 Good morning and welcome to the 31st meeting of the committee in 2014. Everyone present is asked to switch off mobile phones and other electronic equipment as they affect the broadcasting system. Some committee members may use tablets during the course of the meeting, because we provide papers in digital format. Agenda item 1 is to decide whether or not to take item 3 in private. Can we agree to that? Agenda item 2 is oral evidence session on the Scottish Government 2015-16 draft budget. We have two panels giving evidence of staff this morning. We have received apologies from Sue Bruce, chief executives of the City of Edinburgh Council, who cannot attend this morning. I am sure that the committee members would like to join me in sending Sue Bruce our best wishes. I welcome the first panel. They are Councillor Kevin Keenan, finance spokesperson and Vicky Bibby, team leader for finance of COSLA, Hugh Dunn, head of finance City of Edinburgh Council, Roddy Burns, chief executive of Murray Council and Lindsay Freeland, chief executive of South Lanarkshire Council. Welcome to you all and good morning. Would any of you like to make a brief opening statement? I would like to confess to her apologies to the committee. She welcomed the invitation to give evidence and was very much looking forward to giving evidence, but she had on that accident last night, which meant that she had been detained in the hospital overnight. We wish her a speedy recovery, Mr Dunn, and I hope that you can pass that on to her. We certainly understand the circumstances. Can I ask the opening question then? Can I ask to what extent the current funding formula and method of distribution to local authorities is fit for purpose? I think that it is hard to put in a few words whether it is fit for purpose or not. It probably is difficult as a councillor to go into the issues of distribution. What I would say is that, as the settlement is a tight settlement, then individual councils, as they try to meet the aspirations of their public in their area, will find it more and more difficult, hence the reason that distribution issues, if anything, cause with some issue at COSLA, and as money gets tighter, then they are magnified. People obviously would always like the maximum amount of money, and that at the moment, because there is a lack of it, does not appear to be the case. We have seen last year a number of councils threatened to leave COSLA over the settlement and distribution. Have those matters been resolved, Councillor Kenan? There is still a number of people who have given notice to leave COSLA. Obviously, COSLA are doing what they can to bring those members back on board. It is a member's organisation, and we would like to best represent all local authorities. However, it is up to each individual council as to how they feel best placed. In distribution issues, some councils' distribution issues, in relation to their feelings of COSLA, are probably different between one and the other. Does anyone else wish to come in on that, Mr Dunn? I think that, looking at it from the local authority side, the distribution method is well understood, and I think that it works quite effectively. There is sometimes more robust information on more recent data, which would be helpful in certain distribution methods. Generally, the distribution method is well understood. It is a needs assessment based on certain indicators, so that is understood. As the councillor said, the main issue is the quantum of funding, rather than the distribution of that. The city of Edinburgh does not do particularly well with the current funding formula. Now you have the advantage of the 85 per cent floor. Has that been beneficial? The 85 per cent floor has been beneficial. In the first year from memory, when it first came in, it gave us around £21.22 million. However, with the recent settlement for next year, that has been reduced to about £10 million or £11 million. However, it is extra funding that brings us up to the 85 per capita rule, so it is helpful. The reasons for Edinburgh getting less money and other authorities is due to the distribution method and the client base of that, but that is understood as well. Mr Burns, do you have a view from Murray? I think that the view from Murray is that, given what the distribution has to do in trying to distribute across the urban, rural needs and all the other factors to be taken into account, I think that it is unbalanced for that purpose. However, it is a question of quantum, as has been mentioned by my colleague. Mr Freeland? Just to echo that, I think that it is the quantum of cash. I think that the distribution model, we have to find a way of distributing it across 32 local authorities. The problem moving from flat cash to that needs-based system is that a number of local authorities lost out as a result of that in the first year of that. In addition to that, I think that there is a comparative data, which has still been used, I think, as it was in 2001. I know that there are plans to change that and there is work on going to change that, but right now you are still using data, which comes from 2001 for some of that calculation. In addition to that, there is constant demand and a growth in demand in the system, so even if our and South Lanarkshire population goes up, it might not go up in relative to other local authorities. While we are still dealing with a higher population base, our distribution or the amount of cash through that distribution method might go down because we do not go up as much as others, we are still dealing with more but getting less because of our comparative data. Mark, is this on this particular topic? If I can continue on, I will take it in a second. You have talked about pressures, obviously demographic pressures, which might be helped by the integration of health and social care. We also have seen welfare reform. How are those issues affecting local authorities in terms of budgeting? Councillor Keenan, do you want to go first or Ms Bibby? I think that, in Dundee, they really speak for Dundee. I think that they have tried to do what they cannot and mitigate the worst effects of some of the changes that are coming into place. I think that, in the instance where, obviously, we are trying to get people to sign up for discretionary housing payments have been difficult, there are some people still having to come forward, then we have spent a lot of officers' time, an individual time, trying to make sure that people try to do whatever they can to help themselves. There is an element of individuals that still do not come forward for that. That is just one area of work where we have tried to do what we can to mitigate the worst effects of council tax, but certainly people present themselves different in poverty with, like other councils, giving some money to prop up food banks in the lake in the area as well. There is a real issue in addressing deprivation. Ms Bibby, do you have any information from members as a whole? I suppose that it is just to add that health and social care budgets and councils will probably speak for themselves on that. The pressures are significant. I think that you rightly mentioned health and social care agendas. I think that that is key going forward, that we look at health in the widest sense. Do not just focus in on the NHS and it is the pressures on health, particularly the social care side of things that are going to put significant pressure on local government and the partnerships that are going forward. Well, yes, welfare reform is a significant pressure for local government. Mr Freeland, please. Well, welfare reform has been a lot done to try to mitigate it. We have had money from DWP and from Scottish Government to help mitigate it. A lot of cash goes into advice, et cetera, rather than going directly to claimants. In addition to that, when UC comes in, when universal credit comes in—I am aware of what is going on—there are nine pilot authorities next year, universal credit comes in and there will be the issue about what impact that has in councils' budgets, perhaps through non-payment, because the UC will go directly to claimants. So that has not been factored into the system yet it might increase bad debt, et cetera. That is an unknown, if you like. I think that local authorities generally across Scotland have worked very well to try and mitigate the impact on welfare reform, but at a high cost, I would say. In terms of health and social care integration, I think that the key point is sound. The pressure on the system will continue in terms of health budgets, et cetera. When we talk about community health and local authorities funding through social work, the whole bed block debate, et cetera, in relation to that, I mean, to get people out of beds, it is not all up just about care homes and care at home. There are other issues in the health service that need to be resolved, but if you take the impact on local authorities, the local authority social work budget is finite, so every time that somebody needs out of hospital, then if something comes off at our end, that's fine as a balancing act, but the demand is constant and it continues to be constant. If we make targets a five-day target to unlock a bed, if you like, well, that's a cost in some cases to a local authority and it's a continual cost. I mean, we've propped the budget up over the last two years by millions of pounds, but we've still got, still not meeting in some cases, the bed blocking target, and that would just continue until more money is released from the system. The principle of integrated working in terms of trying to free up efficiencies, I think, is sound, but that'll take a bit of time to bed in before you actually start to release those efficiencies in the system. You talked about demand there and demand increasing. Have your services moved to more needs-led budgeting rather than demand-led budgeting, can I ask? Yeah, I mean, in terms of universal service provision, but there is elements of that, which are needs-based. For example, in terms of home care, we're now trying to introduce a grading system, like an assessment system. We try to do people that need home care on demand, but the criteria that is threshold for that might have to change as we go forward just because of the budget constraints. Okay, thank you, Mr Burns, please. I'm really just echoing what Mr Flynn has said in terms of welfare reform. I think, again, speaking perhaps more from a smaller authority, there's a real intensity about the work in order to mitigate the welfare reform issues. That's around working very closely with housing colleagues and other services to get to the people at a very early stage to ensure that they understand what the reform might mean to them. As I say, that's required quite an intensity of work, not just the overall workload, but the intensity of that work. Again, in terms of health and social care, sometimes there are other pressures that are indirect in some senses, but quite vital to delivering the services. For example, and I don't think that Murray is unique in this, there's quite often recruitment and retention issues in terms of carers, for example, and it can only take some of the supermarkets doing a pre-Christmas drive on recruitment, and suddenly staff will move across to that sector and move out of the care sector. Murray does have a low-wage economy, and that is one of the features of that. People do move for what might seem relatively small sums of money, but they are quite significant sums to the individuals involved. Even if we have got the money to provide some of the services and some of the interventions, we quite often don't have the people there to do it in sufficient numbers, so that's often an issue. Again, just to echo what Mr Freeland said about having to grade some levels of care in all beta as a universal service. Just on the demographics area, in Edinburgh there are probably two main areas of demographic pressures going through on a flat settlement. One being increases in young people going to planning schools. People numbers in planning schools are increasing, and the other one is on health and social care, the demographics. An example is in Edinburgh of trying to increase care at home by 1 per cent per month just now. Over the year, we are trying to increase the amount of care at home packages, hours of service by 12 per cent, which is effectively 5,000 hours a week, and that's a kind of demand that we are facing. As part of the budget process, we have tried to recognise that in our budget, and we have provided £9 million as part of the budget that we see if we have to provide the service based on the need that we see. The overall budget that we have done is putting in extra £9 million, and that forms part of the reductions that we need in the overall budget next year of £22 million to fund the growing demand that we know is out there. We have done things to increase the rate of pay that we have paid to outside providers of care from £14.10 to £15.50. We are trying to get that demand in the market to get that, because it is quite a tight labour market in Edinburgh, to get that supply, because what we need to do is get care in the community and take people out of hospital beds, etc., which is more expensive. That's what we are trying to do, and we have tried to recognise that in our budget going forward by putting this £9 million put anum incrementary into our next three-year budget, but that creates pressures elsewhere, because where do we find that in a flat settlement? Do you think that changes to community planning partnerships that are laid out in the community empowerment bill will help to share resources and lead to better integration in things such as health and social care? Can I start with Mr Dunn this time, please? I think that it is early days, and that there are possibilities there. It is probably an area that we need to look at as the bill comes through. We are looking at what the possible solutions are, but it does give you some possibility to look at that. I am going forward because community capacity is a big issue. How do we increase community capacity to help us to look at the pressures that we see coming through for services? It is a tool in the toolbox that we will look at. Mr Burns? Early days, I think that it is a question of beginning to understand what the available resources are and the assets are across the wider partnership, and then trying to understand are they meeting the priorities. Could they be doing something else? Probably more importantly, what should we be doing less of in terms of the available budgets? It is early days. In terms of community capacity, I know that there was a comment made in some of the reports about that, but some of the third sector will be going through their own transition in terms of the third sector interface and a lot of amalgamations and transformation of those services. Again, that is early days there as well in some cases. I realise that it is early days in some regards that the bill has not been passed yet, but has there been any discussions in Murray, for example, with other partners about the pooling of budgets in certain areas? The next phase that we are going into, we had a series of meetings in the past six weeks or so to finalise the 10-year plan, the 10-year outcome agreement, and the next logical consequence of that is to start sharing the resources in order to deliver it. What the partnership has done is that it has given every priority and the targets behind the priority a confidence rating on a one to four scale. Clearly, in order to get some of the priorities further up the scale, that will require the shifting of resources amongst the partnership. Hence, the next phase is looking at what is on the table amongst the partnership and what can be shifted and re-prioritised. I may be being a little bit naive here, but when I thought that if you were coming up with the priorities for 10 years, you would be dealing with the budgetary aspects of that in tandem or else your 10-year plan is going to very quickly see things dropping off of it very quickly if the money does not come to deal with the priorities that are on it. I think that the reassurance is that the confidence rating has already picked up those sort of issues because clearly, as I think you are alluding to, there is no point in having a plan of us a plan to fail. It has to be a plan to deliver the national and the local priorities and that is exactly what the confidence ratings are set out to do. Mr Freeland, please. In terms of prioritisation and the joint working aspect of community planning, I think that everybody agrees with the principle. I think that it difficultly becomes when you start to try and articulate the actions that are required to meet those priorities and you come up against competing interests, if you like, from the organisations that are involved and you also have the financial barriers and the financial difficulties that some organisations have in terms of trying to meet existing priorities, but in terms of South Lanarkshire, we are starting to try to articulate those actions in budgetary terms to make sure that we can join up the budgets and, also, as Roddy says, try—and this is a difficult bit—things that have been going on for years perhaps aren't proving to be as effective as they should have been, therefore it's a bit about trying to dismantle and move towards a new world, if you like. I think that there's a lot of commitment within the local authority world and in the public sector to that. The speed of it perhaps isn't as fast as people would like, but I think that the local authorities and the public sector are committed to that. Councillor Keane? I think that we're really against talking about Dundee, rather than the other area that COSLA represent, but Dundee's got, I believe, a very strong partnership and I believe that it will do whatever it can to try to share budgets and work effectively together. Recently at council we received the director of social work's report and it obviously spells out in great detail where she sees the cross pressures going in the next few years. I think that that's done in a pro forma from government. I think that it may have been useful if that 25-year projection that's built into that report was obviously spelling out some of the financial pressures that local government are under in this particular area. I think that that would have been useful if that was shared by government and indeed obviously shared by the partnership moving forward. I think that that kind of figures to spell out the demographic pressures would have been useful. I think that that would be very interesting for the committee to see that, if it were possible, to get that documentation for us, I would be immensely grateful. I'll get the documentation that exists at the moment sent here. I believe that it goes to the Scottish Government anyway, but I'll make sure that it gets forward and on here. The Government didn't necessarily share everything with the committee, so if you could send it to the clerks against Ercanine, that would be fantastic. That's all obvious to me in opposition. Ms Bibby, please. Nothing really to add further than what's been said. I mean, I think that everybody's absolutely signed up to the principle of community planning and we're now at the stages of taking it forward, but, you know, it's that there's no question about the principle. It's the practicalities of doing it, but everyone is signed up to doing it and calls us very supportive of it. The issue around the quantum of funding or the amount of money that's being made available has been raised on a number of occasions. Every time that we do a budget round, irrespective of which committee it is, and I've sat on a couple of committees doing budget rounds, the organisations affected by that budget will come and they will talk about they're not being enough funding available. Now, we live in a situation where we have a fixed budget in Scotland and there's very little wiggle room available, so in order for there to be investment in one area, there has to be disinvestment in another area. This is a scenario that I'm sure local authorities are more than familiar with. Is there a view taken that if the view is that local government requires more funding, if that is the view that is taken, is there a view on where that funding should be taken from? In particular, does COSLA take a position on that because it's fine to say that more money is required, but without identifying where that more money comes from, it doesn't advance things any further, does it? Well, I think that I should probably pass that over to Councillor Keenan to answer that one. I believe that there is a real cost pressures in local government and, obviously, it is something that needs to be addressed and I believe that no matter whether it was a great settlement and you doubled it tomorrow, there will be somebody looking for someone else. We'll work in the real world, and the real world is that there is cost pressures there and we try to reshape budgets and do the best we can. COSLA, I think, are starting to form the opinion that perhaps the council tax freeze can't exist forever and we need to find some mechanism of local government receiving that extra money. There's the physical empowerment that we've looked at and we would probably ask that government take that serious as we develop it and we develop it together as a way forward for local government to be in a slightly better place financially. We're prepared to take some of the risks of how these funds would be raised, but I think that it's a conversation that we need to have. I think that in terms of council tax, for example, in terms of local income collection, that has been frozen for a number of years now, so one possibility would be to allow councils to sit there on council tax again. There's a non-domestic rates issue as well, where particularly the business rates incentive scheme was an incentive for local authorities, which was about to be implemented and then I think they defined it as a significant event, so the rules changed again on that. In terms of Seth Lanarkshire's position on that, that was a potential for us to gather, but I think it was approximately £8.5 million worth of additional income had that gone ahead. So I think in terms of local taxation, like council tax and non-domestic rates, it would be helpful to local authorities. Mr Byrnes, please. I think that if the question has been asked what can the economy afford, then I think that inevitably leads into political choices. Some of them are on taxation issues that have been mentioned, and I think also around universal service provision, as they sink from universal benefits. I think that what you begin to see in some of the later questions around budget reduction so far, I think that they are almost by default beginning to address some of those issues, particularly in terms of universal services, but it does raise a spectre of the taxation issues. Mr Dunn, please. I suppose that what it does do is push us to look at alternative ways of delivering services, things like NHT, and Edinburgh has been very successful in providing a number of houses in a very cost-efficient way compared to previous funding methods. There are also things like Edinburgh that are trying to do what is now called the growth accelerator model, to allow the development of the St James quarter, and again you are working there, and we are looking at the business latent incentive scheme, so that there is some reward for growth in the economy coming back to local authorities. There are ways that you can do things slightly different from what you have in the past, but the quantum, we accept that the funding out there is difficult, but what we need to do and what we need to do in that area is work better together, either with ourselves or with other partners, the health board etc, to make sure that we are working efficiently and effectively to deliver the outcome, and that is what the people care about, is the outcome no matter who delivers it. I guess that if the BBC is to be believed, we may see some announcement relating to the local taxation issue later on today. Just moving slightly away from that, in terms of obviously capital expenditure has an impact on revenue expenditure, in terms of repayment of capital borrowing. One way that has been suggested in the past around that is for local government pension funds to perhaps take a more creative approach, for example, in particular in terms of the delivery of social housing, which obviously has a guaranteed lifetime return and therefore could be viewed by pension funds as a sound investment. I am aware that some local authority pension funds have taken that approach. Others have been, I suppose, cautious, risk averse would be the other term in their approach to that. What view do local authorities take around that as a potential approach, which would obviously allow for capital funding without the revenue impact that would follow? I realise that some of your authorities will be in joint pension arrangements with other authorities and public bodies. Mr Dunne, do you want to start off here, please? I think that no pension funds are looking at the possibility, and if you look at things at housing, you do get an income stream, which matches the kind of liability stream that pensions would need to pay out. There does seem to be a connection there, but in all those things it is up to the pension fund to make the best decisions for the pension fund employees who will get a pension from that. They have a fiduciary duty to those pensioners, but it is something that I know that pension funds are looking at at the moment, and they will do that in the light of the investment decisions that they want to make. However, we have had discussions on that matter. I cannot speak about half of the grant fund, but what I could say is that I would certainly welcome the connection that is being made between the capital and revenue implications, because there is sometimes a presumption that, because of the prudential code, borrowing is unlimited, it is ultimately limited to the revenue available. I welcome that, because I think that it is one of the weaknesses, although the prudential code is to be welcomed for some of the members of the good old bad old days of 694. However, anything that can release capital into infrastructure, whether it be housing, to create the productive economy, the efficient economy, we all desire that it has to be welcomed. I think that anything that can unlock capital is to be welcomed. I think that in terms of the pension funds, I do not know if I am qualified to comment on that. I think that in terms of anything that they would consider would be in terms of risk. I think that in terms of local authority house building, one of the risks for them would be their ability to generate income through rents, because of social rents. I feel that it might not be interesting to them that I might not be generating enough return for them. There are other ways of doing that. We have the city deal, which has been around recently, and we will be beneficiaries of that. We will get approximately £170 million worth of investment in South Lanarkshire. Again, that is by unlocking the taxation system and giving us incentives, if you like, to spend some council cash. However, it is mainly funded by Scottish Government and Westminster Government. I am on the pension investment funding, Dundee, our two-site pensions funding. Obviously, we have a fidgetary duty to return the best capital that we can for that funding and make sure that the pensioners and the third pensioners are looked after. We have had the conversation with investment fund managers, and their view would be that it is possible. There would need to be some level of government incentive to make that a harm. I know that MSP Alec Neill, I think, may well have had a conversation with him, although it is certainly one that we have had between myself at Cosaline. It is probably a wish of his that that would happen. Obviously, it is about what would they be incentive of, and how quick would they get their cash back out, because they might not want to invest in a property for a long term. That was a kind of view of the pension fund managers. For a fidgetary duty point of view, it would be your wish to disinvest the tobacco, but it delivers a lot of money, and it is something that we are finding it very difficult to be able to do. I know that we have spoken about that previously with the convener's questioning. Obviously, there was the recent situation at COSLA where a vote had to be retaken on making some alterations to the funding formula when a number of authorities realised that they were going to be beneficiaries. The difficulty has always been seen that any real change to the funding formula is unlikely, because it essentially is Turkey's voting for Christmas, because there are going to be authorities who will lose out as a consequence of that. I realised that Mr Dunne was very equivocal in his answer, where he said that the funding formula, when he was asked if it was fit for purpose, said that it is well understood, which is not necessarily the same thing. Is the way that funding is allocated via COSLA appropriate and sustainable, particularly in times when funding is going to be tight and there are going to be local authorities pointing fingers around in terms of winners and losers? It is a bit difficult for me to say, because I do not have a vote on that. I am a leader of a council, and it was a council that took the decision. I think that there is an element, as I said earlier, when it comes to distribution, that because of money being tight, there is a real issue. No matter what the distribution is, nobody thinks that they are getting enough anymore, and it is just because there are so many other things that local government wants to do and the cost pressures that it brings. As for a sort of statement like flat cash, the flat cash statement brings the sort of words off that is going to be the same as you got last year. Whether that be any influence on how the vote was taken and then re-changed because it was not of that, that might be in the case, but you need to talk to some of the leaders on how they made that decision. I think that it is kind of difficult for the chief executives to answer the political aspects of the leadership vote, but do you have any other comments on Mr Duns when she was mentioned by Mr MacDonald? My memory of that was that the distribution method was known about just where you updated the indicators for the latest available information on those indicators. Although the method was understood, the question was whether you would actually update the indicators for the latest information and that is where the movement between local authorities came about. Mr Freeland, Mr Burns, do you want to add anything? Going forward is how you use the data. In terms of distribution models based on need, it is how you define that need. For example, in terms of the schools programme within South Lanarkshire, we have heavily invested at our own cost in the schools, so our schools would not show us being in need, but we will then lose out in any funding distribution around the school stuff because our school estate is very good at improving all the time, but we decided to make that decision to invest in it from our own resources. Are you saying that there is an inherent flaw in the funding formula that essentially rewards lack of investment or lack of progress? In terms of the school stuff, I feel that we have lost out in terms of being an opportunity to bid for additional funding because we took a decision to improve our school estate in answer to that yes. John Lawson, please. Thank you. Good morning, panel. Can I go back to the distribution formula and draw your attention to the submission from Murray Council, in relation to the concerns with the distribution, not under the heading of the concerns with the present distribution formula? The comment that I found very intriguing was that the main issue is not with any aspect of the distribution formula, rather with the time and energy that is spent by local authorities, COSLA and the Government squabbling over the distribution. How would other authorities, particularly Councillor Keenan, view those comments from Murray Council in relation to the distribution formula? Effectively, what the submission says is that the distribution formula is fine, it is just that the time, effort and energy that is spent arguing over how it is distributed is time wasting and could be spent better. Difficult for me to answer that. There will be areas in Dundee where we would like to see a bit more money coming in because we have a demographic problem that we need to resolve. It is very difficult for me, as a spokesperson, to give you a definitive answer as to how much time spent squabbling I am. I am no part of the distribution. I am its officers that normally spend their time in distribution. There was recently one in a dispute about whether we should give more or waiting to a rural as opposed to urban. You know, the matter was resolved. At Dinnisfounce, there was a great amount of cash. However, when things are tight, people start arguing in their corner and we will be more just to see if there is a better benefit in it for them. In that aspect, it, in a way, echoes the comment in part of 122 of your future of local government financing paper and the personal view of the chair of SIP for the Actors of Finance. It echoes that. The other point that I would make is if I could maybe go back to one of the points that Mr Freely made. In some senses—I do not know whether it is deliberate or not—we almost represent two sides of the same coin. What I mean by that is that Murray was one of the gainers in terms of the vote that was retaken. In terms of schools, Murray is at the other end of the spectrum. We have not spent as much as we ought to have done on schools. That is because our major investment has been in flood prevention schemes over the past 10 years. Having invested on that, we are now turning to a schools programme, but that does not mean to say that Murray has not been progressive in a number of areas. It is simply that it was a different priority in which it had to be progressive. I think that it is just reflecting that. I think that, for what it is probably reflecting, and it is something that I know that various finance ministers have commented upon from time to time on the concept idea of, particularly in the committee planning partnership, a arena of one payment being made. I think that I can recall one finance minister saying that that would be the measure of success of committee planning if one single check could be given to one single body for them to distribute according to the needs in that particular area. I think that those are the issues that are being teased out in terms of the Murray response. Mr Freeland has said that South Lanarkshire is potentially being punished because of the investment that took place in the schools estate over the past period. Could you explain the cost pressures or the budgetary pressures in terms of that investment in the school estate and how much of that budgetary pressure at local authority level may be due to the funding schemes that were devised for the building of new schools in South Lanarkshire? I am referring to the PFI PPP initiatives that a number of local authorities in Scotland undertook since 2003, I believe. Is that causing additional budgetary pressure on the local authority meeting the costs from servicing the debts accrued? I do not think that I said that we were punished or disadvantaged in terms of had we waited to do our skills programme, we probably had additional funding opportunities that we did not have because we took the decision earlier than other local authorities to improve the skills. On the PFI, we did our secondary skills through PFI, so I think that that costs roughly £20 million per annum that we fund for the PFI. All our primary school estates we did from prudential borrowing, we did not use PFI. We have put an additional £3 million worth of borrowing over the past two or three years, a total of about £39 million to £40 million worth of additional revenue costs per annum to fund our schools. We get funding back from that from the Scottish Government, that is the gross figure, we get some of that back from the Scottish Government. How much of that £20 million that you have referred to in terms of high school servicing the debt, how much is that as a percentage of your overall education budget? I need to get the exact figure, but I can get you that. I appreciate that. I am moving on. I am sorry that the Scat are going to approach here in terms of trying to deal with some of the issues. I certainly would welcome any other local authority comment or even Councillor Cain's comment in terms of the budget pressure and local authorities if they participated in the PFI PPP project because I am aware that some of those costs, in the south manager's case £20 million servicing costs, could apply to other authorities throughout Scotland. I know that this was a major issue when I was in the resources and capacity group in Cozla. Is that still the case? Is there still a lot there? I am not going back in this sort of PPP schools, but from the point of view, we are our chief executive, who was the director of finance when that was going through, says that Dundee got a particularly good deal. It funded it through a bond, so it might have done something different from others. Dundee, like other areas, has continued to try to build on its school estate and improve on its school estate. It obviously opens up an endless educational facility. Most of those schools offer a much more flexible space within them for delivery of education, and we are trying to do what we can. I suppose that in terms of the funds that become available to build new schools need out, we, like every other authority, would like to see a bit more. John Lennon, you made reference and an earlier response about increasing the hourly rate to external providers of services for Edinburgh City Council. You mentioned it, 14, 50 odds to 15, or figures round about that. In relation to contracting external providers, why do you feel that Edinburgh City Council needs external delivery agents, rather than delivering those services from within Edinburgh City Council? Is the cost-benefit analysis being done in terms of savings to the council? I could get full details to you, but what Edinburgh does is that we have an internal supply of staff and we have an external supply of staff, and it is a mixed market that we do. We do that both in residential homes and things like home care. I could get full details as to whether we have done testing to the right mix of the market between internal and external markets. There is a course for when you do your staff internally, you have things like supination and other costs etc, but what I could do, there has been papers that I have passed, and I would be happy to pass that to the committee for their consideration, but it is a mixed market that we do across the home care and the residential care market in Edinburgh. One of the main concerns that comes from the unions, particularly unison, is the amount of outsourcing that local authorities are now engaged in or transferring staff directly employed staff from local authorities to arms-length companies. In relation to the question, because what we get is a global figure produced saying how many employees are employed by local authorities in Scotland. I think that the last time we saw those figures there was a figure of roughly 35,000 staff lost to local authorities. However, a number of those staff figures have people who have been transferred to arms-length organisations. Would anyone like to comment on the benefits of the transfer to arms-length organisations and the cost savings that are being made by those transversers? He wants to have a crack at that first then, Mr Freeland. We operate a leisure trust, which is on the arms-length company that we have. Basically, it is just down to the rates relief that we get from it, so that helps fund the service, so it is just purely a taxation issue. Mr Freeland can ask you about the home care projects in South Lanarkshire. A number of years ago, South Lanarkshire was named and effectively shamed in terms of the home care service delivery by an external delivery agent. Has that issue been resolved and were the savings that were made justifiable in terms of the care that was being provided to particular or housebound and elderly? We are not actually savings. We are part of the cost of providing the service, where we provide part of the service in-house and part of the service we contract out. It was not a deliberate decision to say that we will now move from an in-house service to an outhouse service to a contracted service. It has always been a blend between an in-house provision and a contracted out service, because the market dictates a lot on how we can employ and how flexible the private sector can be at times to allow us to discharge some of our responsibilities. It has got better and we have much more awareness of the contractors that are working for us. The contractors have all got good care commission grades and that is one of the qualifications or criteria that we use when assessing suitable contractors. They must have a good care commission grade, so that has moved on since that time. We still have a proportion of in-house versus contracted services. As the financial squeeze goes upon us, one of the options for us in terms of savings is to change that proportion. If we did change the proportion from in-house to contracted services—that is not an arms-length company, it is just contracting that service. We would save money so far that the council has resisted doing that. I suppose that there has been a number of people who have left the business just based on the fact that we have made redundancy packages available and downsized on that. We have a leisure trust as well, and that is based on rates and taxation. We also have Tayside contracts, where we have moved some people to Tayside contracts because there has been a cost benefit in doing that. Any monies that are made in Tayside contracts because there is a joint venture company between Dundee, Perth and Angus councils, and any cost benefit and profit that is made out of that is distributed back into those councils by the proportion of business that they put in its direction? Just for clarification, when we get the global figures in terms of staff reductions in local government, then we can start trying to marry that up with other initiatives that are taking place, whether that be arms-length organisations or, in your case, Councillor Kieran, the Tayside contracts organisation, where staff have been directly transferred but are no longer accounted against the staffing levels in the local authorities concerned? I am unsure of the global figures that there is. I know that people politically like to quote these, but I just know someone I have ever looked into myself, so I wouldn't be able to quote them in any way. Have any of the officers got anything to say on that front? No, Mr Fisher-Barnsham. Murray has one leisure trust. It was more to do with capital consents at the time, and that was the way to construct the centre, but clearly there is the taxation benefits. Stuart McMillan, please. Good morning, panel. The first question is about the ring fencing in the Edinburgh submission in point 4i. It highlights the issue of the reduction in ring fencing. I am just wondering if the other panellists agree with the comments from Edinburgh City Council. Mr Dunn, do you want to go first, since it is from your submission? Yes. The actual submission has set us out that the level of ring fencing that used to be a pan in the local government settlement over the years has reduced. That is something that local government is welcome and that the money comes to us. We have local decisions to make as to where we spend that money. That has been directed to particular spending areas, so that is something that we have welcomed as an initiative that has happened in the last few years. I think that the position would be the same. I think that it allows greater flexibility, particularly if, as many authorities have had to do, integrate services and find different ways of working. I welcome the flexibility and would try to have more flexibility if possible, and I think that one of the major issues for us is teacher numbers and the lack of flexibility around teacher numbers. I think that that is where cause of the sea removal of the global ring fencing was an element of flexibility. There is very much of a lot of the issues that people wish to deliver anyway. Obviously, the other aspect that we have is based on here is your financing and here is your constraints. Those are the numbers that you need to produce that causes an element of difficulty as well. Who would probably like to go to more outcomes? Ms Bibby, is there anything else that you wish to add from cause of that? Mr Mittmillan. Thank you for that. Certainly, in Edinburgh City Council's submission, it is under point 15, you highlight the situation regarding the overestimation of the population growth also based on the census figures and, as a consequence, there will be a reduction in funding to the council. Do you think that that is actually the right thing to do? Obviously, you are going to want to say that you would rather keep the money as compared to actually give the money back, but in terms of the actual funding mechanism that is there, do you think that that is actually a fair thing to do? Mr Dunn? That comes back to the 85 per capita in Edinburgh now gets a minimum of 85 per capita of Scotland's distribution, and we gained from that. What happened with the census information came out that the growth in Edinburgh's population was not as steep as we expected, so although it is going to increase, it was not increasing just at the rate that we expected, so part of that was that we received less funding. That is within the rules, and that is why, when the flat cap got revisited, we lost money from that, so I think that we understood the reasons for that. I imagine that there may well be other local authorities who might actually have the converse situation, where the population figures may well have been underestimated, so they probably will possibly have lost out of money. Yes, it would be oneness and gainers, but it hurts us more because the 85th rule comes in at the very end of the settlement calculation, and there is not any kind of balance, say, of sealants on what much you lose, and basically the 85th benefits Aberdeen or Edinburgh, so it is quite sharp the way that worked at the end of the settlement, so we probably lost, in percentage terms, more than anybody else. In terms of the other panelist, I did not see anything of that nature in your submissions. Maybe the question that should be asked is, do you think that funding should follow people? It is a simple one, I would say. I am seeing nods of the heads from everyone. Mr McMillan. Thank you. The final question is actually in the Murray submission, where there was a situation regarding the non-domestic rates recovery. You suggested that an improvement could be introduced there, so in terms of ours having to wait six months before any recovery could be taken forward. Can you elaborate a bit more on your submission, please? Mr Bowns. The consistency between two ways of collecting tax and the general presumption that the longer it takes to collect a tax, the less easy it is to collect. Therefore, if there were an earlier point of intervention, given the success rates for other forms of local taxation, then the hope would be that there would be a similar success rate in terms of non-domestic rates? I see Mr Dunn nodding his head on approval. I understand that, at non-domestic rates, companies can pay it at the half point of the year, pay the whole instalment there. I think that what Murray has alluded to is that there might not be any tax collection in the first five months, and by that time circumstances might have changed, making it more difficult to get rates into the organisation. That is what the Murray submission is alluding to. Mr Shilland, do you have any comments to add? I would like to share that. In terms of circumstances that need to change over a six month period, you are almost post my decisions, so if you are allowed to be proactive during that first five, six months, you might collect more cash. Have any of your local authorities made representations to the Scottish Government on that particular point? I do not think that I have anything to add to that. That is the guy's day job, not mine. Okay, thank you very much. I think that going back to John Olson's question about health and social care and the balance of the mix between in-house provision, third sector and private sector, it would be useful if COSLA has that information if they could pass it to the committee for all 32 local authorities, because I know that there is a mixed bag out there in terms of looking at that and a number of other issues. Could I perhaps pick up on the teacher pupil ratio and the fact that this has been a condition of funding that leaders and councillors have had to sign up to? Could I ask what COSLA's position on teacher pupil ratio is and where authorities are hoping that we will be with that in this current financial settlement? I think that it is something that we are looking towards negotiating with Government to see if we can bring around a change based on more outcomes rather than the sort of teacher number. So it is an on-going conversation that we are having. I suppose that it is the position that we have agreed because of the settlement that we are taking, but clearly there is a wish to move to a different type of model that would allow more flexibility. Can I just say that for the information that you asked for, we will attempt to give you whatever COSLA's got available. We'd be grateful for that, Mr Rowley. On the teacher pupil ratio, I think that it would be useful for the committee to understand more what local government are actually saying about it in terms of often in this place you can get politics when playing around teacher numbers, but out there in local authorities there seems to be a real concern that to continue to have to maintain this teacher pupil ratio is not necessarily the best way forward given the massive financial stretch you're under. So I think it would be good if we could get a bit more understanding of how local authorities are seeing this and view this. If we're collecting the data then that information would become available. It's the sort of feeling of councils at the moment that moving forward and having the teacher numbers will be difficult to maintain. There's obviously the flexibility. Some people would be looking at the flexibility of school closures and mergers that would reduce the overall teacher numbers that we have. I think that the work's on going towards coming to some kind of agreement with government as to whether outcomes would be better because really we're looking at how much of the education attainment is somebody going out of their end or going through school being a much better than the hard and fast teacher numbers being the issue for COSLA. I wonder, convener, if any of the chief executives would like to add anything to that in terms of their own authorities and the view of the teacher pupil ratio. Any of the officers wish to comment on pupil teacher ratios? Mr Freeland. I think it's just again a plea for flexibility when budgets are very tight and we believe that that's one area where we could make some change without impacting on the outcomes for pupils. We are restricted just now I think in terms of our financial planning we've assumed no change but it would be helpful if we had some direction in relation to if there was going to be change then we had the flexibility to do that. I think it would impact upon our financial position in a positive way without negatively impacting on the outcomes for children. Did Mr Burns or Mr Dun have anything there? No. Mr Wilson, with a small supplementary plea. Just on that issue about the teacher pupil ratios, one of the headlines that's been coming out recently from local authorities is the issue about reducing the school hours. Would any of the panel want to comment on that because in terms of cost savings is that something that's now being considered widely within COSLA by local authorities to reduce the contact time with pupils as a cost saving exercise in terms of teachers? It's been discussed at COSLA but obviously each individual local authority as it goes through its budget process needs to start looking at how to make the figures match the demand that they have and I suppose that's the only reason that we're seeing the like of that being floated somewhere as a potential idea so it's not a COSLA position. Thank you. Do any of the officers have anything to add there? Mr Riley please. I'm assuming that the authorities are certainly arguing that this condition should be removed and therefore one would assume that this could lead to a reduction in teachers and that's where this political game as it were creates headlines and creates figures and I just think that there has to be some transparency around the discussion of that. In some areas it's very difficult to get supply teachers so there's about to an issue there. I think the outcome that COSLA would be looking on would be trying to deliver the best educational attainment that we possibly can and seeing whether there's that level of flexibility so it's reasonably early doors in the conversation that we're having with government is to get them to release it and understand that there's a political will and that the teachers numbers suggest that you deliver the outcome. We're looking at ways to say that the outcome can be delivered differently. Okay can I just pick up on a couple of other issues and if we look at the sort of idea sitting behind community planning and we look at the Christy commission and the Christy report that was going to guide public services and what that really emphasises is preventative measures and joined up thinking. Can I ask, in terms of setting local authority budgets, how much discussion is there with community planning partners and what can they input do they have into the budget and how far down the road are we in terms of Christy or are we not? Can Sir Keenan, do you want to go first? I mean I'm a councillor in opposition and if any of you have been in opposition and the administration didn't particularly share their budget with you they tell me they're going to put it out earlier than I ever put it out as a leader of a council and because there's this going to be out for a period of consultation that mines was never according to them. I think that you know the sort of conversation about the Christy commissions on the radar and I think that it's something that we need to happen and if you look at the demographics that are presented to us and how population will grow and they'll be older and needing more care then we've got to certainly look at ways to introduce at an early stage some kind of mechanism that stops people getting fallen into ill health. I mean I would like to see personally for a little community planning partnership I would like to see more social prescribing where doctors obviously use their sports facilities in local government to make sure that people take a light exercise when we have coaches and I think that it would be good for that. I would reduce sort of blood pressure and heart disease and the like and that's just me as an overweight guy telling you. You know so I just think there's a lot of sort of benefits in that and I would like to see that I'm sure that it would bring around some but these are the sort of barriers and we're working in partnership I hope that we can achieve. Mr Freeland. I think in terms of community planning agenda most partners are setting their own budgets when you start to really have to do that. I think what happens is that people are now working to was to try and establish what parts of those budgets we can join up better, what parts of those budgets we can actually pool resources and that kind of more pooling of budgets around integrating budgets. I mean health and social care integration will change that in terms of that aspect of the business if you like. In relation to other parts of community planning it's more about relationship management to try and work with partners to establish outcomes and part of that at times involves sharing budgets rather than setting a specific budget jointly for a specific function. Mr Byrnes. Nothing to add to what Mr Freeland said. Mr Dunne anything to add? Nope, Mr Rowley. Thank you and Mick Taggart, please. My colleague Alex Rowley has asked about the consultation with CPPs. Can I ask what consultation there has been with local people and the service users about some of the reductions in the budgets and some of the services that may well be reduced? Councillor Keenan, do you want to go first? I mean I think that we need to have that level of conversation and dialogue. It's no happening in Dundee but I noticed that Edinburgh, when I was through here a few weeks ago, had signs up saying, contact us, tells what you think and you know I think some of these things are good practice. I doubt if anybody ever wants to lose the service that they've already received but people will know that money is tight and you know there would be some reasonable suggestions that could be taken forward. Eiland? Yeah, similarly we've got a consultation process where the director of finance and his team go out to do road shows etc trying to engage with people about the potential savings. We've got a citizens panel etc as well and we put these advice points to ask people about the services as well. So we try and consult as widely as we can on the savings before they go to committee. Mr Byrns? It's the same as Mr Friedland with the addition that for younger people we also produced a game where young people could move budgets around in terms of what they thought was a priority. So we could take all the information from all the different age groups in the road shows and make some sense of it. Mr Gann? It's been a little too endless this year's kind for what's called a budget planner and so far we've had 1,300 people submitting how they would balance the budget. The challenge is to balance the budget over three years so what we're asking people to do is look at how they would take £67 million out of the council's budget over the next three years and we're very happy with 1,300 people. We based it on Liverpool did it last year, similar size, they've got 1,400 people we're not competitive but we're hopefully going to get 1,500. So that's a new way of getting engagement and as you say we put streetlight lamps and we moved them round the city intervals to try to get people engaged and from the information we're getting we are aware of the gender balance that's coming through the small males at the moment so we're trying to proactively encourage more females to provide some feedback as well and we're also getting age distributions of the people who are providing that information and it is working with the younger people and now we're trying to make sure that we get the balance light between different age groups so this will all feed into the budget and as well as doing the budget planner we're getting comments back on the budget which is very helpful and that will all go to the finance and associates committee in January so that members have all this information before they make their decision on the budget in February. Ms McTaggart? Sounds an excellent best practice model there. I think that I was going to ask about statutory and non-statutory services but I think that we've kind of answered that. Sorry, thanks. Mr McMillan then, I think that he had us at the mention. If you're brief. In terms of your comments on Mr Dunne have you noticed a variation in the demographics of people who are actually getting involved with this consultation? We're beginning to see that information and we're getting the ports on that and it is a change before which may be the kind of more older people who used to come to the budget meetings etc. We're getting a younger traffic there but what we're trying to do is make sure we get a broad range across both the age group and also between male and female. In terms of areas of more deprivation, is there still a challenge there? We do have postcode information on that and we're actually trying to take steps to make sure that we get a balance across the whole Edinburgh and not just from certain neighbourhoods. The president of COSLA said at the last COSLA conference that local government in Scotland was getting a much better deal than local authorities south of the border. Do you agree with that statement and do you think that COSLA has done well in terms of negotiating for local government in terms of budget settlement? That's a good question. I wonder if David Harreysan twisted up his back when he said it. I think that there are really difficult times and I suppose that COSLA accepts that there are difficult times. Whilst the majority of our members obviously probably consider that we've got a reasonable deal, there is an element of doubt there is to whether we have. If that lives here with the sitting on the fence approach then I'll probably prefer to stick to that. I'm glad that you're a Liberal Democrat. Mr Freeland? I don't know how to compare something. I can just tell you what it feels like in South Lanarkshire. It feels hard and it's getting harder. Mr Burns? I wouldn't disagree with Mr Freeland. Can I thank you all very much for your evidence today? You promised various things in writing. I'm going to want to be really bad here but we've got a very short timescale for the report. Can we possibly have that before the end of this week? I suspend this meeting for a change of witnesses in a comfort way. We now move on to our second panel of witnesses. I'd like to welcome Deputy First Minister of Scotland and the Cabinet Secretary for Finance, Constitution and the Economy, John Swinney MSP, and congratulations in your new role, DFM, and Robin Hane's local government division and Bill Stitt's local government finance division of the Scottish Government. Would you like to make any opening statement, Deputy First Minister? I warmly appreciate your good wishes this morning. It's a pleasure once again to be in front of the committee to look at the 2015-16 draft budget, which, as the committee has indicated, will focus in particular on the draft local government finance circular. The circular in question that the committee has raised is one dated 7 July, which provides a representation of a snapshot in time. Of course, the Government will publish on 11 December the 2015-16 draft local government settlement, which will be the start of the statutory consultation on the new circular, which will be applied to local government. The committee will know that the Government has worked hard with the Convention of Scottish Local Authorities to provide fair settlements to Scottish local authorities, given the reductions that have been faced by the Scottish Government in our budget as a consequence of the United Kingdom's austerity programme. The Scottish budget is roughly divided into three parts, with health and local government sharing about two thirds of that total budget. With the health budget, having received a real-terms increase in each and every year is set out in our manifesto, some very difficult decisions have had to be taken to maintain local government funding. Because of those difficult decisions that we have taken, local government has been treated fairly under this Government. The local government finance settlements have been maintained across the period 2012 to 2016 on a like-with-like basis, with extra money being applied for new duties that have been allocated and agreed with local government. That has resulted in a total settlement of over £10.6 billion in 2014-15, set to increase to almost £10.8 billion in 2015-16. I believe that this settlement has enabled local authorities to effectively deliver front-line services. The distribution of this considerable sum of money is clearly vital for individual local authorities, and that is why the distribution formula is kept under constant review both at official and political levels with COSLA. Following the most recent review in 2009, the consensus was that the existing indicators used in the formula were considered to be reasonable and generally a fair refraction of need among local authorities. The Government's preference—we share this with COSLA—is to have a fair and equitable settlement across all local authorities. On the question of non-domestic rates, we now allow councils to retain the income generated within their own boundaries. Although the Scottish Government still guarantees each council's formula share of the funding by making up any shortfall in business rates income, we now incentivise local authorities by allowing them to share any additional income generated through increased buoyancy or other factors. The original business rates incentivisation scheme was too blunt, so we have worked together with our local government partners to better focus the scheme on promoting and rewarding growth. I hope to announce further details to Parliament on 11 December. Local government and the Scottish Government work collectively together to meet the financial and social challenges that the people of Scotland face. One of the priorities for the Scottish Government has been to maintain a freezing the council tax in its eighth successive year, providing further continued respite to all taxpayers the length and breadth of Scotland at a time of financial constraint. I am very happy to answer any questions from the committee. Thank you very much, Deputy First Minister. There has been some debate this morning around the distribution formula. What difference do you think that the 85% floor has made in dealing with local authorities that feel that the distribution formula was not quite so good for them? One of the priorities that we had in mind when we looked at the issue of an 85% floor, which, as you will know, was a point advanced vigorously by our late colleague Brian Adam, particularly in relation to the circumstances in Aberdeen, is that, as the distribution formula was applied to the on-going distribution formula, there were, in the case of a couple of authorities, some really very significant gaps, beginning to emerge between—we are not beginning to emerge, they have been there for a long time, to be honest—a couple of outlier authorities whose funding was essentially not growing as strongly as the general trend within local authorities in Scotland. We were persuaded that that gap had to be addressed, and the Government put in place the 85% formula in the spending review in 2011 to rectify that point. In the course of the spending review, the beneficiaries from that formula have been in the city of Aberdeen and the city of Edinburgh councils, who have received greater resources than they would have anticipated with the application of the distribution formula. We also touched upon the fact that some authorities were worried about the settlement last year in terms of changes because of population change, etc. The panellists earlier all stated that they felt that the finance should follow people. Is that something that you would agree with, Deputy First Minister? I would, convener, and population indicators in a whole variety of different areas underpin the composition of the distribution formula. For example, in some indicators, quite simply, the number of people in residence council tax payers will be a principal driver in some of the indicators. In other indicators, it will be the number of school pupils, for example, that will drive indicators or the number of older people that will drive indicators. That complex picture of indicators is applied to the global sum of £10.8 billion in 2015-16 to determine what is the appropriate allocation in local authority by local authority area. The individual characteristics of the population indicators, particularly a light on school pupils, for example, are material to the process because of the impact that school pupil numbers can have on the requirements for the number of teachers, the school of state and various other factors that go with it. There are, of course, authorities that today are wrestling with falling school numbers and other authorities that are wrestling with sharply rising school numbers. It is a pretty fair indicator to deploy, given the fact that authorities will be experiencing different circumstances in relation to the composition of their population. As a consequence of that, the demand for public services follows such patterns. We also touched upon some of the pressures on health and social care integration, Westminster's welfare reform agenda and the impact that that is having on local authorities. And, of course, we touched upon the sharing of budgets. Do you think that the community empowerment legislation, as it applies to community planning partnerships, will help in that sharing of budgets and may lead to a much better direction of resources to deal with some of those cost pressures? The approach to health and social care integration, in my view, is utterly critical to how we proceed to ensure that individuals obtain and receive the support that they require. Those individuals will generally be some of the most fragile and vulnerable individuals within our society and how we establish sustainability in our public finances and our public services. Therefore, I do not, in any way, understate the significance of health and social care integration. I view it as the key reform that will ensure that vulnerable individuals obtain the support to which they are properly entitled and that the public services are made sustainable as a consequence. In my experience, members of the public and perhaps in many circumstances also their families cannot understand and have no interest in understanding the debate that goes on between public authorities about who is paying for who. If there is a vulnerable individual in our society, they require support. It is the perspective of the individual in their family that that person should obtain that support. I agree wholeheartedly with that point. I think that it becomes quite frustrating, and I am sure that members will have had this experience in their own caseload, as I have had in my caseload, where there is a bit of a debate going on between public authorities about what actually consumes resources of itself—valuable resources that could be deployed and caring for vulnerable individuals—is spent on a game of ping-pong about who is actually going to pay for the care. When it is patently obvious that the individual needs that support, I don't think that health and social care integration, in my view, must lance that and lance it ferociously because people in Scotland require the support that must be given to them from the public services. They are not interested in whether it comes from organisation A or organisation B. They are interested in whether they get it and get it in a timely fashion. This is relevant very much to your wider point, convener, about the role of community planning partnerships. Community planning partnerships have been established and will be established and will be established by the community empowerment bill. We look to community planning partnerships to break down the barriers, boundaries and silos—whatever you wish to call them, convener—to make sure that we have a much more integrated and focused approach to the delivery of public services. That is crucial to ensuring that we guarantee that the resources that we have at our disposal can have the maximum impact and that individuals are able to secure the necessary support that they require. Community planning partnerships also have a crucial role to deliver the wider public service reform agenda, one of the principal pillars of which in this debate is about prevention. If we can line up effectively our public services in a preventative mode, then the necessity for some of the very fraught discussions about who is providing the support and the care for an individual in a moment of crisis can be averted because we manage and act in a fashion that we can avert as much of that crisis as we possibly can do. One final point, convener. You asked about welfare reform and I would be the first to accept that the United Kingdom Government's welfare reform proposals are having an effect on increasing the caseload and the demand that is faced by local authorities. Of course, local authorities are partnering with the Government in a number of different ways to address that, whether that is through the work on discretionary housing payments in relation to the bedroom tax or whether that is in relation to the council tax reduction scheme, where we are partnering with local authorities to make sure that we are not in any way eroding the support that is available to people who will be financially challenged at this time. I would also add my congratulations. On the teacher-pupil ratio, I was asking the panel previously, the local authorities have been asking for some time that you look again at that and that it is not a condition that is put into the finance settlement. I just wonder where you think that is at and what your views are on it. As Mr Rowley will be familiar with, the agreement that we have reached with local government since 2011 has been to maintain the pupil-teacher ratio in local authority school at the 2011 level, which is about 13.5, and it has broadly been there consistently over that period. I hope that we have agreed with local government in relation to this settlement to explore whether there is a more appropriate way of trying to manage our educational resources to take into account the necessity that we all accept to improve educational outcomes and whether there is a more appropriate way in which that can be considered. That work has been commissioned by the agreement that was reached with local government over the summer in advance of the announcement of the budget, and it has a pretty tight timescale. If my recollection is correct, it is due to complete before the end of this financial year, so we should have that to hand before the start of the next financial year. In terms of council tax and the council tax freeze, the committee put forward in its report looking at local government that there needed to be a sustainable long-term solution to how local government is financed. I know that I heard on the radio this morning that there may be something that comes forward later today for the First Minister, so I wouldn't want to try and say that, but one of the things that we did say is that, given the sort of politics around council tax and local income tax and whatever, that it would be desirable for local government's point of view if we could get cross-party agreement and cross-party work on looking at what the alternatives are in terms of local government finance. That is really the question that I would like to ask you. Are you committed to seeing across this Parliament parties working together to try and find a solution? I think that local authorities are desperate for a solution without all the politics that are likely to go with that. The committee will appreciate that I am restricted in what I can say. When you are the deputy First Minister, you have really got to watch what you say in connection with the First Minister's words in Parliament, but let me just say that. The Government has a manifesto commitment to consult with others on how we might reform local taxation. I gave a commitment in Parliament just last week or perhaps a week before that we would be embarking on that shortly. There will be material in the programme for government on this question. We have listened very carefully to the proposition put forward by this committee, which is a welcome and thoughtful contribution to the debate. I would hope that the committee would be cheered by what the Government has to say this afternoon. Can I pick up on what you said there about health and social care integration and Christy and the prevention first? There were some chief executives in earlier, and I was asking them in terms of budget setting where the community partnership comes into that and how our partners consult with each other. I was not convinced that the answer suggested that there is a lot of detail consultation there. How do we move this forward? Given the massive pressures, the current economic situation and the massive pressures that are coming on services, how are you trying to measure to see whether we are getting better integration and have community planning that is actually working? In terms of the process of going about that, the Government has done a number of things to try to bring about this change in focus so that we have a much more joined-up approach to the deployment of individual budgets at local level. Local authorities are, as Mr Rowley will well know, independent entities. They cannot be directed by ministers. I may have liked to have told the former leader of Fife Council how to spend his budget, but he would have vigorously resisted my direction in that respect. What we have tried to do is to encourage a climate of open discussion around the setting of budgets between major public authorities at local level. If I go back to 2011, or perhaps it was 2012, along with the President of COSLA and the Health Secretary, I authored a letter to all local authority leaders and chief executives, to all health board chief executives, chief constables and other leading public authorities, to encourage them in the context of community planning to have an open discussion within community planning partnerships about shared budget priorities. That did not erode anybody's independence of operation, but it recognised the fact that how a local authority makes its decisions about public expenditure will have an effect on how the health service deploys its resources and vice versa. Whilst recognising and respecting the independent democratic character of local government, we have tried to bring as much cohesion and synergy to the setting of shared priorities at local level as we possibly could. That is the process to try to encourage that approach. We have reinforced it by inviting the Accounts Commission to undertake reviews over the effectiveness of community planning partnerships. They have carried out a number of those reviews to assess whether or not the rhetoric of the Government is translating into good operational practice at local level. It would be fair to say that there was some encouragement in among all that, but there was also some challenge of what had to be achieved into the bargain. The national community planning group is essentially what brings together ministers, leading local authority figures, leading health board figures, police, fire, enterprise companies, the skills network of a variety of other public bodies, to monitor and to maximise the progress that we are making so that we are able to see on the ground much greater evidence of budget sharing and complementarity between the budgets of different public bodies. That is the model that we utilise. Obviously, is it perfect? I would not for a moment try to suggest that it is, but I believe that more good integrated working is now happening than was the case before. My final point on that would be to the health and social care. Previously, I was one of the few council leaders that was off the view that bringing together integrated health and social care would have been a better way, a direct resource, rather than going into the two separate authorities to pull together. I still arm off that view. Given that you were saying that the Government has protected health and local government next, is it difficult to see how much of that goes into acute, how much it goes into community, how it is fall on demand and what that relationship is with local government? The argument that Mr Rowley makes is an entirely valid argument about what is the possible channel of resources going into the health and social care partnerships. The Government took the view that, as I think that Mr Rowley appreciates, the Government has generally taken an approach that has been designed to build co-operation and consent with local government. Local government has its own democratic mandate. The Government has tried to avoid dictating and directing. We have tried to establish co-operation and collaboration with local government. Generally, we have had a pretty receptive hearing from local government, but there will be issues where local government does not agree with us. In those circumstances, the Government tries to avoid certain circumstances that we have to press ahead with our priorities, but we try to avoid that until we try to do everything by consent. If we do not have local authority leaders with us in the fashion that we have had, Mr Rowley, we generally respect that and deal with that. The questions that Mr Rowley raises about the balance between acute care and primary care and social care are the meat and drinker, the sustainability of public services, because we all know that it costs disproportionately more to support an individual in an acute hospital than it does to support somebody in their own home—probably about 10 times the amount. As finance minister, I can see the merits of an option that costs one-tenth of the money. If the person gets the care that they require in their own home and it costs us one-tenth of what it would cost us to keep them in an acute hospital, then I think that that is desirable. The only way that we will get to that point is if we have effective, really effective, joined up decision making about health and social care activity. Some people need to go into acute hospitals, of course they do, but many people do not, and the data speaks for itself. The more we can ensure that the support mechanisms are in place to support individuals in their own homes the better. Obviously, the funding formula is a responsibility of COSLA in terms of its application, but although that is a point that is often lost on certain finance conveners who tend to lay their woes at the door squarely of the Scottish Government in terms of their own individual settlements, the point was made by Lindsay Freeland of South Lanarkshire Council earlier that he felt that, essentially, the funding formula disadvantages progress on certain indicators because there would be a consequential knock-on effect to the funding that is received. Is that a concern that you would share in terms of how the funding formula applies that, essentially, it rewards those councils that do not make progress on some of the key indicators around, for example, deprivation? There can be consequences of that type in the application of the funding formula. The allocations that are made are driven by a range of indicators, and there could be a scenario—you also hear this argument put forward around some of the issues around the school of state, where different conclusions could be arrived at to try to avoid a negative outcome through indicators. That is something that we have to be very mindful of. I think that there is a counterbalance by the fact that, as was explained earlier in response to Mr Rowley's question, the Government has a shared focus with local government on making progress around a number of key factors and indicators that will comprise the national performance framework. I really would struggle to see the justification for any local authority leader trying to focus more on the preservation of budget elements or budget indicators than on delivering some of the improvements that are necessary and required within our society, as driven by our shared focus on the national performance framework. Do you take the view—I know that the formula is driven through COSLA, but do you take a view that perhaps there needs to be more of a focus on delivery of outcomes as part of the way that funding is distributed, given that that is the narrative that we are trying to drive at a national level? That would be the logical extension of the national performance framework. It is certainly an area that I would be prepared to explore that where we actually drive funding much more by the achievement of greater performance and success as a consequence of our activities. However, you would have to ensure that that was properly structured to take due account of the fact that there is a whole range of different areas on which we are keen to make progress. The national performance framework is a balanced approach across a range of different policy indicators, so we would have to have a range of priorities in mind in undertaking such an assessment. One of the other points that came up during the previous session from South Lanarkshire was that they identified that they are paying out £20 million per annum to service PFI debt on educational buildings. What figures does the Scottish Government hold around the cumulative PFI payments that local authorities are having to make on an annual basis? How does that bear down on some of the cost pressures that are being faced within the current financial climate? I do not have in front of me a cumulative figure for local authority PFI payments, but it is important to recall that PFI payments by local authorities will be one of the first calls on a local authority budget because of the contractual nature of those payments. Before a local authority thinks about doing anything else, it has to pay its PFI payments. If they are, as we know, substantial factors within local authority budgets, then that will intensify cost pressures for individual authorities. Clearly, local authorities have to make judgments on those points based on a prudential approach to the management of their finances, and they should only enter into such commitments if they have the confidence to be able to support those particular commitments. Will it be possible for your committee to get that number before the end of the week, Deputy First Minister? We will endeavour to get that too, yes? Just finally, convener, one of the other points that was raised, a point that I put to the first panel, was around the consequential impact on revenue budgets of capital expenditure and the possibility of, for example, looking at innovative means of financing. I know that the Scottish Government is driving through NPD. One of the other means that some capital projects—I am thinking particularly of social housing—could potentially be delivered would be through utilisation of pension fund investment. Is that a conversation that you have had with local authority pension funds and other pension funds around ways that they could look at reallocating some of their investments to drive some of those capital projects that would then see a return to the pension funds? It has been one of my frustrations that local authority pension funds have been less involved in committing to support public sector infrastructure than I would have believed to be the case. If we look at a project—I think of one particular example that is etched in my memory—the M80 upgrade between steps and hags, that is a PFI contract that we inherited from our predecessor, because it was an advanced stage, I decided to continue with it. In that format, it would have delayed it significantly if we had not done so. I went to the market to try to obtain about £320 million worth of investment in October 2008. It was not the greatest of time to go to the markets for investment, given all that was going on in the world. We eventually pulled off that deal, but I would have thought that that was the type of project that was ripe for local authority pension funds to support, because it was a main arterial route in Scotland. There is no way that the Government could have said, oh well, we will just put a few cones across this road, we will not use it for a little while, we will not need to pay the payments. It is an absolutely fundamental part of the infrastructure of Scotland, so the Government would have to make repayments over the years for it. Totally secure, safe, totally robust long-term investment. No pension funds. It has been something that has frustrated me that local authority pension funds have not seen their being a role for them to invest their resources in some of the long-term infrastructure projects. I think that that position is improving now, but it has been a frustration over the years. It is just really to recap and ask how the allocation to local government is compared to other portfolios over the previous spending review? Over the period since 2011-12, the Government has essentially taken forward what I would call in the face of a declining overall Scottish Government budget, a stable approach to local authority funding. If we recognise that the health budget has a particular degree of protection by the Government and we take that out of the equation, local authority share of the remaining resources within the Government's budget since 2011-12 has gone up from 55.7 to 57.2 in 2015-16. That gives a sense that when we take the health resources out of the equation, generally the local authority position has acquired a greater share of the remaining Scottish Government budget than was the case when we came to office. I jump on to the funding method. We received evidence from Renfrewshire Council that stated that the formula is not taken to account the issues of deprivation enough. I think that these are obviously matters of debate and consideration. I am sure that there will be in Renfrewshire Council a view that deprivation is not taken sufficiently into account in the formula. I am quite sure that in the island communities their view would be that the challenges of operating in islands are not taken into account enough in the formula. As I have explained in some of my other answers, it has come to an agreement with local government about how best to do this. In 2009, I asked local government what was the appetite for wider review, which would have allowed us to embark on some of the issues that Ms MacTaggart fairly raises about the perspective of Renfrewshire Council. The general view, the view that I got back from local government, with the exception of perhaps your good self, convener, is a representative of Aberdeen City Council. You were perhaps the lone voice in that debate, convener, was that local government was generally satisfied with the… Felt that where we were on the distribution formula was the fairest place to be. If I follow through the logic of what I have been saying to the committee this morning about our attitude towards local government and how we relate to local government, we are keen to make sure that we work in concert and in collaboration with local authority in addressing those issues. If local government was to set us a look that we want to re-explore the distribution formula, then the Government would be perfectly happy to consider that. I will ask you to comment on the issue of non-domestic rates and business rates. What do you intend to do about that? Do not work, so you will comment on it. In my opening statement, convener, I said that we now pay non-domestic rates to… We allocate the non-domestic rates income raised in each local authority area directly to that local authority. The local authority obtains its full benefit from the non-domestic rates income. Secondly, we have taken a number of decisions on the level and the approach to business rates, particularly with the introduction in 2008-9 of the small business bonus scheme, which was implemented over a two-year period. Our plan would be to sustain and to continue the small business bonus scheme. We have taken other decisions, some of them controversial about non-domestic rates. The application of the public health supplement was applied. I said that I would apply it for a three-year period. That period will come to a conclusion at the end of this financial year, and that will be the end of the public health supplement. As I indicated, it would be the case. We have also fulfilled our manifesto commitment to ensure that the business rates poundage in Scotland was maintained in parity with England. That has required us at certain stages to apply changes that responded to decisions that the United Kingdom Government took, for example, to cap. The business rate increases at 2 per cent, as it did last year. We have followed through on those types of indicators. Finally, the business rates incentivisation scheme was a Government commitment. We took it forward. The way in which it was constructed did not take account of some of the volatility that we were experiencing in the settlement and resolution of appeals under the valuation process. We had to revisit that, and we have now done that with the agreement of local authorities. We should be in a position to announce the conclusions of that with the local government circular in December. Stuart McMillan, please. Good morning, Deputy First Minister. Congratulations on your appointment. I asked the Moray Council in the previous session regarding the non-domestic rates recovery, because it had something in the submission. It suggested that the delay of six months before the current attempt to recover any money is too long at timescale. I further asked the three chief executives in terms of the contact that the Scottish Government had on that particular point, and it turned out that it did not. However, the whole issue of the six months delay, is that something that the Scottish Government is looking at to assist local authorities? We have not looked at—we have to an extent explored this in the 2013 consultation on business rates. The recovery timetable was raised with us by COSLA. The Government responded saying that there were issues that we were prepared to consider, and I would certainly be very open to exploring some of those issues. We are very clear that it is important that the resources to which local authorities are entitled through proper charging for bills are entitled to see, and they are entitled to see timiously. If there are ways in which we can assist local authorities in trying to recover those sums, we would certainly be happy to do so. On business rates, the one caveat that I would put into that is that, from time to time, businesses will have to take care of their payments and issues that can affect their sustainability. Providing enough discretion in the system so that sensible judgments could be applied to businesses that might be facing a delay in cash flow issues, providing sufficient account was taken of that in the system, I would be very prepared to consider those issues. In the earlier session, I posed the question regarding the census figures. The Edinburgh City Council on their submission indicated that, as a consequence of the overestimated population for the city, it received more money in the funding allocation, but, after the 2011 census figures, the growth was not as expected, so it was receiving a reduction in figures in the sum going to it. On the flip side of that, there may be local authorities whose population growth has been underestimated and, as a consequence, they might be receiving a shortfall in moneys. What actions would the Scottish Government undertake to assist local authorities if any are in that particular position? It is quite a difficult issue, because we get a number of population estimates, and, as we know full well, they are not always accurate. The population of Scotland was predicted to be heading well below £5 million, and it is now sitting at £5.3 million, so there is one estimate that was way off on that question. Obviously, when you start drilling that down to individual local authorities, the room for error is very significant in getting those things wrong. We use the most up-to-date information that we have available at any individual settlement, and, if new information comes to hand, that gets revised over the course of time. The financial management of the consequences is a matter for individual local authorities. That is why local authorities are able to hold reserves, so that they can take due account of the changes in circumstances or the volatility that may emerge that they need to address as part of their activities. We use the best available information that we can, but there may well be a necessity to revise that at different stages. First Minister, you mentioned local authority reserves. Obviously, a number of local authorities are running quite substantial levels of reserves at present. Do the Scottish Government take a view on deployment of reserves and levels of reserves, particularly given that, as we enter into the austerity phase 2, many local authorities should probably be looking at drawing down some of those reserves to prepare services for the worst that could be to come from Westminster austerity? There is a prudential judgment to be made by individual local authorities on the appropriate level of reserves to be undertaken. The Accounts Commission will have established guidance, let it be through the Accounts Commission or Audit Scotland, on the appropriate level of reserves that should be held. Obviously, local authorities, in some circumstances, will hold reserves in excess of that because they are holding a reserve for a specific purpose. They may also have reserves in particular housing revenue accounts, which have particular purposes and constraints applied to them. There will be a variety of circumstances in which a local authority would hold reserves greater than the recommended level from the Accounts Commission. Ultimately, that is a judgment for individual authorities, but, of course, some authorities will have used reserves to support some of their service transformation programmes to ensure greater sustainability in the long term. Of course, that is a very sensible utilisation of reserves to be taken forward by local authorities. Thank you, convener. Good morning, Deputy First Minister. I also congratulate you on your new role and look forward to working with you as part of this committee in the future in scrutinising the budgets of local authorities. On the issue of local authority budgets and to follow up that last question in terms of cash reserves held by local authorities, I am aware that, in the past, Deputy First Minister, you have offered a facility to local authorities of additional borrowing consents in relation to meeting their equal pay and single status commitments. Could you outline or give us an update in relation to how the equal pay and single status settlements are going and whether or not there are any discussions regarding a further additional borrowing that might be required by local authorities to meet the latest round of commitments in relation to equal pay and single status? I am not in receipt of any request from local authorities for further borrowing facilities. Obviously, in those borrowing facilities, I am only able to make available under the current arrangements with the consent of Her Majesty's Treasury. If my memory says that we are right, on any occasion I have gone to the Treasury to ask for such facilities, I have been given those facilities. That has mainly been at the same time as the Treasury is making such facilities available to local authorities in England. Not all requests have been approved by me because of the tests that I apply to the wisdom and the merits of those applications and whether they constitute appropriate examples for borrowing purposes. However, if local authorities had any issues in relation to that particular question, I would be happy to consider those representations and, if I were satisfied by their terms, to make representations to Her Majesty's Treasury. One of the other issues that comes up, Deputy First Minister, is the issue regarding the council tax freeze and a number of local authorities on an annual basis. In one respect, they condemn the council tax freeze, on the other hand, and they welcome the council tax freeze. In relation to the figure that has been set aside in increasing figure each year of £70 million, is that sustainable in the longer term? Is there any light at the end of the tunnel in relation to the continued use of the council tax freeze and additional resources being freed up by yourself to allow local authorities to meet what local authorities argue is increasing demands on services that are not being directly met by the monies being made available through the council tax freeze settlements? The Government has a manifesto commit. Mr Wilson will be aware to continue the council tax freeze during the lifetime of this Parliament, and we have put in place the measures in 1516 to enable us to fulfil that commitment. I encourage local authorities to take the decision to freeze the council tax. It is, of course, their decision. It is not one that I can impose on local authorities, but what we do is compensate local authorities for the revenue for gone and we have done that in all circumstances. Obviously, there will be debates about the effectiveness of this, but we have to take into account the fact that this has provided real, tangible support to householders after a period in which the council tax had increased very significantly. The key part of the agreement that we reached with local government is that the Scottish Government would compensate local authorities for the loss of revenue as a consequence of the council tax freeze. Deputy First Minister, one of the issues that has been raised with us is the issue of the flat cash settlement, as local authorities have described it. One of the areas that the Scottish Government hoped would offset the flat cash settlement was the issue of the INDRI and the expected increase in income through those means. Clearly, the latest figures that we have show that we did not achieve as much in terms of collection through the non-domestic rates revenue that was expected. Have you taken any account of, in the budget, if there is a failure to collect by local authorities the rates that were predicted to be collected? Would local authorities be compensated if the calculations were wrongly attributed to local authorities? The first thing that I would make is just on the description of the local government settlement as flat cash. I hear those shorthand statements, but the local authority budget was £10.6 billion in 2014-15. It will be £10.8 billion in 2015-16, so there is nothing flat about that. It has gone up to £200 million. I have no intention of shooting the messenger. I am merely pointing out that I hear those words getting shared around and that the budget is actually going up. On the question about non-domestic rates income, I think that I said in my earlier remarks that the Government assures, guarantees local authorities for the non-domestic rates income. If there is a shortfall, then it is a shortfall that I have to make good. As I said in my statement to Parliament when I announced the budget, over the years in which I have been making an estimate of non-domestic rates income, if the committee will bear with me for one second, I shall try to find the reference in my statement to Parliament. Between 2008 and 2014, the difference between the total amount of non-domestic rates income received and the estimated budget that I had put in place was three-tenths of 1 per cent, £40 million out of £13.1 billion. I had underestimated that. We have a surplus, which is always nice to have. We put a lot of effort into trying to forecast, in co-operation with local authorities, some of the levels of non-domestic rates income that can be achieved, but we provide that guarantee to local government in the bargain. Thank you very much for the question. I asked the previous panel the question round about the statement that was made by the president of COSLA, who, in a paraphrase, said that the local government here was getting a fair deal compared to councils south of the border. Would you like to comment on that, Deputy First Minister? What I would say about that is that it is nice to hear, but he does not always say that when he is in the room with me. I will look carefully at COSLA's press cuttings, but it is certainly to be fair, but I have to say that I have, in the course of my discussions with the local authority leaders in Scotland, I have always found local authority leaders to put forward a considered case about the financial situation of local authorities, but I have also found them prepared to accept the fact that the Government wrestles with difficult financial challenges, as well as local authorities wrestling with difficult financial challenges, and to come to agreements around that. It has been an issue of great personal satisfaction that, since 2007, we have been able to reach an agreed settlement with local government about its financial support, which my period is an opposition member in Parliament. I never once witnessed an agreed local authority settlement between the Scottish Executive and local government, so it has been a particular priority to try to achieve that. I am glad that we have been able to do so. I am sure that COSLA members will be glad to hear that Mr O'Neill is a good negotiator in the room. I thank you very much for appearing here today. I know that there was a clash of commitments today with your Smith commission obligations, and we are very grateful that you managed to come at this time. I now suspend and we move into private session.