Local authority funding: FOI release

Information requested

[1.] Could you confirm the 'real terms increase' does fully factor in the effects of inflation on local councils' budgets?

[2.] However does not the imposition of a freeze on council tax mean that even a 2.5% 'real terms' increase will be offset by the reduction in funds that would otherwise have been raised by an increased rate of council tax?

[3.] What therefore is the actual financial position of councils relative to last financial year in terms of the Scottish Government's contribution and restrictions on tax-raising?

Response

1. Scottish Government have increased the Local Government Settlement to over £14 billion in 2024- 25, comparing final budget to budget - as required by the Scottish Parliament - this represents an increase of £574.6 million – equivalent to a 4.3% cash terms increase (2.5% real terms).

In order to enable comparisons of spending across years without the distortion caused by price changes, values are often deflated to remove the impact of that inflation. Whilst there are various measures of inflation, as a measure of general inflation in the domestic economy, the Gross Domestic Product (GDP) deflator is generally acknowledged as the most appropriate metric to apply in a public sector context and is applied to all real terms calculations in the Scottish Budget.

The real terms figures therefore apply a general economy inflation measure rather than one that necessarily reflects the specific inflation experienced by, for example, Scottish Government, Local Authorities or Health Boards. This is the standard approach across all parts of the public sector in the UK and is also commonly adopted internationally.

2. The Council Tax freeze was delivered by agreement, and not imposition. The funding offer made by Scottish Ministers was accepted by every local authority in Scotland. Local authorities are independent democratic bodies, accountable to their own electorate and with their own powers and responsibilities. The decision on whether or not to increase Council Tax in 2024-25 was a matter for them.

The Scottish Government made £147 million available to councils that chose to deliver the Council Tax freeze. This funding is equivalent to a 5% increase in Council Tax in 2024-25. Therefore, the funding provided by the Scottish Government compensated any local authority for the revenue that would have been raised by increasing Council Tax on households in each local area by 5% in 2024-25. The funding was added to the Local Government Settlement and will be baselined in future budgets in order to protect local services.

The total funding provided reflects the monies provided for the Council Tax freeze in the calculation. Adjusting for the funding made available for the Council Tax Freeze, the Local Government Settlement would still have effectively increased by £427.6 million. This would theoretically still represent an increase of 3.2% in cash terms or 1.5% in real terms.

3. As noted above, the Scottish Government has provided an additional of £574.6 million of funding in 2024-25 – equivalent to a 4.3% cash terms increase (2.5% real terms).

The independent Accounts Commission also confirmed that the Scottish Government provided a realterms increase in revenue funding for Local Government in 2022-23, 2023-24 and 2024-25.

This does not however represent the totality of funding available to Local Authorities and councils also raise additional revenues through locally determined fees and charges. By way of context, Councils raised around £2.9 billion from “Customer and Client Receipts” in financial year 2022-23 and it is not yet known how this has changed in the intervening period.

Councils also hold significant reserves and have access to borrowing flexibilities not available to Scottish Ministers. It is therefore not possible to assess the “actual financial position of councils relative to last financial year” at this stage in the financial cycle. When that information is available through audited accounts, it is routinely published as Official Statistics on the Scottish Government website. This is available at: Local government finance statistics - gov.scot (www.gov.scot)

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