Local government finance circular 10/2024: settlement for 2025 to 2026
Details of the local government finance settlement for 2025 to 2026, redeterminations for 2024 to 2025 and non domestic rates for 2025 to 2026.
To: Chief Executives and Directors of Finance of Scottish Local Authorities, Chief Executive, Convention of Scottish Local Authorities (COSLA)
Our ref: A51219904
12 December 2024
Dear Chief Executive/Director of Finance
Local government finance settlement 2025 to 2026
Non-domestic rates
1. This Local Government Finance Circular provides details of the provisional total revenue and capital funding allocations for 2025-26, as well as the latest information on current known redeterminations for 2024-25. This Circular also provides details on a range of Non-Domestic Rates measures, including the proposed 2025-26 rates and changes to certain reliefs.
2. These provisional total funding allocations form the basis for the annual consultation between the Scottish Government and COSLA ahead of the Local Government Finance (Scotland) Order 2025 being presented to the Scottish Parliament. This is currently scheduled for the end of February 2025.
3. We expect local authorities to inform COSLA, and for COSLA in turn to inform the Scottish Government by no later than 17 January 2025, if they think there are any discrepancies or changes required to these provisional allocations. Redistribution(s) to address any agreed discrepancies or changes will be undertaken within the total settlement allocations set out in this Circular and not through the provision of any additional resources by the Scottish Government. The allocations are therefore provisional only at this stage, with the final allocations not being confirmed until after the end of the consultation period and the publication of the Local Government Finance Circular which will follow the approval of the Local Government Finance (Scotland) Order 2025
4. The Cabinet Secretary for Finance and Local Government wrote to the COSLA President, copied to all Council Leaders on 4 December 2024, and the First Minister wrote similarly on 9 December 2024, confirming the package of measures that make up the settlement to be provided to local government. This Circular should be read in conjunction with those letters. The terms of this settlement have been discussed with COSLA on behalf of all 32 of its member councils.
5. The Scottish Government will work in partnership with local government to implement the budget and the joint priorities in return for the full funding package worth £15 billion and includes:
- a further £524.9 million of funding has now been baselined as General Revenue Grant, as part of our commitment under the Verity House Agreement to review ring-fenced funding
- additional General Revenue Grant of £289 million to support local priorities
- an additional £15 million to support the expansion of Free School Meals
- £125 million for adult social care workers in commissioned services
- £10 million to support provision of Free Personal and Nursing care
- an additional £25.7 million to improve pay for early learning and childcare workers
- an additional £41 million investment to maintain or restore teacher numbers to 2023 levels
- an additional £28 million for additional support for learning
- £33 million to support development of people working in children’s social work
- £40 million to tackle the climate emergency
- an additional £10 million to improve play parks for children
- an additional £8.6 million resource and £20 million capital to improve inter-island connectivity
6. In addition to the funding set out in this Circular it should be noted that there are a number of further revenue and capital funding streams outwith the local government finance settlement for particular policy initiatives which deliver on shared priorities and support local government services. Table 4.15 in the Scottish Government’s “Budget Document: 2025-26”, which was published on 4 December 2024, provides provisional details of these funding streams but as with previous years, the actual sums payable will be notified by the relevant policy team at the earliest opportunity.
7. The allocations have been arrived at using the standard agreed needs-based distribution methodology and updated indicators. The funding floor has been set at 0.75% below the average, at an increase of 1.95%.
8. Any undistributed sums will be allocated in the standard way following consideration by the Settlement and Distribution Group. We have shared a separate note with COSLA and Directors of Finance providing a full reconciliation of the changes between the 2024-25 and 2025-26 Budgets. We have also provided full details of all the revenue and capital allocations.
9. The various parts and annexes to this Circular, listed below, provide more of the detail behind the calculations.
Part A: Local Government Finance Settlement – Revenue: 2025-26 and changes in 2024-25;
Part B: Local Government Finance Settlement – Capital: 2024-26;
Part C: Non-Domestic Rates for 2025-26.
The various Annexes included in this Circular are as follows:
Annex A: All Scotland Aggregated Funding Totals 2024-26;
Annex B: Individual Revenue Allocations for 2025-26;
Annex C: Revised Individual Revenue Allocations for 2024-25;
Annex D: Explanatory Notes on the Revenue Distribution;
Annex E: Estimates of Ring-Fenced Grant Revenue Funding for 2025-26;
Annex F: Floor calculation for 2025-26;
Annex G: Redeterminations of Individual Revenue funding for 2024-25;
Annex H: 2008-26 Changes Column;
Annex I: General Capital Grant and Specific Capital Grants 2025-26;
Annex J: General Capital Grant – Flood Allocations Per Local Authority 2025-26;
Annex K: Updated General Capital Grant 2024-25; and
Annex L: Total Local Government Funding Settlement 2025-2
Part A: Local Government Finance Settlement - Revenue: 2025-26 and changes in 2024-25
10. This Finance Circular sets out the provisional distribution of revenue funding allocations for 2025-26. Annex A of this Circular sets out the all-Scotland aggregate totals for 2024-25 and 2025-26.
11. Annexes B and C set out the distribution of the total revenue funding allocation between councils and the allocation of the different elements (General Revenue Grant Funding, Non-Domestic Rate Income and Specific Revenue Grants) for each council for 2025-26 and 2024-25 respectively. The explanatory notes contained in Annex D explain the basis behind the calculation of the individual council grant allocations.
12. Annex E gives a breakdown of the provisional individual council shares of all the ring-fenced revenue grant allocations for 2025-26. The provisional total for specific grant included in the circular is £24.5 million higher than was published in the 2025-26 Scottish Government Budget due to the in-year transfer from the General Revenue Grant to the Support for Inter Island Connectivity specific grant for £13.760 million. The variance of £10.6 million for Pupil Equity funding was included in table 4.12 of the Scottish Budget (Local Government Attainment Grants) and will also be transferred in-year.
13. The calculation and effects of the main floor adjustment for 2025-26, which provided councils with a minimum increase in the funding used in the calculation of the main floor of 1.95%, is set out in Annex F of this Circular. The setting of the floor is in line with the revised arrangements agreed following the SDG review of the floor methodology during 2018 with the percentage set at 0.75% below the average.
14. This Circular confirms the continuation of the 85% funding floor for 2025-26. The methodology compares total revenue funding plus local authorities’ assumed council tax income and any council whose total support under this method falls below 85% will be topped up to ensure that all councils receive 85% of the Scottish average total revenue support per head. As all 32 local authorities now exceed 85% of the Scottish average, no additional funding has been provided.
15. This Local Government Finance Circular provides details of current known 2024‑25 redeterminations at Annex G for the General Revenue Grant.
16. Annex H summarises the column within the settlement titled 2008-26 Changes Column.
Part B: Local Government Finance Settlement – Capital Grants 2024-26
17. In 2025-26 the Local Government Settlement provides capital grants totalling £777.172 million. This is made up of General Capital Grant totalling £581.000 million and Specific Capital Grants totalling £196.172 million.
18. Annex I sets out the provisional distribution of the Settlement for capital per local authority for 2025-26. The methodologies used to calculate these provisional allocations have been agreed with COSLA. Capital grants which remain undistributed are identified as such.
19. The provisional distribution for the General Capital Grant includes allocations for flood risk management schemes. The allocations for these schemes are set out in Annex J. Where schemes have slipped and the grant paid in a prior year exceeds the grant due to the council, the scheme will show a negative value which will reduce the total General Capital Grant payable to that Council as shown in Annex I.
20. Annex K provides a breakdown of the updated 2024-25 General Capital Grant allocations by local authority.
21. Annex L summarises the Local Government Finance Settlement for 2025-26
Part C: Non-Domestic Rates for 2025-26
22. The Distributable Amount of Non-Domestic Rates Income for 2025-26 has been provisionally set at £3,114 million. This figure uses the latest forecast of net income from non-domestic rates in 2025-26 and also draws on council estimates of the amounts they will contribute to the Non-Domestic Rating Account (the ‘Pool’) in 2024-25. The figure incorporates the Scottish Fiscal Commission’s estimate of the contributable amount and includes a calculation of gross income; expected losses from appeals; estimated expenditure on mandatory and other reliefs; write-offs and provision of bad debt together; and estimated changes due to prior year adjustments. The distribution of Non-Domestic Rates Income for 2025-26 has been based on the amount each Council estimates that it will collect (based on the 2024-25 mid-year estimates provided by councils). General Revenue Grant provides the guaranteed balance of funding. This method of allocation provides a clear presentation of the Non-Domestic Rates Income per council and transparency in the make-up of council funding.
23. The 2025-26 Non-Domestic Basic Property Rate (‘poundage’) is provisionally set at 49.8 pence, the same rate as last year. The Intermediate Property Rate (levied on properties with a rateable value from £51,001 to £100,000) and Higher Property Rate (levied on properties with a rateable value over £100,000) will increase by inflation to 55.4 pence and 56.8 pence respectively.
24. A new 40% non-domestic rates relief will be available in 2025-26 for hospitality premises (including Grassroots Music Venues with a capacity of up to 1,500) liable for the Basic Property Rate, those with a rateable value up to and including £51,000. This relief is capped at £110,000 per ratepayer.
25. A 100% non-domestic rates relief will continue to be available in 2025-26 for properties in the hospitality sectors on islands, as defined by the Islands (Scotland) Act 2018, and prescribed remote areas (Cape Wrath, Knoydart and Scoraig), capped at £110,000 per ratepayer.
26. The Scottish Budget 2024-25 announced that Enterprise Areas relief would be phased out over 2024-25 and 2025-26 as set out in the table below. This relief will end on 31 March 2026.
Enterprise Areas Relief
|
Rateable Value |
Relief available |
||
|---|---|---|---|
|
2023-24 |
2024-25 |
2025-26 |
|
|
£120,000 or less |
100% |
66.7% |
33.3% |
|
£120,001 to £240,000 |
50% |
33.3% |
16.7% |
|
£240,001 to £480,000 |
25% |
16.7% |
8.3% |
|
£480,001 to £1,200,000 |
10% |
6.7% |
3.3% |
|
£1,200,001 to £2,400,000 |
5% |
3.3% |
1.7% |
|
Over £2,400,000 |
2.5% |
1.7% |
0.8% |
27. The Scottish Budget 2023‑24 introduced the following transitional reliefs for the 2023 revaluation and these will continue to apply in the 2025-26 financial year:
- a Revaluation Transitional Relief to protect those most affected by revaluation with bills capped as per the table below. The cumulative multipliers for small, medium and large properties respectively are therefore 1.933, 3.281 and 5.113 in 2025-26
Year-on-year Scottish Transitional Relief caps (%)
|
Rateable Value |
2023-24 |
2024-25 |
2025-26 |
|---|---|---|---|
|
Small (up to £20,000) |
12.5 |
25 |
37.5 |
|
Medium (£20,001 to £100,000) |
25 |
50 |
75 |
|
Large (Over £100,000) |
37.5 |
75 |
112.5 |
- a Small Business Transitional Relief: those losing or seeing a reduction in these reliefs (including due to the eligibility changes introduced for Small Business Bonus Scheme relief) on 1 April 2023 the maximum increase in the rates liability relative to 31 March 2023 were capped at £600 in 2023-24, rising to £1,200 in 2024-25 and £1,800 in 2025‑26
28. The following reliefs will be maintained: business growth accelerator relief, charitable rates relief, day nursery relief, disabled rates relief, fresh start relief, hardship relief, hydro relief, new fibre relief, renewable energy relief, rural relief, small business bonus scheme relief, sports club relief and stud farms relief.
29. Empty Property Relief was devolved to local authorities on 1 April 2023 covering all relief and rates exemptions for fully unoccupied properties including listed buildings, properties where the owner is in administration, etc. Partly unoccupied properties that the council requests be apportioned by the assessor will be liable for rates on the occupied portion only. Councils may offer their own local reliefs under the Community Empowerment (Scotland) Act 2015 including to empty properties.
30. The Retail, Hospitality and Leisure relief which was previously available from 1 April 2020 to 30 June 2022 will close on 31 March 2025. After this date, no retrospective applications for this relief can be accepted.
31. NDR reliefs, like other subsidy or support measures, may be subject to the Subsidy Control Act 2022.
32. Information on the Non-Domestic Rates Incentivisation Scheme (NDRIS) will be set out in a future circular
33. The Scottish Government is committed to a fair and transparent non-domestic rates system that is not undermined by avoidance tactics and we appreciate the efforts of the local authorities using the powers within the Non-Domestic Rates (Miscellaneous Anti-Avoidance Measures) (Scotland) Regulations 2023 to tackle known anti-avoidance practices. With effect from 1 April 2025, local authorities can retain 50 per cent of the non-domestic rates revenue received as a consequence of using these powers to tackle avoidance. We will liaise with councils and the Institute of Revenues, Rating and Valuation regarding the arrangements for reporting this.
34. Since 2019-20, the Scottish Government has provided Local Government Revenue Funding to support the additional costs met by Scottish Assessors in respect of the implementation of the recommendations of the Barclay Review of Non-Domestic Rates. Local authorities are expected to continue to pass on the allocated quantum for this to Assessors, including any increment in line with the 2025-26 settlement.
Enquiries relating to this Circular
35. It should be noted that figures in this Circular may be marginally different from final allocations due to roundings. Local authorities should note that if they have any substantive specific enquiries relating to this Circular these should, in the first instance, be addressed through COSLA. We have given an undertaking to respond to these queries as quickly as possible.
Contact details for COSLA are:
Mirren Kelly mirren.kelly@cosla.gov.uk
Any other queries should be addressed to the following:
Local Government Revenue and Capital Settlement - Craig Inglis Craig.Inglis@gov.scot
Non-Domestic Rates - Anouk Berthier Anouk.Berthier@gov.scot
36. This Circular, along with the supporting tables will be made available through the Local Government section of the Scottish Government website.
Yours faithfully
Ellen Leaver
Director, Local Government
Contact
ceu@gov.scot
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