Chamber and committees

Response on the Inquiry of the Local Governance Review - 19 November 2021

Letter from Deputy First Minister and Cabinet Secretary for Covid Recovery to the Convener - 19 November 2021

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Dear Ariane,

I am grateful to you and the Committee for allowing me to offer further evidence on 2 November to your inquiry on the Local Governance Review. During this session, I agreed to write in relation to a question asked by Miles Briggs on funding for City of Edinburgh Council.

The annual local government settlement is distributed using the needs-based formula, which is kept under constant review then discussed and agreed each year with COSLA on behalf of all their local authority members. The formula uses the most up to date information for the full range of indicators, including population. Whilst the Scottish Government is always open to suggestions to improve the funding formula, any fundamental changes must be agreed with COSLA in the first instance.

To ensure no local authority receives less than 85% of the Scottish average revenue funding per head, the Scottish Government introduced the 85% funding floor in 2012. In the last 2 years the City of Edinburgh Council has been allocated an additional £16.8 million as a result of the introduction of the 85% floor, this extra funding is over and above their needs-based formula share.

I can also confirm that the capital city supplement I mentioned in my evidence to the Committee adds £3.9 million each year to the City of Edinburgh Council’s local government finance settlement in recognition of the additional expenditure associated with being Scotland’s capital city.

I hope it is also helpful to the Committee if I return to two other points addressed in the evidence session.

Firstly, in my response to a question from Meghan Gallagher, I suggested that around 70 or 75 per cent of local government budgets had been ring fenced at one point. The official report notes that I qualified my answer by saying I was “a little rusty [on this subject] nowadays”, and with good reason, as I inadvertently transposed the percentages. In 2007-08, 25 per cent of the local government budget had been ring fenced and 75 per cent was not. This 25 per cent proportion that was ring fenced corresponded to around £2.7 billion, which was reduced to around £0.9 billion in 2008-09. This proportion further diminished to around £200 million in 2013-14 with the transfer of police and fire services. The introduction of the Pupil Equity Fund (£120 million) and the expansion of Early Learning and Childcare (£566.7 million) mean the total ring fenced funding in 2021-22 amounts to £925 million or less than 8 per cent of the total 2021-22 local government finance settlement. That is to say, local authorities will have complete autonomy to allocate over 92 per cent - £10.7 billion - of the funding we provide in 2021-22, plus all locally raised income.

The second point I would wish to return to relates to my answer to a question from Paul McLennan concerning talks with local authorities about more local tax powers. Although a potential tourism tax features in discussions on wider fiscal powers for local authorities, work on a Bill to create such a discretionary local power was paused at the onset of the pandemic, reflecting the impact of COVID-19 on tourism and hospitality businesses.

I hope this is helpful and I would, of course, be pleased to further assist the Committee as it continues its enquiry.

Yours sincerely,

JOHN SWINNEY