Local Government Fiscal Constraint in Scotland: Risk and Resilience
Rob Richardson
In September 2024, the Centre for Public Policy brought together government, the voluntary sector, and academic expertise from across Scotland for a roundtable discussion. Our aim was to understand how local government in Scotland is responding to the current challenging fiscal context, and to share perspective and practice on the potential ways forward through difficult times. Participants were asked to consider two broad themes of ‘risk’ and ‘resilience’, to identify the key risks faced by local government and consider ways in which those risks could be mitigated.
Several key ideas emerged from the roundtable, which are summarised here.
The roundtable highlighted consensus that local government had acted as a shock absorber for ongoing austerity for too long – with serious detrimental impacts upon staff, services, and communities. The current scenario in which public services operate in near-perpetual response to crises is not sustainable. It requires a much more forward-looking response to addressing the structural causes of poverty and inequality through long term, preventative policy.
The sustained fiscal constraint affecting government in Scotland, as across the UK, is raising questions about the fairness of fiscal arrangements at a devolved, regional and local level, and whether they provide sufficient flexibilities. In Scotland, these debates have been exemplified through several flashpoints in recent times, including the Scottish Government’s announcement in October 2023 that it would be freeze local Council Tax for 2024-25, and its imposition of emergency spending measures in September 2024 to ease ‘enormous’ pressure on public finances.With increasingly difficult decisions over how to spend scarce public funds being made, there is growing evidence that cuts to services have disproportionate impacts on some of the most marginalised communities, particularly those affected by simultaneous cuts to multiple services. How these cumulative impacts are considered during decision-making is increasingly important, given the growing pressures on local government spending. As this piece highlights, it also raises key questions over the very nature and purpose of public services.
Prevention and health creation
The urgency of embedding prevention within public services, both for efficiency and effectiveness of outcomes, was consistently raised. This is nothing new, having been a key recommendation of the major Christie Commission on the future delivery of public services in 2011. However, limited progress has been made, and as a result, already vulnerable communities are being set up to fail by a lack of investment in prevention. Prevention means directing spending towards the root causes of social problems, such as tackling poverty or encouraging healthier lifestyles, to reduce the need for spending once problems have occurred. Given the strength of evidence around the social determinants of health, including housing and transport accessibility, significant improvement is needed, through more proactive investment in health creation. It must also be recognised that as public services are intended to reduce inequalities, eroding public services through cuts will only increase inequalities.
The Marmot principles for tackling health inequalities were suggested as a basis for reversing this trajectory, which Coventry City Council has embedded as a means of developing its services. Likewise, working at a community level to empower and include those in communities to build resilience can enable appropriate support to be directed at those with the greatest need – identified by communities themselves. An example of innovation in this area is the Wigan Deal, a model of community engagement and empowerment driven by a local authority. To scale these innovations up, a rethink over how public services are structured and delivered is needed. The roundtable discussed how government endeavours to tie services together do not reflect people’s lived reality, and that designing services around the family or community would be more effective.
Inter-governmental working and its impact on funding constraints
The roundtable agreed that although Scottish Government policy on areas such as welfare and education is often ambitious and well-intentioned, this is not matched by resource and implementation. The relationship between the Scottish Government and local government has become increasingly strained in recent years – as the Centre for Public Policy explored in a Policy Lab in March. Perceptions within local government are that it has increasingly been viewed as a commissioning or service delivery vehicle by the Scottish Government, rather than as an entity with agency to respond to its own citizens. The Verity House Agreement between the Scottish Government and COSLA agreed in June 2023, which aimed to address some of these issues, has not reset relations in the way that had been hoped – especially after the Scottish Government’s subsequent decision to freeze local council tax without the agreement of local government in October 2023.
Local authorities report having limited discretion over key funding decisions, as approximately 60% of their budget is required ‘directed spend’ set by the Scottish Government on protected areas such as health, education, and social care. New funding allocated by the Scottish Government also typically supports the delivery of specific programmes, and local authorities have very limited options for raising revenue themselves. Beyond council tax, initiatives being muted such as a visitor levy are expected to be insufficient, leaving local authorities with minimal discretion to budget in response to local circumstances.
Through COSLA, local government has been negotiating a ‘Fiscal Framework’ with the Scottish Government with the aim of providing multi-year funding certainty to support strategic planning and investment by local government. However, progress has been slow, and agreement looks some way off. The Scottish Government’s relationship with the UK Government is another important and underexplored influence on (local and national) government agencies in Scotland, including (but not limited to) funding allocations through the Barnett formula being shaped by UK Government policy priorities.
Our roundtable reflected on the need for a renewed partnership and shared understanding of these relationships and fiscal arrangements, across actors and scales of government. There currently exists a cluttered and competitive landscape, with multiple overlapping layers, leading to absence of trust and lack of shared purpose.
Redesigning public services
Many of the issues discussed in the roundtable have existed for some time. They are being brought to the fore by decisions driven by the current fiscal context. The challenges are as much cultural as they are structural, and the roundtable found a desire to revisit the ‘first principles’ of public services in Scotland. The roundtable posed a question for all those in leadership positions to consider: What are public services aiming to achieve? And how can they be delivered with the resources available? The Scottish Government’s ongoing Local Governance Review provides an opportunity to debate these issues.
This could be the starting point for a potential redesign around the structural conditions which reproduce poverty, rather than a system based on individualised end services, as at present. In addition to investing in health creation, this could involve more creative models of service delivery – such as the European Barnahus model for multi-disciplinary and inter-agency interventions centred on the child, incorporating law enforcement, criminal justice, child protective services, and medical and mental health under one roof. The Vibrant Communities initiative in East Ayrshire was raised as another example, which combined early intervention, community empowerment, and community asset transfer, reflecting the findings of the Christie Commission.
Participants made an important distinction between the public sector and public services, with the latter incorporating the significant contributions of the voluntary sector. We heard from voluntary sector representatives in the roundtable that the sector often feels undervalued and under resourced, with insufficient voice in decision-making and insecure funding streams. Participants noted that to some organisations it feels like the sector is a ‘cheap option’ for public service delivery by local government, with burdensome accountability mechanisms which are a barrier to sectoral organisation and engagement with local authorities. This also creates challenges for the continuity of services and undermines the voluntary sector’s campaigning role and its impact on reducing the stigma on accessing public services. Service design processes would benefit from a greater role for the voluntary sector, which could privilege the voices of people who access and deliver services in communities, but are not represented enough currently.
Finally, and as the previous points suggest, existing decision-making and delivery frameworks are felt to be ineffective for challenging or mitigating inequality and reducing poverty. Equalities and human rights frameworks such as the Public Sector Equality Duty, Equality Impact Assessments and the Fairer Scotland Duty (FSD) are typically seen as a cumbersome secondary requirement as opposed to productively shaping how public services are structured and resourced, meaning they are consistently underused. Indeed, a 2021 report by the Equality and Human Rights Commission (EHRC) found that the FSD is yet to have a major impact on decision-making. The EHRC has advocated for better embedding human rights within public services more widely, for example, through a series of principles for social care.
Findings from IPPO’s research in England
The roundtable also heard findings from IPPO’s series of workshops with New Local. The situation for local authorities in England is similar in many ways, given the common resource challenges, albeit within a different governance landscape.
Short-term funding cycles were felt to impede long-term planning for local authorities in England, while demographic pressures from an ageing population are also threatening sustainability – although this is more imminent in Scotland. Likewise, in common with Scotland’s recent experience, emphasis on prevention within public services in England has yet to fundamentally alter practice. IPPO’s workshops found a lack of shared understanding over what prevention is, and the difficulty of demonstrating that up-front investment will lead to long-term cost savings, to be significant barriers in this regard.
Several informative examples of innovative practice were identified in response. Local authorities are pursuing plans for community wealth building, for example through proactively supporting local supply chains. Camden Council’s mission-led procurement initiative aims to contribute to the council’s wider estates mission through the procurement of individual services, for instance. Similarly, councils are increasingly looking at insourcing to deliver services in areas of weak markets, and shifting towards neighbourhood-focused services through community hubs, better utilising existing assets and anchor institutions. Aligning with our roundtable in Scotland, IPPO’s work in England found an increasing emphasis on the need for local government to take a whole-system approach to public service delivery. Ending siloed working and developing deeper community insight was felt necessary to work more effectively and efficiently, as part of a system built on stronger local discretion – a key theme in Scotland. A common thread of returning to ‘first principles’ about the purpose and role of public services resonated in both countries. IPPO’s work with English public servants and researchers also found that the current situation is raising practical and ideological questions about the very purpose and role of local government and public services.
Emerging questions and implications
Our roundtable was structured around the themes of ‘risk’ and ‘resilience’ – aiming to capture the risks to communities from the current fiscal pressures on local government, and how the system of public service delivery could be better designed and equipped to support those people.
Evidently, cuts to local government spending mean it is becoming increasingly likely that support does not reach those who need it most. Change is needed; although this will be far from straightforward given resources available and challenging intergovernmental relations. Work in both nations agreed that change arguably does require revisiting the first principles for public services, and what they should achieve. Among other ideas, our roundtable suggests that delivery processes should end siloed working, develop community infrastructure, and support a more empowered voluntary sector.
Amid widespread feeling that the fundamental aims of public services are not being fulfilled, this may provide the moment for a collective effort towards reform. Our roundtable suggests that first and foremost, this must be based on a shared understanding of the problems.
Other outputs from this work package can be accessed as follows:
Findings from IPPO workshops with New Local
Centre for Public Policy blog on the impacts of budgetary decision-making
Centre for Public Policy blog on local government fiscal sustainability in Scotland