Local Government Finance Fact Sheet

Structure:

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.

Revenue Grants:
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:
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:
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.

Key Statistics:

Table 1: Local Government revenue income by source, from Scottish Local Government Finance Statistics 2013/14, published in 2015

 £million 2010-11 2011-12 2012-13 2013-14 2014-15
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%
Council Tax2 2,298 12.72% 2,301 12.65% 2,319 12.66% 1,978 11.78% 2,022 11.82%
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%
Other Income4 3,317 18.35% 3,382 18.59% 3,461 18.89% 2,708 16.13% 2,846 16.63%
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
Scotland 2,511,290 2,649,500
Aberdeen City 193,214 192,684
Aberdeenshire 85,722 85,901
Angus 26,551 28,033
Argyll & Bute 30,036 31,002
Clackmannanshire 16,645 12,918
Dumfries & Galloway 42,395 48,474
Dundee City 67,150 58,704
East Ayrshire 291,153 31,060
East Dunbartonshire 23,398 24,901
East Lothian 23,237 25,172
East Renfrewshire 14,374 15,151
Edinburgh, City of 344,628 364,108
Eilean Siar 7,002 7,046
Falkirk 67,286 74,307
Fife 152,736 158,661
Glasgow City 350,888 363,061
Highland 110,516 124,210
Inverclyde 20,309 22,707
Midlothian 27,871 29,013
Moray 33,268 33,370
North Ayrshire 38,495 40,197
North Lanarkshire 109,884 118,797
Orkney Islands 8,620 9,604
Perth & Kinross 51,732 55,415
Renfrewshire 81,981 106,316
Scottish Borders 29,091 31,013
Shetland Islands 16,578 17,602
South Ayrshire 39,792 43,134
South Lanarkshire 266,873 297,292
Stirling 41,920 32,586
West Dunbartonshire 75,608 78,548
West Lothian 84,334 88,513

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

 Further Reading:
The Commission on Local Tax Reform
Commission on Strengthening local Democracy
Cosla
Scottish Local Government Finance Statistics
The Scottish Government’s local government pages
Audit Scotland
Scottish Government & Local Government concordat 2007
Single Outcome Agreements 2013