Council budgets have fallen by more than £1 billion in the past five years, the Fraser of Allander Institute think-tank today warns, and more pain could lie ahead.
Finance Secretary Derek MacKay is preparing to outline his spending plans for 2016-17 on Thursday, but the real pain is looming in the next two years as Holyrood faces the prospect of swingeing cuts to its budget from Westminster which SNP ministers will struggle to offset.
And the prospect of Holyrood using its new tax-raising powers to tackle austerity would be “difficult”, according to the report. It could mean that some education services, social care, council housing, library and bin services are cut further.
The report was commissioned by the Scottish Local Government partnership (SLGP), which comprises some of the biggest local authorities in the country, including Glasgow and Aberdeen.
SLGP convenor Jenny Laing said: “Local government finances are in meltdown as the Scottish Government piles crippling cuts on to councils while expecting us to deliver the same critical services.
“Furthermore, ministers are using a funding formula which hasn’t changed since 2008. With all the drastic reductions, it’s clear that this system is not fit for purpose and needs to be reviewed urgently.”
Last year the local government budget was cut by £500m in real terms.
Claims from the Scottish Government that council budgets have remained broadly static in recent years “simply aren’t true”, Ms Laing added, in light of the report’s findings.
Scotland’s budget is facing a reduction of £800m from Westminster between 2016-17 and 2019-20, the think-tank warns. But the SNP has pledged to increase NHS spending and protect police budgets, and allocated an extra £500m for childcare by the end of the decade.
As Holyrood’s budget faces cuts on average by 3 per cent in real terms, it means that “unprotected” portfolios could face real terms cuts of 10 per cent – about 3.5 per cent annually – by 2020.
“Some degree of real terms cut seems inevitable,” the report adds. “A 10 per cent cut to the local government resource grant would equate to just under £700m.”
The worst of the cuts are unlikely to be in Thursday’s budget for next year but the following two years will see major pain.
The funding formula is also called into question by the think-tank, which said this hasn’t changed since 2008 and it is unclear whether it remains “fit for purpose in a substantially different funding environment”.
“Funding is allocated on the basis of a local government’s estimated costs of providing public services. A funding system based on the costs of delivering particular outcomes would almost certainly result in a very different pattern of allocations across local government.”
The prospect of the Scottish Government using its new tax-raising powers to combat the expected £800m reduction in its budget is possible.
But the report adds: “It would be difficult. Adding a penny to the basic, higher and additional rates of tax would raise just under £500m.
“The Scottish Government’s existing tax commitments are to set a lower threshold than the UK for the higher rate of income tax (a revenue raising measure), and to halve the burden of Air Passenger Duty (a revenue losing measure).
“Taken together, the two policies would raise around £200m per year by the end of the parliament.”
But the Scottish Government insisted last night that local government had experienced the same reduction in funding as was imposed by Westminster.
Local government finance settlements were maintained in Scotland on a “like-for-like basis” over the period 2012-16, according to ministers, with extra money for new responsibilities resulting in total settlements of £10.8bn in 2014-15 and of more than £10.85bn in 2015-16.
A spokeswoman said: “Taking into account the addition of the £250m to support the integration of health and social care, the overall reduction in 2016-17 funding equates to less than 1 per cent of local government’s total estimated expenditure in 2016-17. We remain committed to engaging Cosla in further dialogue on a range of issues.
“The Finance Secretary will publish the Scottish Draft Budget later this week that will support our economy, tackle inequality and provide high-quality public services for all.”
The SLGP revealed earlier this month that its four members, which also include Renfrewshire and South Lanarkshire, expect a spending shortfall of around £183m in 2017-18 and leaders have told ministers they will not be able to continue delivering the same level of services.
Labour has now pledged to bring forward amendments to the Scottish budget to use Parliament’s tax powers to stop the cuts and invest in local services.
Scottish Labour deputy leader and local government election campaign manager Alex Rowley said: “Scotland’s councils are giving a very clear message to the SNP: no more cuts.
“Last year the SNP government cut funding to local government by £500m. That was a decision made in Edinburgh by an SNP government.
“The next set of cuts they make, in the Scottish budget on Thursday, look set to go straight to the bone. These cuts will impact on the lives of families across the country – from our children’s schools to social care for our elderly.
“That is why Labour will propose amendments to the Scottish budget, to use the new powers of the Scottish Parliament to stop the cuts.”