Publication - Advice and guidance

Local government finance circular 3/2023: settlement for 2023-24

Last updated: 3 March 2023 - see all updates
Topic: Public sector

Local government finance circular containing the settlement for 2023-2024 and redeterminations for 2022-2023.

Local Government Finance Circular No. 3/2023

Chief Executives and Directors of Finance of Scottish Local Authorities

Chief Executive, Convention of Scottish Local Authorities (COSLA)

Our ref: A42303305

1 March 2023

Dear Chief Executive/Director of Finance

Local Government Finance (Scotland) Order 2023 - settlement for 2023-24 and redeterminations for 2022-2023

Non-domestic rates 2023-2024

1. The Scottish Parliament today debated and approved the Local Government Finance (Scotland) Order 2023. This Order provides the statutory authority to pay the General Revenue Grant (GRG) for 2023-24, and the changes made to amounts payable to each authority for 2022-23 since the 2022 Order.

2. This Circular provides a summary of the 2023-24 figures (and the revised revenue allocations for 2022-23) which have been updated from those contained in Local Government Finance Circular No. 11/2022. The total funding changes from Finance Circular 11/2022 are detailed in Annex A.

3. The Deputy First Minister wrote to the COSLA President, copied to all Council Leaders on 15 December 2022 providing details of the proposed settlement. The details of the settlement were amended on 7 February in correspondence from Cabinet Secretary for Education and Skills regarding actions to protect teacher numbers, pupil support staff and learning hours. The terms of the settlement have been discussed with COSLA on behalf of all 32 of its member councils.

4. The Deputy First Minister also announced additional funding of £223 million for local government in 2023-24 at Stage 3 of the Budget Bill on 21 February, including the additional £100 million contribution for non-teaching pay and £123 million of support towards the teachers’ pay negotiation, with a further £33 million provided in the current financial year. The distribution methodology for the 2023-24 funding will be discussed and agreed with COSLA through the formal financial governance process. It should also be noted that the 2023-24 local government finance settlement has been revised to now include £32.8 million of recurring funding to support councils with the continuing cost of previous teacher pay settlements with £45.5 million separately being retained to support the maintenance of teacher numbers in 2023-24.

5. The total overall funding package for 2023-24 therefore now includes:

£260 million to support the local government pay deal and also delivers additional funding to ensure that payment of SSSC fees for the Local Government workforce which will continue to be made on a recurring basis
£72.5 million increase to the General Revenue Grant
£105 million to give effect to the devolution of Non-Domestic Rates Empty Property Relief
maintained key in-year transfers worth over £1 billion and added a further net £102 million of resource to protect key shared priorities particularly around education and social care
£50 million capital to help with the expansion of the Free School Meals policy
additional funding of £100 million to deliver a £10.90 minimum pay settlement for adult social care workers in commissioned services
consolidation of £30.5 million for the homelessness prevention fund
£32.8 million of recurring funding to support councils with the continuing cost of previous teacher pay settlements
£45.5 million which has been retained to encourage all local authorities to maintain teacher numbers in 2023-24
an initial £100 million contribution for non-teaching staff pay
£123 million contribution towards the teachers’ pay negotiations

6. Local authorities are reminded that the funding to support local government pay, provided by the Scottish Government is intended to support all staff directly employed by local government, including those currently delegated to Integrated Joint Boards (IJBs).

7. Alongside the funding set out in this Circular, it should be noted that there are a number of further funding streams outwith the local government finance settlement for particular policy initiatives which benefit local government services. Table 5.17 in the Scottish Government’s “Budget Document: 2022-23”, which was published on 15 December 2022, provides further details of these funding streams.

8. 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: 2023-24 and changes in 2022-23

Part B: Local Government Finance Settlement – Capital: 2022-24, and

Part C: Non-Domestic Rates for 2023-24.

The various Annexes included in this Circular are as follows:

Annex A: All Scotland Aggregated Funding Totals 2022-24

Annex B: Individual Revenue Allocations for 2023-24

Annex C: Revised Individual Revenue Allocations for 2022-23

Annex D: Explanatory Notes on the Revenue Distribution

Annex E: Estimates of Ring-Fenced Grant Revenue Funding for 2023-24

Annex F: Floor calculation for 2023-24

Annex G: Redeterminations of Individual Revenue funding for 2022-23

Annex H: 2008-24 Changes Column

Annex I: General Capital Grant and Specific Capital Grants 2023-24

Annex J: General Capital Grant – Flood Allocations Per Local Authority 2023-24

Annex K: Updated General Capital Grant 2022-23, and

Annex L: Total Local Government Funding Settlement 2023-24.

Part A: Local Government Finance Settlement - Revenue: 2023-24 and changes in 2022-23

9. This Finance Circular sets out the provisional distribution of revenue funding allocations for 2023-24. Annex A of this Circular sets out the all-Scotland aggregate totals for 2022-24.

10. 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 Ring-Fenced Revenue Grants) for each council for 2023-24 and 2022-23. The basis behind the grant distribution methodology is as recommended in the report from the Settlement and Distribution Group (SDG). The explanatory notes contained in Annex D explain the basis behind the calculation of the individual council grant allocations.

11. Annex E gives a breakdown of the provisional individual council shares of all the ring-fenced revenue grant allocations for 2023-24.

12. The calculation and effects of the main floor adjustment for 2023-24, which provided councils with a minimum increase in the funding used in the calculation of the main floor of 1.85%, 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.

13. This Circular confirms the continuation of the 85% funding floor for 2023-24. 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 have exceeded 85% of the Scottish average in 2023-24, no additional funding has been provided.

14. This Local Government Finance Circular provides details of the 2022‑23 redeterminations at Annex G for the General Revenue Grant.

15. Annex H summarises the column within the settlement titled 2008-24 Changes Column.

Part B: Local Government Finance Settlement – Capital Grants 2022-24

16. In 2023-24 the Local Government Settlement provides capital grants totalling £829.0 million. This is made up of General Capital Grant totalling £689.9 million and Specific Capital Grants totalling £139.1 million.

17. Annex I sets out the provisional distribution of the Settlement for capital per local authority for 2023-24. The methodologies used to calculate these provisional allocations have been agreed with COSLA. Capital grants which remain undistributed are identified as such.

18. The provisional distribution for the General Capital Grant includes allocations for flood schemes. The allocations for these schemes is set out in Annex J. Where schemes have slipped and the grant paid in a prior year exceeds the grant due the scheme will show a negative value which will reduce the total General Capital Grant payable to that Council.

19. Annex K provides a breakdown of the updated 2022-23 General Capital Grant allocations by local authority.

20. Annex L summarises the Local Government Finance Settlement for 2023-24.

Part C: Non-Domestic Rates for 2023-24

21. The Distributable Amount of Non-Domestic Rates Income for 2023-24 has been set at £3,047 million. This figure uses the latest forecast of net income from non-domestic rates in 2023-24 and also draws on council estimates of the amounts they will contribute to the Non-Domestic Rating Account (the ‘Pool’) in 2023-24. 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 2023-24 has been based on the amount each Council estimates that it will collect (based on the 2022-23 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.

22. The 2023-24 Non-Domestic Basic Property Rate (‘poundage’) is provisionally set at 49.8 pence, the same rate as last year. Two additional rates are levied on properties with a rateable value over £51,000 (51.1 pence – the Intermediate Property Rate) and £100,000 (52.4 pence – the Higher Property rate), up from £95,000 in 2022-23.

23. The Scottish Budget 2023-24 announced the following changes to existing reliefs:

the Small Business Bonus Scheme (SBBS) will be reformed: 100% relief will be available for properties with a rateable value of up to £12,000 and the upper rateable value for individual properties to qualify for SBBS relief will be extended from £18,000 to £20,000. To improve the design of the scheme, the relief will be tapered for properties with a rateable value between £12,001 and £20,000: it will taper from 100% to 25% for properties with rateable values between £12,001 and £15,000; and from 25% to 0% for properties with rateable values between £15,001 and £20,000. The cumulative rateable value threshold will remain at £35,000. Car parks, car spaces, advertisements and betting shops will be excluded from eligibility from 1 April 2023
business Growth Accelerator relief: properties receiving improvements relief on 31 March 2023 can continue to receive the same percentage of relief on the new revaluation rateable value for the duration of the award in 2023-24
eligibility for Fresh Start relief will be expanded by raising the rateable value threshold to which properties qualify from £95,000 to £100,000. In addition, properties receiving Fresh Start relief for 2022-23 can continue to receive it for the duration of the award in 2023-24, irrespective of their rateable value after revaluation
enterprise areas relief will be extended for one year to 31 March 2024

24. The Scottish Budget 2023‑24 also introduced the following transitional reliefs for the 2023 revaluation:

a General Revaluation Transitional Relief to protect those most affected by revaluation with bills capped as per the table below

Year-on-year Scottish General Revaluation 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 eligibility for or seeing a reduction in Small Business Bonus Scheme (including due to the eligibility changes introduced for SBBS), or losing eligibility for Rural rates relief at revaluation, will see bills rise in a phased manner: on 1 April 2023 the maximum increase in the rates liability relative to 31 March 2023 will be capped at £600 in 2023-24, rising to £1,200 in 2024-25 and £1,800 in 2025‑26

25. A 67% Parks Transitional Relief for 2023-24 will also be available for parks or parts of parks that were not rateable on 31 March 2023 and became rateable on 1 April 2023 due to an amendment of the Local Government (Financial Provisions) (Scotland) Act 1963 by the Non-Domestic Rates (Scotland) Act 2020.

26. The following reliefs will be maintained: charitable rates relief, day nursery relief (no longer time-limited), disabled rates relief, district heating relief, hardship relief, hydro relief, mobile masts relief, new fibre relief, renewable energy relief, renewable heat networks relief, rural relief, sports club relief and stud farms relief.

27. In place of Reverse Vending Machine Relief, from 1 April 2023, a rating exemption will be introduced: in working out the net annual value, and therefore the rateable value of a non-domestic property, no account will be taken of the part of the property which is used solely in connection with the provision or use of a reverse vending machine.

28. Empty Property Relief will be 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.

29. NDR reliefs, like other subsidy or support measures, may be subject to the Subsidy Control Act 2022.

30. We have also laid draft legislation to help local authorities better tackle known avoidance tactics from 1 April 2023.

31. In addition, a non-domestic rating exemption will be introduced for prescribed plant and machinery used in onsite renewable energy generation and storage, or storage at electric vehicle charging points, from 1 April 2023 until 31 March 2035.

32. Information on the Business Rates Incentivisation Scheme (BRIS) will be set out later.

Enquiries relating to this circular

33. 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:

Sarah Watters: Sarah@cosla.gov.uk

Any other queries should be addressed to the following:

Local Government Revenue Settlement and BRIS. Bill Stitt: Bill.Stitt@gov.scot

Local Government Finance Settlement. (Capital) Craig Inglis: Craig.Inglis@gov.scot

Non-Domestic Rates. Anouk Berthier: Anouk.Berthier@gov.scot

34. This Circular, along with the supporting tables will be made available through the local government section of gov.scot.

Yours faithfully

Ellen Leaver

Deputy Director, Local Government and Analytical Services Division

Annexes A-C (tables) are available in the accompanying spreadsheet.

The explanation of each of the columns within the tables at Annex B is as follows:

Column 1 – represents the updated on-going service provision and includes the following combined information: (i) the updated Grant Aided Expenditure (GAE) assessments; (ii) the revised Special Islands Needs Allowance (SINA); (iii) each council’s individual share of the on-going revenue grants which have been rolled up into the core local government finance settlement; (iv) each council’s share of all the baselined redeterminations since Spending Review 2007; and the previous loan charge adjustment.

Column 2 – is the new combined total, non‑ring‑fenced, changes in general provision resulting from Spending Reviews 2007, 2010, 2011, 2013, 2015 and budget revisions for 2016 - 2024 allocated pro‑rata to each council’s share of TEE as agreed with the Settlement and Distribution Group (SDG).

Column 3 – represents the updated share of the loan charges support for outstanding debt and the same level of on-going PPP level playing field support. The methodology for calculating Loan Charge Support (LCS) and support for Public Private Partnership (PPP) projects (level playing field projects only (LPFS) is set out on Annex H of Finance Circular 2/2011.

Column 4 – is the main floor adjustment which has been calculated using the revised methodology agreed following the 2018 review.

Column 5 – this is the net revenue expenditure recognised by the Scottish Government and represents the sum of columns 1 to 4.

Column 6 – is the assumption of the amount of Total Estimated Expenditure to be funded from the council tax. Any changes are as a result of buoyancy or projected numbers of properties, as well as the estimated additional council tax income to be collected and retained by each local authority as a result of the changes to bands E to H.

Column 7 – is each council’s estimated share of the on-going Ring-Fenced Grants for Gaelic, Pupil Equity Fund (PEF), Criminal Justice Social Work, Early Learning and Childcare, and Inter-Island Ferries.

Column 8 – is each council’s share of the estimated non‑domestic rate income which has been distributed proportionately on the basis of council’s 2022-23 mid-year income.

Column 9 – is the balance of funding provided by means of general revenue funding and is calculated by deducting columns 6, 7 and 8 from the Total Estimated Expenditure in column 5.

Column 10 – represents the total revenue funding available to each council in 2023-24.

Column 11 – is the 85% floor adjustment which has been calculated to meet the Scottish Government’s commitment to ensure that no Local Authority receives less than 85% of the Scottish average per head in terms of revenue support.

Column 12 – is the revised total funding including all the changes and the 85% funding floor adjustments.

Annexes E-L (tables) are available in the accompanying spreadsheet.