Chamber and committees

There is regular dialogue with various people in local government. The cabinet secretary for finance—the Deputy First Minister—regularly meets various local government representatives, as do I. The meetings tend to be with the presidential team of COSLA or, in my case, I have spent a lot of time meeting housing conveners, for example, directly. We are well aware of the points that you have raised, and there has been extensive correspondence on those matters.

I do not think that anyone in the room would say that finances are not challenging and difficult. That is for all parts of the public sector, and local government is no exception. I will add some context to the £1 billion ask. The consequentials for 2023, for local authority and education spending in England—bear in mind that that is where Barnett consequentials flow from—are circa £242 million, net of national insurance contributions reversal. To be blunt, if we tried to meet that £1 billion ask, we would have to go well beyond the Barnett allocation for local government from the UK Government. In addition, the global additional resources coming from the UK Government are about £800 million.

Clearly, inflation impacts on every part of public sector investment, including local government. For example, in housing, it is important that there is some flexibility in the contracts in order to be able to keep projects coming through and enable them to be delivered. Capital investment through local government and other public bodies provides an important stimulus to the local economy, so we recognise its importance.

We need to think about innovation. In housing, there are two areas with a lot of potential. One is joint procurement—perhaps trying to pool spending power in negotiations for materials, for example—and doing things on a more joint basis across the housing sector. The other is looking at more off-site construction, which provides efficiencies because it allows for all-year-round build. The interruptions of winter are not as profound with off-site construction. That area probably needs to expand, and I would hope that the cost per unit would also come down if there were those economies of scale from large-scale purchase through the affordable housing project.

Those are two areas. There are others that can be looked at, but those areas offer the opportunity to drive forward efficiencies and ensure that we get as much return for investment as possible.

Thanks very much, convener, for the opportunity to engage again with the committee.

We are all too aware of the many challenges that people currently face. Since my previous appearance at the committee—I think that it was back in September—we have put in place emergency legislation that has given people, whether they rent in the private sector or the social rented sector, reassurance around their current tenancies through the worst of the winter, even as their other costs have, unfortunately, been rising.

More recently, of course, we have set out the Scottish budget for 2023-24. We are using all the levers at our disposal to maximise investment and to support people and the economy, and are targeting our spending as effectively as possible. The Scottish budget for 2023-24 sets out more than £6.3 billion of capital spending to support employment and the economy through our large-scale infrastructure plans, to move us along the path to net zero carbon emissions and to underpin the provision of quality public services.

Our capital spending ambitions have been impacted by global trends—a position that has been exacerbated by United Kingdom Government decisions. In light of inflationary pressures and the wider market conditions, we have made hard choices to reprioritise our 2023-24 capital budget in order to deliver against Government priorities. In some cases, that has meant that portfolio budgets have reduced when compared with the May 2022 capital spending review publication. Where we have made choices to slow down or reduce available budgets, those are not choices that the Scottish Government has taken lightly.

We have to ensure, however, that we maximise the impact of our capital investment to deliver against our strategic priorities. Despite that, more than £3.5 billion will be available in this parliamentary session for delivery of more affordable homes. In the most challenging budget settlement since devolution, we are providing more than £13.2 billion in the 2023-24 local government finance settlement.

Following the flat-cash position set out in the resource spending review, we have listened to councils and are now increasing the resources that are available to local government next year by more than £570 million, which is a real-terms increase of £160.6 million, or 1.3 per cent. The 2023-24 local government finance settlement provides local authorities with £423.7 million of additional revenue funding for vital day-to-day services, which is a real-terms increase of £39.1 million. The settlement also provides an increase in capital funding of £147.1 million, which is a real-terms increase of £121.5 million. The 2023-24 budget has also baselined an additional £260.6 million for the 2022-23 local government pay deal.

In addition to funding from the Scottish Government, local authorities have a range of revenue-raising powers that are not available to other public services, including full flexibility on council tax rate setting and the newly devolved powers over empty property rates relief.

We also continue to work with our partners in local government to build on the Covid recovery strategy and to agree an urgent approach to improve the delivery of sustainable public services that are designed around the needs and interests of the people and communities of Scotland.

Another critical area of work has been the short-life task and finish group on the Cost of Living (Tenant Protection) (Scotland) Act 2022, which successfully concluded its work just before Christmas, when agreement was reached with the social sector on plans for social rents in 2023-24. The Convention of Scottish Local Authorities and the Scottish Federation of Housing Associations have published statements setting out their members’ intentions for rent in 2023-24. COSLA has committed to keeping local authority rent increases to an average of no more than £5 per week. Members of the SFHA and the Glasgow and West of Scotland Forum of Housing Associations have reported planned increases averaging 6.1 per cent.

Finally, the use of average figures rather than a fixed cap allows for flexibility to honour the outcomes of the statutory tenant consultations on rent setting that social landlords must undertake each year. That outcome ensures that tenants are protected from unaffordable rent rises while allowing social landlords to continue to invest in the delivery of more affordable homes, where their business plans allow them to do so.

Those were some updates on key areas. I look forward to exploring those and other issues that the committee may wish to discuss this morning.

First, I will say a little bit about the context, because it is important. The UK Government made decisions in the autumn statement. The capital flow from the UK Government to the Scottish Government is obviously the key lever for the quantum, and we saw a 3.4 per cent real-terms reduction in our capital allocation between 2022-23 and 2023-24. In addition, the impact of high inflation places significant additional pressure on what the capital programme can deliver. We also recognise that the flat and falling capital grant allocation that Scotland received, along with that inflation, really reduces the buying power of that investment, meaning that the money that we have cannot go as far as we would like it to go. That is the context.

It is also important to say, though, that we have committed and remain committed to making more than £3.5 billion available for affordable housing over the current parliamentary session. There were always going to be peaks and troughs of investment; I have set that out before.

The 2023-24 budget for the affordable housing supply programme represents a net decrease of 4.7 per cent—£36.87 million—on the previously published capital spending review figure for 2023-24. When you take financial transactions into account, the figure that you are left with is £36.87 million because there has been an increase in financial transactions. As this is a key priority, we will be able to mitigate the circa £37 million reduction to some extent. That is because, first, there will be a £15 million in-year transfer from our energy colleagues to help to fund zero-emission heating systems and, secondly, the charitable bond donations that have been generated by investment and bonds this year and the potential investment in 2023-24 will also generate charitable donations that will be directed towards that investment in social rented homes. It is difficult to put an absolute figure on that. If you want to explore that further at some point, I will be happy to do so, based on the return that we got for the investment last year. However, it is sizeable. Therefore, taken together, those elements close the gap of the £37 million reduction to quite a large extent.

The caveat is that, even with all of that having been said and with all the mitigation, the purchasing power of the investment will not be the same as it was two or three years ago. We will see what more we can do, and the sector is working hard on joint procurement, trying to drive down costs with off-site construction and finding innovative ways of making every pound go as far as possible.

In summary, it is an area of huge importance to us. We are mitigating that relatively small reduction, but the global amount of a £3.5 billion commitment remains the same as it was.

You are right to point out that investment in affordable housing makes a really important contribution to tackling child poverty, the net zero agenda and reducing fuel poverty. Through our planned mitigations, which I have set out—the three areas of charitable bonds, financial transactions and the energy money transfer—we hope that there will be no negative impact on the delivery of affordable homes in 2023-24, although the more important impact will likely remain that of the global issues affecting construction on the pace of affordable housing delivery, inflation costs, interest rates and all of that. We are working closely with the construction industry and housing partners to mitigate those impacts, where possible. We operate a flexible grant system that can take account of increased costs. That is a negotiation between the contractor and the social landlord, which is the housing association. We will continue to collaborate with all our partners to achieve our shared goal of delivering more affordable homes for Scotland.

It was always assumed, as I said earlier, that there would be peaks and troughs. Unfortunately, the factors bearing down on all forms of construction, not just affordable house building, mean that, until things change, there will be smaller bangs for bucks. Partners are working very hard, but the situation has meant a slowdown in some of the delivery of projects, and that has been reflected in locations across Scotland.

We are aware of that. There have been changes to some of the levels available, which have been reviewed and increased in recognition of that. There is a geographical variation as well. There are obvious hotspots that, despite all the pressures on the market, continue to be very buoyant and difficult for people to access, but that is not uniform across the whole of Scotland. There are options that we have seen expanded, such as mid-market rent, which is still much more affordable than the private rented sector and can sometimes be a good option for people in that position.

There is, undoubtedly, a challenge for people in some areas of Scotland to get into the housing market; indeed, the rental market can be a challenge as well. We are working with local authorities, particularly in those areas, to look at what innovative solutions they can bring forward. Last year, for example, we gave some additional money to the affordable housing supply programme in Edinburgh after being asked for that. We have asked them to come forward with innovative solutions, on which we would look favourably, to see how we could work with them to help deliver those. I understand that they are working on some proposals.

Good morning.

I certainly welcome the approval of NPF4, and it is now about moving swiftly to adoption so that we can see a positive outcome from that for communities. NPF4 is one part of the development plan, but an important part. In addition to that, local place plans can now be brought forward by communities, setting out their aspirations for their places. That might help to give communities a bit more of a voice.

NPF4 is more directive in shaping places, with things such as the infrastructure-first approach and 20-minute neighbourhoods, for example, and the affordable housing contribution of at least 25 per cent can be increased or, indeed, decreased on the basis of local evidence. In most places, however, 25 per cent is seen as the floor and I cannot think of many places that would want to reduce that. They would have to have strong arguments to reduce that contribution.

NPF4 also contains proposed minimum all-tenure housing land requirements for each planning authority to meet the statutory requirement. I hope that that will mean that we can perhaps see more rapid development, particularly of affordable housing projects, in those areas. Also, the ambitions in “Housing to 2040” and the NPF are closely aligned, and there has had to be cross-consideration of both of those.

I think that the funding will be enough, but I guess, as with anything in this world, it will be only as good as how it is used in practice. We need to keep an eye on that to see what happens.

I hear what you say about the annual “he says, she says”, so it is important to spend a moment going through some of the detail. COSLA initially claimed that the settlement had increased by only £70 million. It is now using a figure of £38 million following confirmation that £32 million for teachers’ pay in 2021-22 had been subsumed within the teacher numbers funding. I guess that, in comparing with the previous year, it comes down to what you are comparing amounts with. The best like-for-like comparison is with available funding at this stage in the budgetary cycle. COSLA’s £38 million figure discounts funding for specific policy outcomes and does not reflect the £260.6 million for the 2022-23 pay that is now baselined. It is important that that is recognised.

Just because COSLA and local authorities already know about that baseline funding does not mean that it can or should be ignored. Again, it comes back to what you are including. It is additional funding to what they received in the previous budget and it supports the delivery of local services. You could argue that the vast bulk of local authorities’ spend, as with any public service, is pay, so I think that it is entirely fair to include that money. I guess that it comes down to what you do and do not include.

We maintain that it is factually correct to say that the local government settlement has increased by more than £570 million in cash terms. There is the additional spending power that is offered through the budget. We are preserving funding that was provided for the national insurance increase, despite its reversal by the UK Government, and offering full flexibility over council tax, including financial gains from the poundage freeze. In addition, the local visitor levy bill that will go to Parliament this year will give discretionary powers. There is an appetite to look at what else can be done around fiscal flexibility and other revenue-raising powers as we go on, albeit that that will not impact on the coming year’s budget. I am sure that, at some point, we might touch on things such as the fiscal framework and the new deal.

In short order, that is why there is a differing version of the budget: it depends what you include and what you do not. Not including pay is a bit of a stretch, so that is why we have included it, and that is the figure that we get to. Is that a good enough summary?

It is slightly more than £800 million. Again, to be blunt, that would require us to allocate not just every penny coming from the UK Government for all services; we would have had to find money in addition to that. It was an ask that was just impossible ever to meet. What could we do? We looked at the art of the possible. That is where the £570 million, which is a real-terms increase of £160.6 million, or 1.3 per cent, was found. That meant making some difficult decisions, not least on pay, and then baselining the pay. That money all has to come from somewhere. I hear what local government, in its various articulations, has said, but we have genuinely tried to do what we can within a very tight fiscal environment.