Seòmar agus comataidhean

I am a big fan of community asset transfers when they are done well. They are not about offloading surplus buildings to unwilling communities, but about partnership when communities want to take on assets that are underused or are surplus to requirements. When facilities are taken over by communities, something that is hard to explain sometimes happens: facilities suddenly blossom and take on a new lease of life because they are run in a different way, and communities, through their connections, manage to bring people in and breathe new life into facilities. I have seen that happen many times.

That does not mean that community asset transfers are appropriate in every case, but the Government, local authorities and—for that matter—other public bodies should be very open to the idea when there are community interest, demand and willingness. That should certainly be supported.

Every £1 million of employer national insurance contributions that is not fully funded by the Treasury is £1 million that cannot be used for the delivery of public services or, indeed, to settle pay deals with public servants.

There is also a read-across to council tax. Every £100 million for local government equates to just over 3 per cent in council tax. To be blunt, if there is a £100 million shortfall in employer national insurance contributions for local government, that could equate directly to 3 per cent on council tax bills that we would rather were kept to a minimum.

All those moving parts are impacting on one another. The basic premise, however, is that Scotland and Scotland’s public services should not be punished for investing in teachers, nurses and other public sector staff to a level beyond that of a Barnett share. I would have thought that that would be recognised as good investment. However, as I say, there are three outstanding pieces of correspondence with the Treasury, and we are chasing it to get to a final position.

I should have said earlier that I am aware that local government will start to set its budget soon, so time is of the essence. We do not have a lot of time to get an answer from the Treasury—we need an answer now.

Good morning. Thank you for inviting me to give evidence to the committee.

The 2025-26 Scottish budget seeks to improve the lives of the people of Scotland and to deliver on the Government’s priorities to eradicate child poverty, grow the economy, tackle the climate emergency and support sustainable high-quality public services. The budget recognises the importance of local government and it provides local authorities with a record funding package of more than £15 billion in 2025-26, which is a £1 billion increase on the budget for 2024-25. Independent analysis by the Scottish Parliament information centre confirms that the 2025-26 local government settlement includes a cash and real-terms increase for both resource and capital.

Through the Verity house agreement, the Scottish Government has renewed its commitment to a relationship with local government that is based on mutual trust and respect, and has agreed to seek new ways of working together to ensure that the people of Scotland receive the public services that they expect and deserve.

As we discussed in the evidence session prior to the budget, the Verity house agreement and the fiscal framework represent a journey, not a destination. We are never going to wake up one day and find that all the challenges have been magically resolved. As with any relationship, it takes time and hard work to make things better. We have invested a lot of time and hard work during the first year of the Verity house agreement and there has been demonstrable positive progress in the implementation of the agreement’s principles. That has included joint work on local government pay; enabling councils to double the full rate of council tax on second homes; delivering a new national allowance for foster and kinship carers; and close engagement around the Circular Economy (Scotland) Act 2024.

The settlement has been informed by extensive engagement with local government, at both an official and a political level. That has allowed for evidence to be jointly developed and an improved joint understanding of the challenges that both spheres of government face. The positive impact of that engagement has been recognised by the Convention of Scottish Local Authorities and acknowledged by the Scottish Parliament information centre in the briefing on local government finance that it published on 20 December. The briefing also emphasised COSLA’s positive response to the 2025-26 budget and I welcome COSLA’s acknowledgement that the settlement has increased substantially. I remain committed to continuing to make progress against our shared priorities in partnership with local government and to ensuring that we work collectively to deliver sustainable public services across Scotland.

I look forward to engaging with members and to answering any questions that the committee might have.

As I set out in my opening statement, adjusting for pay and pensions, the budget provides a cash-terms increase in revenue of £599.6 million, which equates to a cash-terms increase of 4.5 per cent and a real-terms increase of 2 per cent. Importantly, it also includes £289 million for local priorities—discretionary spend general revenue grants that are not ring fenced in any way. We have also allocated an additional £108 million of general capital grant, which is a real-terms increase of 14.2 per cent. We have reinstated £31 million that was used for the 2024-25 pay deal, giving a total capital increase of £139 million.

The spending power of local authorities is essentially £707 million higher in 2025-26 than it was in 2024-25. Does that mean that there are no difficult decisions for local government or any other part of the public sector? No, it does not; public sector reform and doing things differently is as important for local government as it is for any other part of the public sector. However, there is a recognition of the challenges that local government was facing. As confirmed by SPICe, the settlement is fair and should enable local authorities to minimise the impact on local services and minimise any council tax increases. It is probably a fairer settlement than local government anticipated at the start of the process.

I am very keen to move into a multiyear funding space. First, however, we need to see the outcome of the UK Government spending review. We are expecting the resource and capital spending review around June: I need to see the envelopes that the Scottish Government is likely to receive in order then to be able to make multiyear commitments to local government. I am really keen to do so, because—to go back to the point about reform and sustainability—it is much easier to make the changes that need to be made if we have a line of sight of more than one year of budget, which would mean that we could plan changes over what would, in this case, be a three-year cycle with a review every two years. That is one of the better announcements that the Chancellor of the Exchequer has made.

I am keen to move into that space with the third sector, too, but I need assurance from the spending review outcome with regard to knowing what the broad envelopes are likely to be. Given some of the uncertainty—as I might describe it—around some of the chancellor’s plans, I want to ensure that we have certainty before we make that commitment.

First, my intention is to publish the fiscal framework alongside the local government settlement next month, if we can reach agreement on it with COSLA. My officials will know more about this, because they have been working on it in great detail, but one of the issues is about the rules-based framework. Although it seems to be quite straightforward, once you start to explore the pros and cons it becomes anything but. Local government has looked at the pros and cons and is mindful of them. One of the issues with a rules-based framework is whether, if there were to be in-year shifts, that would be it. You cannot have it both ways: you cannot have a rule, then have different set of rules after in-year changes are made. There are a lot of pros and cons. Ian Storrie or Ellen Leaver might want to come in on that.

Yes. Ian Storrie articulated that very well. It is about the way that we are doing business already. It is about the relationship rather than a thing. I have seen many COSLA responses to budgets over the years, and, although this response is not without challenge to us, it is probably one of the most constructive responses. It recognises what we have delivered in the budget while setting out some additional asks. That is, perhaps, a reflection of the earlier and more meaningful budget engagement, which is part of the framework.

First of all, as I said when I last spoke to the committee, the SLARC recommendations were important, although I recognise that when it comes to encouraging people into local government they are one part of the picture and not the whole picture.

The uplift in the general revenue grant for 2025-26 will ensure that implementing the recommendations is affordable within the local government settlement. Ring fencing the funding would have sat at odds with the premise that COSLA and local government do not want ring fencing: they are very much against ring fencing. That is why it is within the settlement.

Regulations will be laid shortly—later this week, on 23 January—that will implement the changes related to pay and banding that were recommended by SLARC. The changes will take effect from 1 April. Other recommendations relate to expenses and the introduction of severance payments. Those recommendations sit better with local government, but my officials are engaging with COSLA on them, because there are questions about how they would be implemented in a fair way. There are differing views within local government on that, so we need to work through it.

The first set of regulations will be laid this week, and we will make further regulations to implement any agreed changes as and when they are required—but not before the next planned local government elections.

We have managed to secure an agreement with local government to maintain teacher numbers at 2023 levels. That is in recognition of the fact that £145 million was in the system—which has now been uprated to £186 million—to maintain teachers.

I would imagine that everyone on this committee will recognise the value of ensuring that we have an adequate number of teachers in our schools. There are issues that are current and that are being debated in this Parliament around closing the poverty-related attainment gap and tackling behaviour in our classrooms. It is difficult to see how we would do that with fewer teachers. There is a shared ambition to ensure that we have adequate teaching staff in our schools. In order to stabilise that position, we have an agreement with local government to maintain teacher numbers at 2023 levels.

In addition to that, we have put more money into additional support needs, because we have recognised that, particularly since Covid, there has been an uptick in the number of children with additional support needs.

There is a balance to be struck here. There are Government priorities relating to education and closing the poverty-related attainment gap. Do we maintain some control and influence over how those are delivered, or do we not?

In terms of policy, education policy has been explicitly aimed at closing the poverty-related attainment gap. Teaching staff are not the only workforce in this space and other workforces have a critical impact on it as well, but teachers are at the heart of reducing or closing the poverty-related attainment gap. Therefore, I do not think that it is unreasonable for the Government to say to local government that the funding that we provide for that purpose has to deliver those outcomes, and one outcome has to be that we maintain the teaching staff to deliver that priority.

It is finely balanced. We recognise that local government might have a differing view on these matters, but we have managed to get to a compromise position that recognises the view of local government as well as the policy view of the Scottish Government on an issue that has been debated in the Parliament on a number of occasions.

It is for local government to decide how it utilises its resources, but the Convention of Scottish Local Authorities is very much in agreement with us on the need for reform. I encourage local authorities to look across boundaries at providing shared services. There are some good examples of that, but we are scratching the surface of what could be delivered through shared services across local authorities. Quite a lot is happening in planning in that regard, because of the difficulty in attracting planning resource in some local authorities, but far more could be done to share services.

You will be aware that we have established an invest to save fund and have provided up to £30 million for it. I have not said that local government’s share of the fund is £X, but I encourage local government to make proposals. We want proposals that will maximise the return on investment and that represent fundamental game-changing reforms that will make a difference to the way in which local services are provided. Financial sustainability is an element of that, because we need to ensure that services can be sustained.

We are very supportive of the single island authority model, the most advanced work on which has been done by the Western Isles. The model is based on a simple concept. If relatively small communities are trying to attract people to work in local government and the national health service and are, as is the case, quite often competing for the same people in management and front-line staff, a single island authority model makes perfect sense. The governance issues—which are not insubstantial, particularly given that the governance arrangements for the health service are different from those for local authorities—are being worked through. That shows ambition of thought, which is why we are keen to support such work. Thinking outside the box merits our support.