Scotland Finance

Cuts to services or council tax freeze: The choices now facing councils

LGiU Scotland Associate George Black explores the financial choices local authorities face in the wake of the recent budget announcement. 

The announcement that Scotland’s local authorities are to benefit from an additional £160 million of investment will have come as a surprise to many, if not all, in local government. After all, the Finance Minister had previously rejected Labour’s claim that £327 million was being cut from Councils’ budgets, maintaining that an extra £240 million of funding and revenue was being invested in local services.

However, with no overall majority in the Scottish Parliament, the SNP Government was always going to have to cut a deal with one of the Opposition parties, most likely the Greens or the Lib Dems. So the surprise wasn’t that there was a deal, or that it was with the Greens and not the Lib Dems, but rather that the deal delivered more resources for local government.

But, of course, there are local Council elections this May, so maybe we shouldn’t be so surprised after all.

But what does this mean now for individual Councils, and what does it mean for Council Tax bills?

At this late stage, Councils should have already squared away their budgets for 2017/18, including what services are to be cut, how much reserves will be used, and the level of any Council Tax increase – although most of that won’t have been made public. So these plans will now have to be quickly re-visited.

The additional £160 million includes £30 million of capital, leaving £130 million of revenue funding available for use. I would be surprised if any Council was to re-visit the level of reserves they plan to use, although that option cannot be ruled out. Instead, it is more likely that the debate will be about whether to continue with particular cuts, or whether to now freeze Council Tax. The cost of a Council Tax freeze would be around £70 million so the option is there for all Councils to freeze Council Tax if they choose to do so.

But, with elections in May, local politicians will also be calculating who is going to get the credit from voters for any Council Tax freeze. With justification the Greens would appear to be at the front of the queue. After all, the additional Council funding was a concession they managed to extract from the SNP Government. Councils that have already indicated a 3% rise will now have some difficulty in taking the credit for a freeze, although that doesn’t mean they won’t try. One exception may be South Lanarkshire who announced that they would freeze Council Tax before the original financial settlement was even announced.

But, of course, there is another side to the argument. The Greens also demanded no changes to income tax thresholds. So, while voters earning more than £43,000 may welcome a freeze in Council Tax, they may not welcome paying more Income Tax than in England and Wales. And many of these voters will be in homes with a Council Tax band of E, F, G or H so will see their Council Tax bills rise by between 7.5% and 22.5% depending on their banding.

So, taking the credit may not be as straightforward as it first seems.

And, finally, what does this mean for the next two years which are likely to be much more testing for the SNP Government to balance the books. Pressures on Health (and Social Care) services are likely to intensify over this period and local government will once again be the obvious target for cuts. And, with the SNP Government having already played its Income Tax threshold card the options will be much more limited.