In 2014/15 total gross revenue expenditure by local government in Scotland was £17.1 billion.
Local authorities in Scotland receive their income from a variety of sources, as outlined in Table 1. The biggest by far is the grant from central government . However, money is also received from local taxes (council tax and non-domestic rates) and customer & client receipts.
With the council tax freeze and non-domestic rates set centrally and redistributed, the only funding stream over which councils have complete control is customer & client receipts, which amounted to £2.4 billion in 2014/15. As a result, councils only have complete control of about 14% of their income streams.
The main source of revenue income for local government is General Revenue Funding, (formerly referred to as the Revenue Support Grant). General Revenue Funding (GRF) is paid by the Scottish Government in support of local authorities’ general net revenue expenditure.
Non-Domestic Rates (NDR) or business rates are taxes on property payable by businesses. Bills are calculated by multiplying an assessed value for a business property by a non-domestic poundage rate. The rates normally apply to premises which are not classed as domestic properties. If a property is used for domestic and non-domestic use, such as a guest house, both council tax and business rates need to be paid. The rate is set centrally in Scotland. Since 1990 and the creation of the UBR (Uniform Business Rate) business rates have been set by central government, collected by local government, passed to the centre and redistributed to local government on the basis of adult population. As a result, the amount of income from business rates received by a council bears no relation to the concentration of business property in its area and is basically part of the council’s grant rather than being income over which they have any control.
Council tax is set by each local authority with eight bands based on the value of the property in 1991. Although there has been no mass revaluation of property since 1991, if improvements are made on a property, once that property has been sold, it may be re-valued. Houses in Band A pay two thirds of band D and one third of band H. The tax assumes there are at least two people living in the property so a 25% discount is available to households where only one eligible adult is resident.
However, following the election of the SNP in May 2007, the Scottish Government announced that it was seeking a new relationship with local authorities in Scotland which would see greater freedom for councils over spending through the removal of ring-fencing in return for a freeze in Council Tax. In November 2007, the Cabinet Secretary for Finance and Sustainable Growth, John Swinney, and then President of the Convention of Scottish Local Authorities (COSLA), Pat Watters, signed a new concordat introducing that new relationship. As a result, the level of grants to local authorities which was ring-fenced for specific purposes was cut significantly. Councils were also to be allowed to retain any efficiency savings, rather than their being diverted to Holyrood. However, in return, individual local authorities had to agree to freeze their level of council tax, effectively removing control from councils over the one tax they had at their disposal. This council tax freeze remained in place for the length of the 2007-2011 parliament. In December 2011, agreement was reached between local authorities and the Scottish Government to continue to freeze Council Tax and, as a result, bills have been frozen at 2007/8 levels for eight years.
Following the 2016 Scottish elections, the council tax freeze will end from April 2017, with increases limited to 3%. Further changes will see council tax bands E-H rise from this point.
Sales, rents, fees and charges (also referred to as customer and client receipts):
Local authorities receive income from sales, rents, fees and charges as a result of providing services. These services are wide-ranging in nature, as is the amount of income associated with each service. Local authorities are responsible for setting and collecting these charges and they retain them.
Table 1: Local Government revenue income by source, from Scottish Local Government Finance Statistics 2013/14, published in 2015
|General Revenue Grant1||8,149||45.09%||7,790||42.83%||7,782||42.48%||7,225||43.03%||7,167||41.88%|
|NDR distributable amount||2,068||11.44%||2,203||12.11%||2,297||12.54%||2,436||14.51%||2,650||15.49%|
|Customer & Client Receipts3||2,172||12.02%||2,287||12.57%||2,330||12.72%||2,317||13.80%||2,371||13.85%|
|SG Capital Grant used to fund grants to third parties||68||0.38%||224||1.23%||131||0.72%||125||0.74%||57||0.33%|
|Total revenue income||18,073||18,188||18,320||16,790||17,113|
|1. Figures for 2013-14 are not comparable as prior years include income relating to police and fire joint board expenditure.|
|2. Council Tax Reduction (CTR) was introduced from 1 April 2013 to replace Council Tax Benefit (CTB), which has been abolished by the UK Government as part of its welfare reform programme. CT figures pre-2013 include council tax benefit, whereas figures after this date di not include the Council Tax Reduction|
|3. Local authorities receive income from sales, rents, fees and charges as a result of providing services. These services are wide ranging in nature, as is the amount of income associated with each service|
|4. Other income is mostly composed of grants and subsidies received from central government and other parts of the public sector.|
Table 2: Redistribution of Business Rates, 2014/15, from Scottish Local Government Finance Statistics 2014/15, published in 2016
|Non-Domestic Rate income collected by each council (£000s) 14/15||Non-Domestic Rate Income redistributed to each council (£000s) 14/15|
|Argyll & Bute||30,036||31,002|
|Dumfries & Galloway||42,395||48,474|
|Edinburgh, City of||344,628||364,108|
|Perth & Kinross||51,732||55,415|
Reform Scotland Publications:
Localising Local Tax, August 2015
Improving Scotland’s Business Environment, June 2015
Renewing Local Government, May 2012
Local Taxes, March 2012
Planning Power, February 2011
Local Power, June 2008
The Commission on Local Tax Reform
Commission on Strengthening local Democracy
Scottish Local Government Finance Statistics
The Scottish Government’s local government pages
Scottish Government & Local Government concordat 2007
Single Outcome Agreements 2013