Scottish public funding - fair or needed?

Wed 23 September 2015

A report on local government funding was published yesterday by the Scottish Parliament Information Centre (SPICe). The BBC and the Scotsman, amongst others, reported on these two findings:

  • The funding of local government as a percentage of the central Scottish government budget has not significantly decreased.
  • The Scottish government has adequately funded — in fact "over-funded" — councils for its council tax freeze.

My previous analysis of data from the same source came to a conclusion that apparently contradicts the first point. Also, I wasn't convinced on the second point because it relies on a comparison with council funding growing with inflation (RPI), but does not address growing population with growing needs due to aging and schooling. What follows is my interpretation of the data.

Local government funding

Local government funding refers to the money given to the councils by the central Scottish government. What local government can spend is determined by this amount plus what they collect in council tax (and a small amount of revenues and funding from other sources).

Source From the spreadsheet associated with the SPICe Local government finance 1999-2016 report. Note 2013-14 is estimated, and 2014-15 and 2015-16 are budgeted values.

This graph shows the funding of local government from central government over the history of the Scottish parliament. The figures are in real terms, i.e. inflation adjusted to be in 2015-16 prices. For the first decade local government funding rose, peaking at £13.0bn in 2009-10. It then fell to a minimum of £11.5bn in 2013-14 and is budgeted to rise to £11.9bn in 2015-16.

From 2013-14 police and fire services were brought under central government control and so for that financial year onwards approximately £1.5bn of local government funding is included so we can easily make comparisons with the past.

Impact on council services

The graph tells us that real terms local government funding was cut by over £1bn in recent years and is now sitting at the level it was at in 2004-5 — about £12bn. Since then the population of Scotland has increased by 280,000 or 5%. Not only that, but a large cohort of people are moving into old age putting a particular strain on council services. For example, the number of people aged 90 or over was 27,808 in 2004 and 41,838 in 2015, a rise of 50%. Demand for education is increasing too, with the number of children aged under 10 having risen by 5%. These data are from the National records of Scotland.

To keep services at a constant level given these demographics council spending should have risen, perhaps by 5% or even more given the aging population and their care needs. The fact that there has been no increase is likely to cause resources of councils to be stretched, increasing the load on staff such as teachers and carers.

Percentage of central government spending

The SPICe report looked at local government funding (shown in the last graph) as a percentage of the Scottish government budget. Importantly, they didn't calculate the percentage of the total budget (known as Total Managed Expenditure or TME), but the sub-total over which the Scottish government has devolved control (referred to as DEL+NDRI). They found that this percentage did not significantly decrease over time. This means that the central Scottish government funding of local government has not lost out in its share of the budget compared to other areas, such as health or justice. The blue line on the graph below shows these percentages — they are identical to those provided in the SPICe report (Figure 1 and Table 1).

Source Local government and DEL+NDRI data are from the spreadsheet associated with the SPICe Local government finance 1999-2016 report. Data on TME is extracted from various Scottish Government draft budget documents. No single source of Scottish TME is available and I couldn't find figures for 2001-02 and earlier. Note 2013-14 is estimated, and 2014-15 and 2015-16 are budgeted values. Full detail can be found in this spreadsheet: download as ods or xlsx.

The red line on the graph plots the local government funding (shown in the first graph) as a percentage of TME. Specifically, it is the amount shown as the "Total Scottish Government Budget" in each year's draft budget. Despite the name "draft" these budgets are definitive and are in fact approved by a vote on a Bill at the Scottish Parliament. To see these figures in full context see, for example, Annex G in the 2015-16 draft budget document.

As you can see, the choice of how you measure the Scottish government budget has a noticeable effect on the trend in the percentages: unlike the blue line, the red line has been decreasing since 2006-07.

The SPICe conclusion based on the blue line was (page 3):

"Over the period 1999 to 2016, local government's share of the Scottish Government budget...has decreased by only 0.2% to 36.0%."

My conclusion based on the red line is:

"Since 2006-07, local government's share of the total Scottish government budget has been decreasing. It was 35.8% in 2002-03, peaked at 37.6% in 2005-06 and in 2015-16 is expected to be 31.9%."

There's actually no contradiction here though — we need to understand what these two sets of percentages are measuring.

Fair or needed?

The SPICe report's conclusion shows that the Scottish government's allocation to local government is fair in the sense that it is historically consistent with what they and previous governments have done in allocating the budget under their devolved control. This means that the UK government cuts are reflected in the Scottish budget (specifically in DEL) and those cuts are passed on proportionately to the councils.

The percentages I've provided are of the total Scottish budget, or to give it's full title, the Total Managed Expenditure (TME). TME is larger than the measure of the Scottish budget that the SPICe report used (DEL+NDRI) because it includes money that's earmarked for specific purposes such as welfare, tax credits and public sector pensions — this amount is called Annual Managed Expenditure (AME). AME is demand-led which means that the TME total reflects the needs of the population.

This allows us to resolve the apparent contradiction with the percentages. The decreasing red line on the above graph is telling us that council funding from central government is not reflecting the increasing needs of the population. This accords with the points made above about increased demographic pressures on council budgets. The fact that the blue line is not decreasing just tells us that the Scottish Government is allocating budgets in the same way as has been done in the past.

Political comment

I believe we should judge a government on how it serves the changing needs of the population and not on historical consistency in spending patterns. And in making this judgment we should realise that power is being centralised in the Scottish government: obviously in the case of the police and fire services, but also implicitly by using a council tax freeze to control what local government can raise and spend. Although the current funding cuts are due to the austerity policies of the UK government, the Scottish government is not using its powers to alleviate them and is preventing local government from using its powers by imposing the council tax freeze.