Analysis: Council tax freeze now a major problem

Picture: David Moir
Picture: David Moir
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SCOTLAND faces the severest cuts in public spending in modern history. Plans are in place to reduce the Scottish block grant by a further £2.2 billion over the next three years.

All of the savings have to be made on current spending, rather than on capital investment.

The Scottish Government has already delivered £3.6bn of savings through cuts in staff costs (wages, job losses and early retirement packages), in capital spending and cuts to grants in local councils which have borne the brunt of the savings.

Yet during the past five years, the SNP has increased spending on benefits (free prescriptions, personal nursing care etc) and subsidised the council tax freeze. Spending on these areas has risen from £568m in 2007 to £1,666m in next year’s budget. It is now 6 per cent of the total budget. With this cost rising, savings are required elsewhere on top of the Whitehall cuts to balance the books.

Labour has asked me to help them reorder priorities to give Scotland a fairer and more sustainable fiscal framework. Let me say firstly that the affordability of this growth of spending on universalism has been raised repeatedly by the bodies such as the Independent Budget Review, the Christie Commission and the Parliament’s Finance Committee. But it has been ignored by the SNP Government.

Moreover, we have always had a mix of services. Some, such as school education or healthcare, are open to all. Others, such as social housing and fuel poverty, are targeted on low income households in need. So there is no sound financial reason why universal benefits or subsidies should be exempt from the resource constraints which other programmes are facing, resulting in major savings.

The major gainers from these universal benefits have been the middle and upper income households, as low income households already received financial support for costs like council tax, prescriptions and education prior to these changes.

The Scottish budget claims that the council tax freeze is progressive yet their officials have produced statistics for the parliament showing the annual saving in Band A is £60, or 0.3 per cent of net household income, compared with £370, or 0.8 per cent, for Band H residents.

Prioritising these measures has compounded the UK’s austerity agenda. Cuts in wages and job losses have hampered the recovery in demand that Scotland’s economy needs. Early retirement costs in the public sector of £280 million a year should have been used to maintain employment during a recession.

The two major spending increases have been in free personal and nursing care, from £197m in 2007 to £611m next year, and from zero to £490m next year for the council tax freeze. My remit is to advise on ways of reducing costs, to allow Labour to prioritise spending which will tackle unemployment and poverty. From my work so far, there is clearly scope for savings in the universal benefits I have examined without – as the SNP claims – scrapping them.

Weak financial control has been one of the problems. For example, increasing the age of eligibility for concessionary bus travel can reduce costs. And reviewing drug costs can save on prescriptions – for example, the amount of paracetamol being prescribed has risen significantly since charges have been scrapped yet, as they are cheaply available in the chemist, it could therefore be taken off the list of prescribed drugs.

And the council tax freeze is now a major problem facing councils as well as being an inefficient use of public money. The freeze was introduced as part of the concordat between the Scottish Government and Cosla in 2008. As part of that deal, Cosla asked for their share of Scottish Government spending to be maintained – 32 per cent of the total. But this has meant in practice that councils have had to deliver 32 per cent of the savings required each year, plus the £70m ring fenced to pay for the freeze. They have funded the Scottish Government’s policy for them.

The result has been 40,000 job loses, cuts in services and increased charges. In addition, the Scottish Government transferred a number of high-profile anti-poverty grants into council overall spending – meaning that they can spend it on what they like. These included the Community Regeneration Fund of £113m, the Supporting People Fund of £384m and the Fairer Scotland Fund of £145m. There have also been cuts in the housing and regeneration budget of £307m and Education Maintenance Allowance of £15m. The result is that about £1bn of targeted spend on poverty has disappeared. Despite the Deputy First Minister claiming in 2008 that her government would “address the root causes of poverty once and for all”, poverty levels have increased since then.

That is why it is necessary to place tight expenditure limits on benefit spending to help meet the savings planned by the UK government and to invest in core services to generate employment and stimulate demand.

In a period of decreasing resources and increasing demand, fiscal realism is necessary. The Scottish Government has failed to property address the affordability issue and the emerging funding gap.

The role of advisers is to advise and politicians to decide. I am preparing a range of options for increased resources and spending reductions to deal with the funding gap which will allow Labour to offer a fairer and more affordable spending programme to Scotland.

• Professor Arthur Midwinter is former budget adviser to the finance committee, 2002-2007