Local Government funding – the story behind the figures

On 21 May SPICe published a briefing looking at local government finance trends from 2013-14 onwards. Local Government Finance: facts and figures 2013-14 to 2018-19 is the continuation of an annual briefings series, aimed at comparing, on a like-for-like basis, the amount of funding local government has to carry out its functions.

This blog focuses on the two key areas of the briefing which generated most discussion and enquiries.

Local government finance settlement vs Scottish Government budget

The long-term reduction in funding for local government set out in the briefing was one of the big discussion points in the media and online.

The briefing highlighted that:

“In real terms, between 2013-14 and 2017-18, the local government Revenue settlement decreased at a much faster rate (-7.1% or -£744.7m) than the Scottish Government Revenue budget (including NDRI) (-1.8% or -£547.3m).”

SPICe_FSU__2018_LocalGov_FactsandFigures__LG and SG comparison (3)

These figures are based on the revenue settlements as set out in the Scottish Government’s Local Government Finance Circulars, which represents the core funding which local authorities have available to deliver services. As SPICe has discussed in detail in previous briefings and blogs, the headline numbers for what local authorities receive can vary widely depending on what is, and what is not, included on both the local government, and Scottish Government, sides of the equation. Note, Figure 1 in the briefing sets out the annual movement over these years.

The Scottish Government, as part of media coverage following the publication of the briefing, argued that the figures presented did not represent the full story. It stated that in 2018-19 an additional £355m for health and social care, and £150m of funding that is provided out with the core settlement, was also delivered to local government, reducing the overall cut in funding to around 2% in real terms between 2013-14 and 2018-19.

The question of whether to include additional sources of funding alongside the core Local Government Finance Settlement will always be a judgement call for organisations like the Scottish Government, Audit Scotland, COSLA and SPICe. In terms of the two amounts highlighted by the Government for 2018-19:

  • the £150m additional funding outwith the core settlement is helpfully set out in Table 10.20 of the Draft Budget. However, although it could be lower than £150m, it is not clear what the equivalent number for the 2013-14 budget would be, as the presentation of the budget document has changed over time.
  • the £355m for health and social care integration is routed to Health and Social Care Partnerships via the Scottish Government’s health budget. It therefore contributes to the real terms increase in the health budget. If it is included on the local government side, then the increase in the health budget would obviously be lower. This issue has been discussed before in detail by SPICe and the Fraser of Allander Institute. The Accounts Commission, in evidence to the Local Government and Communities Committee last week, confirmed that their approach was consistent with that of SPICe.

These differing presentations of the local government settlement become important in the context of looking at how much local authorities have to deliver services. The Accounts Commission, in its recent report, Local Government in Scotland: Challenges and Performance 2018, reported that between 2010-11 and 2018-19, Council Revenue funding from the Scottish Government fell by 9.6% in real terms. It highlighted that “some national policies, and ongoing spending commitments such as pension and debt costs, mean there are limitations on where councils can make savings”, and noted that an increasing proportion of local government spending was protected for education and social care services.

CoSLA has made similar points, arguing that “Having so much of local government’s budget protected through Scottish Government policy priorities prevents local government responding to local need.”

Funding per head

In the SPICe briefing, the changes to funding per head by local authority were explored. It was noted, however, that changes shown were impacted as much by population change as by funding change, and that the Annex tables should be consulted to better understand this balance.

The figure below sets out the detail from the Annex as a visual. Here we can see more clearly the changes in population and funding by local authority.

BLOGImageTemplate_LG finance vs pop

We can see here, for example, that Eilean Siar and Argyll and Bute have experienced not just a reduction in population, but a reduction in funding. Edinburgh’s population has grown significantly, as has that of Midlothian, but Edinburgh has seen a much higher reduction in funding per head.

Of course, although population change is an important factor, it is not the main reason for changes to funding under the Local Government Funding Formula. For instance, the formula also takes into account demographic factors and need, such as the number of school pupils or elderly, as well as indicators of deprivation and rurality.

Outwith the funding formula, Loan Charge Support requirements play a role in the funding package, and Council Tax income must also be taken into account. Council Tax reform, from 2017-18 onwards has in particular had a significant impact, increasing the income of the more affluent local authorities (Edinburgh, Aberdeen, Aberdeenshire and East Lothian).

The Accounts Commission’s Challenges and Performance report sets out, in Exhibit 4, projected population changes over coming years, and their report highlights the pressures on local authorities which have an increasingly ageing population, and a declining working population. It reiterated its recommendation from its 2016-17 Local Government Financial Overview that “the Scottish Government and COSLA should assure themselves that the funding formula remains fit for purpose in a changing landscape for local government.” In evidence to the Local Government and Communities Committee on 30 May, Fraser McKinlay, Controller of Audit at the Accounts Commission said:

“in simple terms, the more that we continue to add specific bits of funding for specific things, the more one wonders whether the core funding formula still makes sense. The formula has remained pretty much the same for a long time.”

Ailsa Burn-Murdoch, Senior Researcher, Financial Scrutiny Unit