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In line with the Verity house principles, this year has seen a significant increase in meaningful pre-budget engagement with local government, which is equivalent to the process that was followed to ensure that cabinet secretaries’ portfolio priorities, and the three shared priorities, were factored into the budget considerations. We did that up front prior to the budget—in fact, a lot of work was done prior to the autumn statement; that statement was clearly a surprise, and a shock to Scottish public services.

The budget invests in the Verity house agreement by baselining almost £1 billion of funding across health, education, justice, net zero and social justice. It is crucial to make the point that that baselining, which provides greater flexibility, has been provided in advance of the agreement on an accountability and assurance framework, which will sit alongside the fiscal framework that we are also working on.

We will continue to work with local government to develop the necessary accountability and assurance arrangements, because that will allow us to provide more flexibility to ensure that the priorities of the Scottish Government and of the Parliament are achieved, alongside the priorities of local government and the three shared priorities in the Verity house agreement. To be clear, in this budget, which is the most difficult budget since devolution, we have prioritised local government with a higher share of our discretionary budget.

Whatever the constitutional situation is, we should step back and ask what we are trying to achieve. If we can achieve what we are trying to achieve without going down what would almost certainly be a challenging constitutional battle line, we should try to do that, because local authorities want those additional powers as soon as possible. My message to leaders across Scotland is that, if they have ideas, let us test them out. If the challenge is that the situation cannot be resolved without having that power, we will need to look at that. I do not think that I have seen anything where that has been the case—I do not know whether Ian Storrie is aware of anything—but, if there are issues, we need to look at them.

If we are looking at whether there is one magic power that makes everything okay, looking down south does not appear to be the answer. Twenty-six councils in some of England’s most deprived areas are at risk of effective bankruptcy, including those in Birmingham, Slough, Croydon and Woking. Clearly, there is something not right there. If there are lessons to be learned, that is great, but I am not sure that any one sweeping power will allow us to resolve some of the challenges.

The secret for us is to make sure that we work in collaboration and with respect. That gives us the opportunity to make a difference on the ground in a shorter time than would be the case with what could be a constitutional battle.

Despite the real-terms increases that were allocated to local government and several other public services this year, it is unquestionably the case that the pressures on our local authorities and other public services are unsurpassed. Such high levels of in-year inflation have not been experienced in my memory—not since I was very young. There was nothing that we could have done to plan for that, so that pressure is there. Our public services have done an amazing job to manage that in a way that protects the most important services, but let us not pretend that it is all apple pie; it is not. It has been really challenging this year in particular. We face significant in-year increases because of inflation, high energy costs and higher-than-expected pay settlements. Money to address those things has to be allocated from this year’s funds, so there is unquestionably a real challenge there.

That is partly why we are looking at further flexibilities for local government, but one of the things that we need to do is look at how we can empower local government to raise more of its own funds. That is a wider discussion. When I have gone around the country speaking to council leaders, I have encouraged them to think about what works for them.

It is absolutely clear that some ideas are coming through Parliament, such as the visitor levy and the proposal around second properties. Those will work for some local authorities but not for others, so we need to be open to the idea of listening. Obviously, there is a working group within COSLA that Councillor Hagmann co-chairs. There are 32 local authorities, and there might be other ideas out there. A local authority might come up with an idea that it thinks is bespoke to it but which another local authority says is useful for it, too. We need to be open to that if we want to have the public services that we all aspire to have.

It remains the Government’s view that we need to continue to make sure that we apply our limited resources across public services in such a way as to achieve the best possible results for our citizens, and that we need to continue to look at ways of doing things more efficiently and effectively. Flexibilities in local government to make sure that they can do things differently, if appropriate, are part of that. I guess that is where that sits. Nonetheless, we have managed to provide additional funds to local government in recent years.

Ultimately, how they employ and shape their workforce is a matter for local authorities, but there will Scotland-wide issues, particularly around skills gaps and the specific areas that, I guess, the committee will come to shortly: environmental health, planning and building standards. They are the challenges that you will have heard of, and it is absolutely appropriate that we work on them in collaboration with our colleagues in local government, further and higher education and the specific professions.

The area that I am most aware of is planning. The Government and COSLA are working with Heads of Planning Scotland and the Royal Town Planning Institute to make sure that we are taking that forward. A lot of work is being done where particular skills gaps have been identified. The first thing that we need to do is to recognise that there are challenges, and then work together to meet those challenges, and we are doing that in collaboration with our local government partners and others.

Councillor Hagmann covered most of the points eloquently. We cannot overemphasise the need to ensure that we have a workforce with the correct skills, and apprenticeships are part of that. The Withers report is really helpful in helping us to navigate that going forward across not just local authorities but the whole public service. Councillor Hagmann covered the other points.

Yes. It is a really good question. When we speak to local government finance colleagues, they will often highlight the fact that, where there is ring fencing, other bureaucracy is involved that is challenging and requires resource. As Councillor Hagmann said, we need to make sure that that reporting is supporting us in reaching outcomes. It is therefore really helpful that, in the Verity house agreement, we have some agreed outcomes and are shifting to that approach.

Simon Cameron mentioned the Christie commission. How many years ago was that? It was a long time ago. Mark Griffin and I sat on the Finance Committee at the time of the commission. It was going to help us shift to an outcomes-based preventative approach. That is really difficult to do. Hopefully, the Verity house agreement helps us do that, by focusing rigidly on the outcomes that we are trying to achieve and by making sure that everything that we do supports us in achieving those outcomes.

It is not unusual for legislation that comes through this Parliament to be amended at stage 3 in a way that creates another reporting responsibility. Very often, that reporting ultimately lands with local government staff, because they are the folk delivering the service on the ground. That is why we all need to think about how we do such things a little bit differently. I absolutely understand why members of Parliament want to see how money is being spent and the outputs, but surely our focus has to be on outcomes. In education, how are we giving young folk better opportunities for the future? How are we driving poverty down, particularly for young people? Those are objectives that are agreed as priorities across the political and public service spectrum, so we need to work harder to focus on those outcomes. We have been trying to do that for a number of years, and hopefully the Verity house agreement will help us on that path.

Ultimately, the Government will work with COSLA on any of these areas. Collaboration is key, and we have a shared desire to make progress. In the wider public service, we need to look at using technology better and doing things differently. The on-going work on wider public service reform is led by others, but it is key that we work collaboratively.

Councillor Hagmann has covered some of the main areas. A couple of the areas that she has flagged are ones in which we would hope to make progress.

Multiyear funding is absolutely an aspiration. It continues to be an aspiration, but there is the challenge regarding the settlement that the Scottish Government gets from the United Kingdom Government. That said, the medium-term financial strategy includes an increase in local government funding in cash terms of £1.5 billion from this year to 2027-28. There is a degree of certainty about where the Scottish Government wants to go to help local government planning, but, obviously, we have the challenge of the Scottish Government and the Scottish Parliament receiving their settlement on an annual basis, and that has to interface in the real world when we face the difficult challenge of setting the budget for Scotland.

We are committed to reviewing all the ring-fenced funds over time, but, going forward, there should be ring fencing only with agreement. Part of the process is to develop an assurance framework, which is a different way of doing stuff. We need to work together on that to get it right. Right now, about 7 per cent of investment is formally ring fenced, but, on top of that, local authorities spend a significant amount of money on statutory services, which removes flexibilities, but, within that, there is flexibility as to how that money is spent.

The first stage of the work that we are doing is to review all existing funds that are transferred to local government, outside of the general revenue and general capital grants. We are looking at how much of that can be baselined for the 2024-25 budget. The outcome of that work, which is on-going at the moment as part of the work that we are doing in developing the fiscal framework, will be seen in the budget when that is published. A lot of work has already been done, and a lot of work continues.

This is not backward looking; moving forward, there should not be ring fencing unless it is agreed. There will be times when the Scottish Government and COSLA agree that, for a particular reason, there should be a ring-fenced fund for one thing in particular, probably for a short time. Going forward, the expectation is that funding will not be ring fenced in the long term. The point is that that should happen with agreement.