Local Government Finance Settlement (proposed) 2017/18

Budget Briefing from Derek Yule, Director of Finance, The Highland Council

What it means for Highland Council

Introduction

The Minister for Finance and the Constitution, Derek Mackay, delivered his budget to the Scottish Parliament on 15 December 2016. This continues the recent trend of one year only budgets. It is hoped that future years’ budgets will revert to three years which will greatly assist medium and long term financial planning.

The Government will obviously present its budget in the most positive terms, highlighting new investment and spending priorities. This is also the first year in which the Scottish Government could set tax rates and allowances following the devolution of tax raising powers to Scotland.

By and large the Finance Minister has opted not to increase direct tax levels in Scotland, meaning that public expenditure continues to see a real reduction in funding. Whilst some areas of spend might have seen cash increases, once inflation and demand led pressures are taken into account, there is a material reduction in available resources. Without policy changes at a UK and Scotland level, this position is likely to continue for some time.

Local Government funding is extremely complex at the best of times. It is therefore important to distinguish between additional funding for new policy objectives (or a continuation of current), funding for core (existing) services, and revenue and capital funding. This is an important distinction as it is easy to focus on the net position rather than the individual elements.

At the Council meeting last Thursday I made the comment that the Finance Minister’s Budget Presentation was “misleading”. This paper attempts to analyse the budget announcements and its implications for Highland Council.

I would stress that this analysis is subject to change. The Local Government Settlement is subject to further review and clarification. Already the circular that was issued on Thursday was found to contain a material error and was re-issued on Friday. Further corrections cannot be ruled out at this stage. The Scottish Budget has also still to go through Parliament scrutiny and decision, and some changes can be anticipated.

Commentary

It is important to note that the Finance Minister spoke about “total potential resources” available to Local Government increasing by 2.3%. There is a subtlety here in the language used. I believe that it implies additional funding from the Scottish Government. However it includes funding that councils can get if they chose to raise council tax by 3%. It includes the additional council tax generated through the changes to the multiplier. And, it includes capital resources as well as revenue.

Additional grant funding is ring fenced for specific purposes so it is additional income that requires additional expenditure and therefore does not impact on councils’ base or core budgets.

In his presentation to Parliament the Finance Minister announced a total funding package that was £241m more for Local Government than was available in 2016/17, an increase of around 2.3%. In his subsequent letter to Council Leaders he then speaks about the difference between the figures in the draft budget in 2016/17 and 2017/18 will be “potential spending on local government services of an increase of £266.8m, or 2.6%”.

We now have a breakdown of this latter figure, and this forms the basis of the following analysis, subject to the caveats mentioned above.

What the Finance Minister said:

  • Council Tax multiplier – councils will be allowed to retain all additional income raised locally, and spend on any purpose, without restraint
  • Education attainment – an additional £120m to be directed to head teachers, based on a distribution of free school meals
  • Health & Social Care Integration – an additional £107m to meet a range of issues, including the full year effect of paying living wage to all providers. This will be paid from the NHS block grant
  • Council Tax freeze lifted, but any increase capped at 3%
  • Childcare – an additional £60m to help move towards a provision of 1140 hours for all

What the Finance Minister didn’t say:

  • Local Government Core Grant is to be cut by £350m
  • Councils, in light of additional funding from NHS Block Grant, will have the option to reduce their funding to Health & Social Care by a maximum of £80m
  • The funding from the NHS for health & social care integration is included in the total general cash uplift for the NHS. This ring fencing of funding effectively means a lower level of increase for NHS core funding. By including in the NHS and Local Government figures it could be argued that there has been double counting in the way in which the budget was presented

The Arithmetic and Presentation – the Implications are quite different!

The basis of the Scottish Government Budget for Local Government is shown on the table below. The absolute sums available to Highland Council are estimates based on current distribution formula and are not yet fully clarified.

Policy Area

All Scotland Figures

£m

Highland Council Allocation

£m

Revenue Budget Impact

£m

 

Notes

Childcare

60

3.0

Nil

Additional funding to deliver new policy objective. We believe that this will be a mixture of revenue and capital funding

Health & Social Care

107

4.6

-

Additional funding to meet current pressures and paid through NHS

Education Attainment

120

3.9

-

Additional funding to deliver new policy objective

Capital Funding

150

6.0

-

Capital, not revenue, and base line appears to have been reduced. COSLA believe that this funding represents “flat cash”, not an uplift

Council Tax multiplier

111

5.0

5.0

Councils allowed to retain additional revenue

Council Tax potential increase 3%

70

3.3

-

This is a matter for the Council to decide in due course.

Base Funding Cut

(350)

(20.2)

(20.2)

Real cut to core funding

 

Net Impact

268

5.6

(15.2)

 

So the headline figure is a net £15.2m reduction in the Council’s core budget for existing services.

Where does this leave us in terms of the current Revenue Budget?

Based on the draft proposals that were circulated to Councillors recently

 

£m

£m

Roll forward budget

 

555.731

Add provision for inflation and budget pressures

 

20.595

 

 

576.326

Anticipated Resources

 

 

  • Revenue Grant (assuming 4% cut)

421.828

 

  • Council Tax

118.628

 

 

 

540.456

 

 

35.870

Less Savings already agreed by Council

 

 

(6.042)

Net Budget Gap (reported to members)

 

29.828

Settlement adjustments

 

 

Revenue Grant (estimated 4.6% ie higher cut)

2.600

 

Council Tax retention of multiplier

(5.000)

 

 

 

(2.400)

Revised Budget Gap

 

27.428

 

 

 

Administration proposals:

 

 

  1. Increase Council Tax by 3%

 

(3.300)

  1. List of Savings proposals

 

(16.570)

 

 

(19.870)

Local Government Settlement restricts reduction in core funding for Health & Social Care – this will impact on saving of £4m included in 2 above

 

 

0.600

 

 

 

Net Amended Total for Potential Savings

 

(19.270)

 

 

 

Residual Budget Gap (savings still to be identified

 

8.158

The net impact of the Local Government Settlement at this stage is therefore an improvement in the overall funding gap by an estimated £1.8m.

It does require the Council to find an additional £8.158m on top of the existing list of proposals of £16.57m, bringing total service savings to £24.758m. If the Council doesn’t elect to increase Council Tax by 3% then the funding gap widens.

Officers are reviewing the list of budget pressures and believe that these can be reduced. However service savings of at least £20m are required.

20 Dec 2016
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