Budget Stage 1 – what is the impact on local government?

After yesterday’s Stage 1 announcements, we have published three blogs on the Budget on SPICe Spotlight today – a blog on income tax, a blog looking at the revised budget in the round, and this blog, which looks at the local government settlement.

Back in December we published a briefing analysing the Draft Budget and the provisional allocations for local authorities for 2018-19.

Those familiar with local government finance will know, however, that the Draft Budget figures are never the end of the story.

Once these provisional figures are published, the Scottish Government and CoSLA enter into negotiations. As well as this, in years where we have a minority government, opposition parties may well include demands on the Scottish Government to increase funding to local authorities as part of the deal-making process that will see the Budget Bill passed in the Chamber.

Yesterday, the Cabinet Secretary announced that –

“As part of an agreement with the Scottish Green Party, the budget will now include a real terms increase in revenue investment for local authorities with local services benefitting from an additional £159.5 million of resource funding, and following discussions with Shetland and Orkney Island Councils, funding of £10.5 million will be made available to support inter-island ferry services in 2018-19 – with talks continuing on a long term solution.”

Of the £159.5m, £34.5m will be transferred to local authorities in the last week of March 2018. The Scottish Government have explained that, whilst this is being delivered in 2017-18, it is to form part of local authorities’ budgets for 2018-19. The split of funding across two financial years is to do with the rules around the fiscal framework on year-to-year budget flexibility.

So, how do the Stage 1 figures change the big picture?

This table updates the headline numbers from Table 1 in SPICe briefing SB 17-88. All additional funding falls within Revenue funding; there are no changes to Capital funding.

Table 1 – Draft Budget numbers for Local Government – revised at Stage 1

£m 2017-18 2018-19 (cash)* Cash change Cash change % 2018-19 (real) Real change Real change %
Revised Total Level 2 10,291.0 10,554.1 263.1 2.6% 10,400.4 109.4 1.1%
Revised GRG+NDRI 9,293.6 9,404.0 110.4 1.2% 9,267.1 -26.5 -0.3%
Revised GRG, NDRI and SRG 9,504.5 9,677.7 173.2 1.8% 9,536.8 32.3 0.3%

*Allocations for 2018-19 in the table above include £34.5 million to be paid in March 2017-18 for use in the 2018-19 financial year.

With new funding taken into account, the total allocation for local government in 2018-19 is £10,554.1m, which represents a real terms increase of 1.1% on the 2017-18 settlement. Draft Budget figures showed this as being a fall of 0.6% (-£58.1m) (comparing to the 2017-18 settlement). Updated figures can be broken down as follows-

  • General Revenue Grant plus Non Domestic Rates Income falls by 0.3% (£26.5m) in real terms between 2017-18 and 2018-19. Draft Budget figures had this as falling by 2% (-£183.7m).
  • The funding which the Cabinet Secretary described as ‘flat cash’ at the Draft Budget Stage (General Revenue Grant, NDRI and Specific Revenue Grants combined), now shows a cash increase of 1.8% (£173.2m) in Total Revenue Funding for 2018-19. In real terms, this results in a more modest increase of 0.3% (£32.3m), where at the Draft Budget stage there was a real terms fall of 1.4% (-£135.2m).

A new finance circular is not due to be published until March, when the Local Government Finance Order is approved by Parliament, so in the interim we’ve applied the additional figures to those published in the Local Government Finance Circular 5/2017, which accompanied the Draft Budget 2018-19.

Table 2 – Finance Circular 5/2017 numbers for Local Government – updated at Stage 1

 £m 2017-18 (cash) (£m) 2018-19 (cash) (£m) Cash change (£m) Cash change % 2018-19 (real) (£m) Real change (£m) Real change %
Revised Total Revenue 9,647.8 9,800.8 152.9 1.6% 9,658.1 10.2 0.1%

With the new funding applied, the Total Revenue grant available to local authorities, as based on finance circular figures, shows a cash increase of 1.6% (152.9m), and a real terms increase of 0.1% (£10.2m). The figures released at the Draft Budget stage had this as falling by 0.2% (-17.1m) in cash terms, or 1.6% (-£157.3m) in real terms.

What’s the view of local government?

In response to the announcement, CoSLA stated that-

“The deal agreed between Derek Mackay and the Scottish Greens puts local government in an improved position over that of the proposed settlement in December. Adding that whilst it still does not remove the real financial challenges that Local Government is facing, the value of the essential services local government provides to our communities, is better recognised.”

Of course, we will have to wait to see the finance circular in March, which will confirm the final funding package for local authorities in 2018-19.

Ailsa Burn-Murdoch, Senior Researcher, Financial Scrutiny Unit