Seòmar agus comataidhean

First, COSLA’s analysis of the estimated cost to local government is £265 million, although I note that the Fraser of Allander Institute said that it was more like £220 million. It depends on what local government has included. Some have included arm’s-length organisations and social care commissioned services and so on. We are working with COSLA to get to the fine-tuning of its requirements.

Having said that, we have three pieces of communication to which we have had no response from the Treasury. The most recent was the joint letter from the First Minister and the president of COSLA that was signed by 48 other organisations and made the point that anything short of full funding would not be acceptable. A figure was put into the public domain that had an upper amount of £320 million, which is at least £200 million short of what core public services will require and it does not take into account any commissioned services, general practitioner services or anything like that—it is just core. We have yet to have a confirmed figure from the Treasury, and we have yet to have a reply to our substantive request to the Treasury.

Once there is a final figure, I have said that we will give a fair distribution of that. Clearly, given the figures that I set out at the beginning of this answer compared with what the worst-case scenario might be from the Treasury, local government could not get 100 per cent of its employer national insurance contributions funded, otherwise there would be nothing left for the rest of the public sector. I want to be fair to local government in the distribution.

I should end on an optimistic note. I have not given up on pushing the Treasury for fairer coverage of employer national insurance contributions. We have asked for the full cost to Scotland’s public sector to be covered, rather than just a Barnett share, which would not recognise that we have invested in our public sector and the pay of our public servants over the years. It remains outstanding.

The agreement with the City of Edinburgh Council for Granton is for outcomes-based funding. The Government will help to unlock funding for site remediation, up-front infrastructure and other enabling works that are required for the development at Granton to proceed. The guarantee is that we will pay the revenue costs of that investment from 2028-29 onwards, on the condition that the development meets pre-agreed outcomes.

The City of Edinburgh Council and the Scottish Futures Trust have been working on the detail of the deal to get it landed. The Granton project is important because phase 1 aims to unlock more than 800 new homes and we know how important they are in the Edinburgh area.

Mark Griffin asked whether that could be done elsewhere, and I think that it could. The Granton project is extensive because of the size of the area that is being developed. There are component parts—a transport element, a housing element and a regeneration element—so there is money coming from different parts of Government. I am happy to follow up with more detail on the various bits of that, if the committee would find it helpful.

In principle, I do not see why we could not come to similar agreements with other local authorities. I have made the offer to COSLA that we could work together on the proposition of what the priorities are and where we need to see growth in affordable housing so that we could bring together a similar deal elsewhere. I do not see why such a funding model could not apply in a rural setting. I also think that there is potential for more than one local authority to come together in partnership to agree a similar deal. It is an innovative way to lever in additional investment beyond the traditional routes, and I am keen to see it being further explored.

It is challenging for local government in the same way as it is for the rest of the public sector, because of the enormousness of it. We need to lever in private investment on the back of well-used strategic investment of public finances.

Let me give you one example. Glasgow is quite far advanced on heat networks. Its concept is that it uses public buildings as an anchor to lever in private finance. Through the heat network, those public buildings have a revenue stream, which enables a hub-and-spoke model that brings in other buildings. A heat network could be built up around such a model. That approach is being used in other parts of the UK and in other countries.

We cannot do that through public funding alone. We must lever in private finance, but to incentivise that investment we need to have derisking and clear revenue streams. One of the reasons why I was keen to give local government some of the ScotWind money was to make sure that the benefits of ScotWind reached all communities. It was also so that communities would be able to use that money in an imaginative way to lever in some of their own external funding sources, and to make choices to collaborate with each other and with other public bodies. That funding was very flexible in order to be able to oil the wheels of investment.

In this space, some local authorities are further ahead of others. It was ever so; 32 local authorities do not all move at the same pace. The cities have an important anchor in the city region. It is more difficult for some of the smaller local authorities to have the capacity and leverage that other, bigger authorities perhaps have, so we will probably see more local authorities working together on a regional basis.

No, we will not look at any kind of cap. We are working in partnership with local government, which is why the last letter was co-signed by the First Minister and the president of COSLA. We are all on the same page about needing a fair recognition from the UK Government of employer national insurance costs. COSLA absolutely recognises that if that is not forthcoming, the available quantum will have to be distributed fairly. It understands that that does not mean that 100 per cent of its employer national insurance contributions will be covered.

Through the budget statement that I set out—the £15 billion for local government and the record levels of investment in health—we have built some resilience into budgets, but that is an opportunity cost. For every million pounds that has to go on employer national insurance contributions, there is a million poundss that will not go on front-line services or on resolving this year’s pay disputes—I am getting ahead of myself; I hope that there will be no disputes—or helping with pay negotiations. Those are opportunity costs but, as I say, the final landing space remains to be seen.

I recognise the pressures on social care. It is a whole-system pressure, at the end of the day. I am also aware of the COSLA finance spokesperson’s most recent correspondence.

In the draft budget on 4 December, I set out almost £2.2 billion of investment in social care and integration. That exceeds our commitment to increase funding by 25 per cent over this parliamentary session—it exceeds that commitment by more than £350 million. On social care investment, therefore, we have delivered what we said that we would deliver. That includes £125 million to fund the real living wage uplift for adult social care workers in commissioned services. We have funded that because we recognise that those services are profoundly fragile if they cannot hold on to staff, and the real living wage is therefore important.

That level of investment does not mean, of course, that there are no pressures. There are still pressures and that is why we are taking a whole-system approach. The First Minister has talked extensively about the interventions to improve the performance of partnerships, because there is variation in that regard that is sometimes quite difficult to explain. With the resources that we have in the system, those partnerships need to be working effectively to reduce delayed discharge and address all the other matters.

There is a worry around employer national insurance contributions for social care commissioned services, as COSLA estimates that the rise will cost around £85 million. We will continue to discuss that with COSLA, because the last thing that we want is for social care commissioned services to cease because of that rise in contributions, as that would impact on the whole system. We are still discussing those matters to ensure that that situation does not come to pass.

I would be very concerned about that, which is why I made the point that getting full funding of the public sector’s NI increase in Scotland is very important. Local government makes the same argument. Just because the local government position in Scotland is beyond what the Barnett share for local government would be, there should not be a punishment for local government—or the health service or any other service—because over the years we have invested in our public services beyond what the rest of the UK has invested in its public services. The UK Government made a decision on employer national insurance contributions out of the blue, without any warning, and the onus is on the UK Government to fully recognise the impact on Scotland’s public services, including on local government.

When it comes to the final number that we get from the UK, what do we do with it? Whatever that number is, I have said that I want to be fair to local government. However, being fair to local government does not mean that I can cover 100 per cent of the costs of employer national insurance contributions, because I would have literally nothing left for the rest of the public sector, including the health service, the police and the fire service.

I want to be fair, and I recognise that timing is an issue for local government, given that budget setting will begin soon, so we need to resolve the matter. All that I can say to you and the committee is that we are chasing the Treasury on a daily basis to get an answer.

I would say that we have recognised the position of and the importance of capital to local government. The 2025-26 budget sets out more than £7 billion—sorry, I am just looking at the capital grant figures. [Interruption.] I will come to the affordable housing position in a moment.

In my earlier answer, I referred to the general capital grant. We have allocated an additional £108 million of general capital grant, which is a real-terms increase of 14.2 per cent, and we have reinstated the £31 million that was used for the 2024-25 pay deal, giving a total capital increase of £139 million.

I would perhaps push back slightly on some aspects of what COSLA has said. For example, £40 million was allocated from ScotWind for capital funding for local government, which is essentially completely discretionary as long as it is spent in the net zero space. It is new money, but COSLA has perhaps not recognised it as such in the way that I would have liked or expected it to do. There will be very few restrictions on how that £40 million is spent, but it is not regarded as new money in the way that I think that it should have been.

Ellen Leaver has pointed me to the fact that, beyond that, we also have the £768 million for the affordable housing supply programme. That was one of the big asks from COSLA for the housing budget. We also have other investments from which local government will benefit, such as the energy efficiency and clean heat measures.

I know that COSLA has asked for additional capital, but I think that the capital position is fair.

In principle, I am very keen to look at making sure that local government has the maximum number of levers available to it, although that would have to be within the context of financial sustainability and affordability. That does not necessarily mean that local authorities would all use those powers. The visitor levy is a good example of where local government has the option; it does not have to use the levy, but can choose whether to do so.

We are consulting on the potential for a cruise ship levy, and our “Programme for Government 2024-25: Serving Scotland” document makes it clear that we are going to

“Intensify work on designing a cruise ship levy”.

Again, that will not be for every local authority—it will be of interest to some more than it is to others.

Our “Scotland’s Tax Strategy: Building on our Tax Principles” document commits us to establishing

“criteria that should be considered when determining the level of government at which a tax could be delivered”.

That will allow us to consider proposals for taxation in a consistent way.

The joint working group on sources of local government funding and council tax reform is continuing to meet—in fact, we will meet next week. We are looking at proposals for the future of local taxation, because I think that there is a desire for a fairer system in that regard, but trying to build political consensus around that is important. It will not get past first base in a new session of Parliament if it does not have a degree of parliamentary consensus.

I mentioned earlier that we will consult on the general power of competence. Again, that has to be delivered in a way that has substance and meaning for local government, rather than simply being something theoretical that might not be used.

Local government has been keen to pursue a number of areas, including a levy on second homes, for example, which we have delivered within the confines of what we are able to do through secondary legislation. Going further than we have already done on that would require primary legislation.

Fundamentally, COSLA and local government are the employers and lead any discussions around pay. We have become involved to support the resolution of some of the pay disputes, because industrial action is also costly. We have therefore tried to support resolution in order to avoid that.

One of the things that COSLA argued for very strongly was for money not to be ring fenced. In this year’s settlement, we have therefore minimised ring fencing. Since the Verity house agreement, I think that £1.5 billion of funding has been de-ring fenced, including £500 million for 2025-26.

What we have not done in relation to the £1 billion increase is say, “That is for pay, that is for this” and so on. In essence, it is for local government to decide how it will manage its funding. Within that is, of course, the discretionary funding—the £289 million—and real-terms protection for the revenue grant. Each local authority then has to make a decision about the level of council tax.

I guess that that also brings me back to the point that I made earlier. The pay costs of the public sector are substantial, which requires us collectively, including local government, to look at how we support that going forward. That will mean looking at the size and shape of the public sector and doing things differently. Shared services, for example, are perhaps not as extensive in local government as they could be.

I hasten to add that that is a matter for local government. However, when we are looking at public service reform across other parts of the public sector, such as considering how we can do things differently and how back office functions can be shared, I would hope that local governments are also in the space of looking at some of that, which I think that they are.

He was referring primarily to income tax rates and bands in order to give certainty.