Local government finance circular 8/2023: settlement for 2024 to 2025

Local Government Finance Circular No. 8/2023

To: Chief Executives and Directors of Finance of Scottish Local Authorities, Chief Executive, Convention of Scottish Local Authorities (COSLA)

Our ref:    A46473266

21 December 2023

Dear Chief Executive/Director of Finance

Local government finance settlement 2024 to 2025

Non-domestic rates

1. This Local Government Finance Circular provides details of the provisional total revenue and capital funding allocations for 2024-25, as well as the latest information on current known redeterminations for 2023-24.  This Circular also provides details on a range of Non-Domestic Rates measures, including the proposed 2024-25 poundage 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 2024 being presented to the Scottish Parliament.  This is currently scheduled for the end of February 2024.

3. We expect local authorities to inform COSLA, and for COSLA in turn to inform the Scottish Government by no later than 23 January 2024, 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 2024.

4. The Deputy First Minister wrote to the COSLA President, copied to all Council Leaders on 19 December 2023, confirming the package of measures that make up the settlement to be provided to local government.  This Circular should be read in conjunction with that letter.  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 £13.9 billion and includes:

• £950.9 million of funding that has now been baselined in to the General Revenue Grant, as part of our commitment under the Verity House Agreement to review ring-fenced funding;
• An additional £230 million to deliver the payment of £12 per hour minimum pay settlement for adult social care workers in commissioned services via agreed contract uplifts;
• An additional £11.5 million to support the uprating of Free Personal and Nursing Care rates;
• An additional £6 million to support the expansion of the Free School Meals policy;
• An additional £6.8 for Discretionary Housing Payments;
• £145.5 million to support additional teachers and support staff;
• £242 million to support teacher pay uplifts; and
• £266.2 million of resource to support local government pay.

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 benefit local government services.  Table 2.17 in the Scottish Government’s “Budget Document: 2024-25”, which was published on 19 December 2023, 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 2024-25 Scottish Government Draft Budget also made available £144 million to fund a freeze in Council Tax across each of Scotland’s 32 local authorities. The funding earmarked is equivalent to a 5% net increase in Council Tax nationally, taking into account the average rise to Council Tax in 2023-24, whilst recognising that inflationary pressures have eased in the last 12 months.
8. The allocations have been arrived at using the standard agreed needs-based distribution methodology and updated indicators.  Reflecting the unique implications of incorporating the 2022 census data for the first time, the funding floor has been set provisionally at 0.5% and as set out in the Deputy First Minister’s letter, we would welcome any views on this or other elements of distribution as part of the consultation.
9. 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 providing a full reconciliation of the changes between the 2023-24 and 2024-25 Budgets and between the 2024-25 Budget and the figures in this Circular.  We have also provided full details of all the revenue and capital allocations.
10. 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: 2024-25 and changes in 2023-24;

Part B:       Local Government Finance Settlement – Capital: 2023-25;

Part C:       Non-Domestic Rates for 2024-25.

The various Annexes included in this Circular are as follows:

Annex A:   All Scotland Aggregated Funding Totals 2023-25;

Annex B:   Individual Revenue Allocations for 2024-25;

Annex C:   Revised Individual Revenue Allocations for 2023-24;

Annex D:   Explanatory Notes on the Revenue Distribution;

Annex E:   Estimates of Ring-Fenced Grant Revenue Funding for 2024-25;

Annex F:    Floor calculation for 2024-25;

Annex G:   Redeterminations of Individual Revenue funding for 2023-24;

Annex H:   2008-25 Changes Column;

Annex I:     General Capital Grant and Specific Capital Grants 2024-25;

Annex J:    General Capital Grant – Flood Allocations Per Local Authority 2024-25;

Annex K:   Updated General Capital Grant 2023-24; and

Annex L:    Total Local Government Funding Settlement 2024-25

Part A: Local Government Finance Settlement - Revenue: 2024-25 and changes in 2023-24

11. This Finance Circular sets out the provisional distribution of revenue funding allocations for 2024-25.  Annex A of this Circular sets out the all-Scotland aggregate totals for 2023-25.
12. 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 2024-25 and 2023-24.  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.
13. Annex E gives a breakdown of the provisional individual council shares of all the ring-fenced revenue grant allocations for 2024-25. The provisional total for ring-fenced grant included in the circular is £24.187 million higher than was published in the 2024-25 Scottish Government Budget due to the in-year transfer from the General Revenue Grant to the Support for Ferries specific grant for £13.760 million.  The variance of  £10.427 million for Pupil Equity funding was included in table 2.16 of the Scottish Budget (Local Government Attainment Grants) and will also be transferred in-year.  
14. The calculation and effects of the main floor adjustment for 2024-25, which provided councils with a maximum reduction in the funding used in the calculation of the main floor of 1.04%, 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 0.5%.
15. This Circular confirms the continuation of the 85% funding floor for 2024-25.  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.
16. This Local Government Finance Circular provides details of current known 2023‑24 redeterminations at Annex G for the General Revenue Grant. 
17. Annex H summarises the column within the settlement titled 2008-25 Changes Column.

Part B:  Local Government Finance Settlement – Capital Grants 2023-25

18. In 2024-25 the Local Government Settlement provides capital grants totalling £638.009 million. This is made up of General Capital Grant totalling £516.837 million and Specific Capital Grants totalling £121.172 million.
19. Annex I sets out the provisional distribution of the Settlement for capital per local authority for 2024-25.  The methodologies used to calculate these provisional allocations have been agreed with COSLA. Capital grants which remain undistributed are identified as such. 
20. 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.
21. Annex K provides a breakdown of the updated 2023-24 General Capital Grant allocations by local authority.
22.  Annex L summarises the Local Government Finance Settlement for 2024-25

Part C: Non-domestic rates for 2024-25

23. The Distributable Amount of Non-Domestic Rates Income for 2024-25 has been provisionally set at £3,068 million.  This figure uses the latest forecast of net income from non-domestic rates in 2024-25 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 2024-25 has been based on the amount each Council estimates that it will collect (based on the 2023-24 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.
24. The 2024-25 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 54.5 pence and 55.9 pence respectively.
25. A 100% non-domestic rates relief will be available in 2024-25 for properties in the hospitality sectors on islands, as defined by the Islands (Scotland) Act 2018, capped at £110,000 per ratepayer.
26. The Scottish Budget 2024-25 announced the following changes to existing reliefs:

• District Heating relief for renewables will be extended and expanded.  A 90% relief will be available until 31 March 2027 for district heating networks where at least 80% of the thermal energy generated derives from renewables. Previously support for renewable district heating was limited to new networks entered on the valuation roll after 1 April 2021.
• Telecommunications mobile mast relief will be extended from 31 March 2029 to 31 March 2031.
• Enterprise Areas relief which had been due to expire on 31 March 2024, will be phased out over 2024-25 and 2025-26 as set out in the table below.

Enterprise Areas Relief 

27. The Scottish Budget 2023‑24 introduced the following transitional reliefs for the 2023 revaluation and which will apply in the 2024-25 financial year:

• A Revaluation Transitional Relief to protect those most affected by revaluation with bills capped as per the table below.

Year-on-year Scottish Transitional Relief caps (%) 

• 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.
• Parks Transitional Relief provided 67% relief in 2023-24, and will provide 33% relief in 2024-25 for parks, or parts of parks, that became rateable on 1 April 2023.

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. NDR reliefs, like other subsidy or support measures, may be subject to the Subsidy Control Act 2022.
31. Information on the Non-Domestic Rates Incentivisation Scheme (NDRIS) will be set out later.

Enquiries relating to this Circular

32. 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 or Non-Domestic Rates. Anouk Berthier  Anouk.Berthier@gov.scot
33. 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
Deputy Director, Local Government & Analytical Services Division