Council tax freeze: letter to COSLA and Council Leaders

From: The Deputy First Minister and Cabinet Secretary for Finance Shona Robison

To: COSLA, Council Leaders and Chief Executives

2 February 2024

Dear Councillors,

Thank you for the constructive and honest dialogue we have been engaged in both ahead of, and in response to, the Scottish Budget on 19 December. While our conversations are continuing, and we have identified a range of matters for further discussion in the coming weeks, I felt it would be beneficial to put on the record my commitments in response to some of your requests so far.

I am particularly mindful that councils are progressing at pace towards their budget setting and Council Tax decisions, and therefore require as much certainty as is possible to inform those processes. As we have discussed, I fully allocated all available budget and made some calculated but challenging decisions on the level of risk I could carry at the time of my Budget statement. While I will consider fully any additional funding which may become available through the supplementary estimates or Spring Budget processes, I currently have no certainty whether there will be additional funding to be allocated.

In relation to the announcement by the UK Government of additional funding for local government in England, whilst it has been confirmed the Barnett Formula will apply in the normal way to this funding, we will only receive final confirmation of the quantum of funding as part of the UK Spring Budget on March 6 or through Main Estimates later in the spring. When we have this confirmation and the full detail of the UK Government Budget I will be in a position to provide further clarity. As you will be aware such consequentials will only provide a net benefit to the Scottish government if they are not funded by cuts to other UK departmental budgets Of course, the final decision on the allocation of any further funding will also need to be agreed by Cabinet.

Notwithstanding the above, I have confirmed that should the UK Government confirm that there will be funding provided for teacher pension contributions I am committed to passing these through to local government in Scotland.

In regards to the other matters we have discussed to date, I am pleased to hear that Council Leaders agree that should additional capital funding become available, increasing funding for the Affordable Housing Supply Programme would be a shared priority. I note that some councils expressed a view that they would benefit from some flexibility in regards to this, and I would welcome further information and detail on that so that we might collectively deliver greatest value for money in terms of our investment in housing.

We have discussed our shared commitment to putting pace and momentum into our joint work to develop and agree a new Fiscal Framework, and I would suggest that under the auspices of this our officials also swiftly develop a programme of pre-budget engagement ahead of 2025-26 to ensure that we are taking forward the priorities for discussion we have identified. These should include longer term discussion of the funding floor, other distributional issues which have been raised with me such as SINA, and continue to build a meaningful discussion about choices and priorities. Through the Fiscal Framework a conclusion should be reached on the issues associated with the Capital Accounting Review, which, as I set out in the settlement letter, I do not intend to take forward at present but will instead await the outcome of the Fiscal Framework discussions before determining any next steps.

Alongside the Fiscal Framework, progress on an Outcomes, Monitoring and Accountability Framework under the Verity House Agreement is critical to our partnership and making progress on further removal of ringfencing. I have asked my officials to ensure that this is a priority in the coming months in order that we can have informed discussion through our established engagement mechanisms and make progress, I would welcome a similar commitment from COSLA.

I have taken note of other matters we have discussed which are led in particular by the Cabinet Secretary for Education and Skills and the Cabinet Secretary for NHS Recovery, Health and Social Care. Alongside the Minister for Local Government Empowerment and Planning, I will continue to engage with my Cabinet colleagues and seek to help facilitate these discussions and progress on these matters where helpful.

Finally, I have noted the position agreed at COSLA Leaders in respect of the Council Tax Freeze. As we have discussed, the Scottish Government have allocated £144 million to deliver that freeze, and we acknowledge it will be for each council to decide whether or not it will accept the funding and freeze their Council Tax, providing much needed support to households in their communities. Alongside the Scottish Budget in December 2024, the Scottish Government set out distributional analysis of our policy and tax decisions including on the Council Tax freeze. That analysis, part two in particular, shows that relative to household income, the benefits of the Council Tax freeze are greatest for the lowest income decile. The cost crisis and high inflation has affected all households, and many have felt the impact of that not only those on the very lowest income, therefore the Scottish Government believes this freeze will provide much needed stability and support.

I recognise that given the position in COSLA a joint discussion and agreement on distribution is challenging, however I am mindful that councils need to understand the funding that is available to them individually to inform their decision to freeze the Council Tax. Therefore, I am confirming that it would be the Scottish Government’s intention to allocate the funding based on each council receiving the better for them locally as between two distributions we have examined: either a share equivalent to what they would expect to obtain from a 5% rise locally, net of the Council Tax Reduction Scheme reflecting the revenue a Council would actually collect; or, a distribution by council based on their share of gross national revenue. The Annex enclosed sets out which would apply to each Council. I am however prepared to consider an alternative distribution if there is a different agreed proposition within COSLA. Any council not agreeing to freeze their Council Tax will not receive their share of this funding.

I will require confirmation from each council by no later than 16 February from each council of their intention to freeze their Council tax to inform our approach to stage 2 of the Scottish budget process on 20 February. I recognise that your final processes towards this are subject to the decision-making process within the council.

Looking to the future, we share a commitment to seeing options for reform of Council Tax progressed with pace through the Joint Working Group on Sources of Local Government Funding, including Council Tax.

I welcomed confirmation that COSLA would be lobbying the UK Government ahead of the Spring Budget on 6 March for additional funding for local government, any additional funding from the UK Government which benefits public services in Scotland would be welcomed. I recognise that changes to the 2024-25 position as late as 6 March will be unprecedented for the Scottish Government, generate uncertainty for our funding in 2024-25, and will by extension create challenges for councils in Scotland who will largely be setting their budgets before then.

We have agreed to continue our discussions over the coming weeks, in addition to putting in place that early engagement process well in advance of the 2025-26 Budget. I trust that in the meantime confirmation of the above areas is helpful as councils look towards their budget setting process.

Shona Robison

ANNEX

Councils will receive an allocation according to the shaded cell