come from somewhere. Would it come from health? Would it come from other parts of the budget? Those challenges will be set out in the spending review. We will set out our choices, and it is up to others to set out alternative choices.

AI is a tool; it does not operate on its own. We need to ensure that it is a tool that we can use to make improvements and to carry out tasks that previously would have been quite labour intensive. I am keen that people look to develop skills that enable them to do more complex tasks while more simple tasks are done through automation, and for AI to be used as a tool to provide information to help people make judgments about services.

Aberdeen City Council used £1.2 million from the invest to save fund to address increasing demands and pressures from an ageing population with complex care needs by developing advanced digital tools to enhance care efficiency and quality, ensuring that services are flexible, comprehensive and person centred. You need to understand your service users—who they are and what their needs are—and how you overlay that with the best use of your workforce, and automation, AI and digital tools can be absolutely critical to ensuring that you are optimising your workforce to deliver the task at hand.

That process will be overseen by people, particularly if the end user is someone who is vulnerable or older. We are not talking about removing that interface of people providing intimate care in people’s homes, for example. We are talking about using tools to enable services to be more efficient with regard to who goes where, when, to whom and why. We are also looking at things such as dementia tools that can enhance the service that is delivered by people to keep people safe in their own homes. Some of those initiatives have been around for a while; they have not just been developed. The potential for optimising services and ensuring that they are being delivered in the most efficient way is an opportunity that we should not turn our backs on. Other countries are embracing it. We are not unique, so we need to embrace it too, not just in local government but in the health service as well, in order to get the most out of the funding that we have and to try to release people to take on some of the more complex roles that there will be.

Also, as I said—we make no bones about this—we need to reduce the size and cost of the whole public sector in Scotland, because it is not sustainable. Every part of the public sector has to play its part in making sure that we can afford the public sector that we have and, importantly, we can prioritise and redirect funding to the front line to support social care and other growing areas of demand. We have no choice. We need to do that.