More transparency could result from council tax freeze

Published on Wednesday 18 February 2009 19:28

SO IT looks like the majority of Scotland's councils will end up with what was the only option – no council tax rise.

For most, this was the second year running of tax freeze, although Glasgow is now on to its fourth successive year. The 70 million added to Scotland's 2009-10 local government grant settlement, which was dependent on councils agreeing to no increase, was too much for councils to miss out on.

For most, their share of the 70 million equated to what would have been a council tax rise of around 3 per cent.

For any council going against the SNP and breaking the concordat, there would have to be a significant increase in council tax, well above inflation to see any net increase in council revenues.

Increases of this size would be unpalatable and unacceptable to council-tax payers already suffering under a worsening economy.

For many in the general economy, a rise of income in line with the level councils will receive in 2009-10 is wishful thinking. But for Scotland's councils, an increase will bring some hard choices. This year's pay award for local government staff is likely to be 2.5 per cent, but this has to be agreed by all trade unions. Employment costs have gone up significantly more, however, when pension contribution increases are factored in.

The latest valuations of local government and teachers' pension schemes have had to reflect increasing life expectancy and reductions in investment yields. These factors, together with changes to fire service and police pension arrangements, mean councils face significant increases in pension costs.

Further reform of public-sector pension arrangements seems inevitable and, in the longer term, the future of final-salary council pension schemes must be in doubt.

But employment costs are only one of the funding pressures. Demand from the public and politicians for local services continues to increase. In particular, social work departments not only have to respond to a higher demand, in numerical terms, given the growing number of elderly people and other vulnerable groups, but also to the significant profile that cases such as Baby P attract.

In addition, the price rises the public are aware of – utility bills, food and building material prices – also impact on councils. Funding increases will not cover these higher costs and councils will need to deliver significant efficiency savings to meet ongoing commitments.

It is not only on the expenditure side that councils are experiencing pressures. Generating other sources of income has become ever more important for councils, and this is an area not untouched by the recession. Investment returns from reserve cash balances have fallen as interest rates have been cut. Likewise, income from recycling, planning applications, building warrants and contributions from property developers has been adversely affected.

With company bankruptcies increasing by 30 per cent in Scotland and individual insolvencies rising by 70 per cent, recovering money from the public, whether this is council tax, rates or council rents, has not become easier and bad-debt costs will undoubtedly go up.

John Swinney's recent decision to drop plans for a local income tax will, at least, safeguard the future of the council tax and prevent it becoming a dead-tax where non-payment becomes commonplace. This was a fate that befell the community charge during its short life.

There are, therefore, significant pressures on local government. But there are also real opportunities, given these constraints and the reduction in ring-fencing, to prioritise spending according to policy commitments.

Too often, as Audit Scotland has found, councils have been unable to demonstrate that they use priorities in their corporate plan as a basis for budgets. A focused look at what areas of spending really do meet the council's statutory and priority commitments can bring a real clarity and accountability to local government. This is certainly the time to try.

&#149 Nick Bennett is managing partner, Scott-Moncrieff, and chairman of the Chartered Institute of Public Finance and Accountancy.