Local Government Committee
Inquiry into Local Government Finance
Initial UNISON Evidence
UNISON believes that the aims of Scottish local
government finance reform should be to:
- strengthen local accountability
- provide for adequacy in supporting councils' revenue
and investment needs
- ensure fairness between authorities taking account of
different population needs and revenue raising capacity
- enable adequate forward planning
- protect against sharp cash reductions
In supporting these aims of reform UNISON supports:
- a better balance in funding from central and local government
- a reformed council tax system with bands added at the
top and bottom
- a regular review of council tax bandings
- the return of business rates to local councils
- relaxation in the capping powers of Minister
- the continuation of the council tax as the main way of
- giving freedom to local councils to raise revenue in other
ways in addition to the council tax
- the possible introduction of a hotel bed tax
- the treatment of second homes in the same way as main
- an end to hypothecation and challenge funding
- greater openness and transparency in Scottish local government
finance at Scottish and local levels
UNISON is strongly opposed to the use of PFI/PPP
in Scottish local government for the following reasons:
- this is a more expensive way of procuring capital projects
priorities in local government expenditure are being skewed
- it is having a detrimental impact on local government
workers jobs, pay and conditions of service
- it is resulting in the privatisation of Scotland's
local government services
the system of PFI/PPP is clouded in secrecy
If PFI/PPP is to proceed UNISON believes that
services should be excluded with staff continuing to be employed
by local government
INQUIRY INTO LOCAL GOVERNMENT FINANCE
INITIAL UNISON EVIDENCE
UNISON is Scotland's largest union with 80,000
members employed by Scottish local government. In addition many
thousands of our members are employed by the voluntary sector
and joint boards and are reliant on local government funding.
UNISON is therefore the largest representative organisation
of local government employees, directly and indirectly, and
we trust that our response will be given due weight as a major
UNISON warmly welcomes the decision of the to
undertake a major inquiry into local government finance and
we are confident that the Committee's inquiry will be both
thorough and independent.
UNISON is itself presently undertaking a review
of our detailed policy in relation to local government finance
and the following is our preliminary evidence to the Committee.
We are commissioning academic research into various issues relevant
to your inquiry and it is our intention to submit more detailed
written evidence to the Committee at a later stage. We would
also welcome the opportunity of providing oral evidence to the
2. The Case For Reform of Local Government
UNISON believes that the system of local government
finance in Scotland is long overdue for reform.
UNISON is concerned that for too long local government
has suffered from the effects of year on year cuts in funding
coupled with restraints on freedom of action. The effects of
persistent neglect can be seen in declining local services and
under investment in staffing and infrastructure. Tackling these
problems will require imagination and initiative together with
the resources to really make a difference.
UNISON believes that the aims of Scottish local
government finance reform should be to:
- Strengthen local accountability
- Provide for adequacy in supporting councils' revenue
and investment needs
- Ensure fairness between authorities taking account of
different population needs and revenue raising capacity
- Enable adequate forward planning
- Protect against sharp cash reductions
3. Balance Between Central and Local Funding,
The Council Tax and the Non-Domestic Rate
Scottish local government currently raises too
small a proportion of its total expenditure, approximately one
fifth. If we are serious about the task of restoring local democracy
and rebuilding local services, UNISON believes that local government
in Scotland should be responsible for raising around 50% of
its own revenue. A more equal balance between central and local
funding is preferable and would enhance the fiscal responsibility
and the degree of accountability of local councils. We accept
that there is a continuing role for central funding of local
government to ensure a fair distribution of resources to take
account of factors such as deprivation.
UNISON believes that the council tax system, which
replaced the poll tax, has acquired a large measure of acceptability
and that it appears to be generally well understood. We believe
the reason for this is the more progressive nature of the council
tax (certainly as opposed to the poll tax) but we would like
to see this improved by adding new bands at both the top and
bottom. At the moment the average bill per pound of property
value falls as property values rise, and we would like to see
this addressed. Alongside measures to improve the progressiveness
of council tax UNISON would also support the need for regular
revaluations which would help to improve the fairness of the
tax. We think these are both important measures which are needed
to help retain and enhance the credibility of council tax in
the eyes of the public.
Local businesses should be brought closer to the
discussions on, and resourcing of, local services. It has been
a major failing of the non-domestic rate that it has helped
to separate local government from local businesses. To address
these failings we would urge the Committee to support the return
of the business rate to local authority control.
UNISON is disappointed that the Scottish Executive
is continuing to maintain reserve capping powers. While we welcome
the abolition of crude and universal' capping we
believe this, in itself, is insufficient. Councils should ultimately
be accountable to their local electorates rather than to central
government. That is the essence of local democracy.
4. Alternatives to the Council Tax
UNISON supports the continuation of the Council
Tax as the main way revenue is raised by Scotland's local
UNISON believes that local government should also
have the freedom to raise revenue in a range of other ways.
We would emphasise that these other ways should be in addition
to the Council Tax rather than as an alternative to it. We believe
the principle of flexibility is key. What may be appropriate
for one local authority might not be appropriate in another.
UNISON would ask the Committee to consider the
option of a hotel bed tax, to be implemented at the discretion
of local authorities. Large amounts of public finance are often
invested in events and projects designed to attract tourists.
The beneficiaries of this investment have been hotels, restaurants
and shops, which contribute nothing directly to these activities.
For example, the New Year Celebrations in Edinburgh are very
successful, but is only possible because of the investment from
the local authority and the Local Enterprise Company. Tourists
are attracted to Edinburgh during the low season and tickets
are allocated to hotels for the event. UNISON feels it is only
reasonable for the hotels to make a contribution to the local
authority costs involved in staging events such as this. We
would emphasise that the introduction of a bed tax should be
at the discretion of local authorities. We are aware that tourism
as an industry goes through peaks and troughs and we would not
wish to take any action that adversely deterred tourists from
coming to a particular area.
UNISON believes that a local sales tax has some
merit and notes that such a tax is used extensively elsewhere
outside the UK. We recognise, however, that a sales tax could
have practical difficulties, particularly regarding its collection
and that it is also largely regressive.
A land value tax, or its local government equivalent
site value rating, is used in countries such as Denmark, South
Africa and parts of Australia and the United States. Its method
is based on taxing the value of land as opposed to the building
on the land. It has similar advantages to the Council Tax in
terms of broadly equating fairness with ability to pay and it
is a difficult tax to evade. But it is an alternative to the
Council Tax and whilst willing to give it further consideration
we support the continuation of the Council Tax for the reasons
UNISON strongly believes that second homes should
be treated exactly the same as the main residence and owners
should be required to pay the full Council Tax on these properties.
Discounts on second homes are unfair and often lead to abuses
of the system.
5. Hypothecation and Challenge Funding
UNISON is strongly opposed to both hypothecation
and challenge funding. Our opposition stems from our support
for the principles of local government finance reform set out
in section 2, that is, that the system of local government finance
should aim to strengthen local accountability and provide for
adequacy in supporting local authorities' revenue and investment
needs. We believe that both hypothecation and challenge funding
undermine these principles because the decision on allocation
of resources becomes one for central rather than local government.
Hypothication, or the earmarking of expenditure,
has resulted in welcome increases in expenditure in certain
areas but at the cost of disproportionate cuts in other equally
important areas. It has skewed and distorted local government
budgets in recent years leading to significant cuts in non-ringfenced
UNISON believes that central and local government
should seek to work in a spirit of partnership with both central
and local government equal partners. Such an approach should
involve dialogue and agreed objective setting. This approach
is much preferable to one driven by central government and the
priorities of a particular Minister or Department.
6. Local Government Capital Finance, PFI/PPP
and the PSBR/PSNCR
UNISON recognises the continuing real crisis of
investment in the provision of local services. This situation
is not helped, however, by a continuing reliance on the Private
Finance Initiative / Public Private Partnerships (PFI/PPP) and
we set out our detailed concerns below.
UNISON has had serious concerns about PFI from
its inception under the last UK Conservative Government. These
centre on the impact on our members in their places of work,
but also the wider impact on public services and the public
Many of the advantages claimed for PFI are actually
the benefits of a more sophisticated public procurement process.
As a result of PFI, far greater resources have been put into
refining procurement, at all levels of government. The expertise
and knowledge gained can be used for future procurement of assets
and are not restricted to PFI.
Many of the disadvantages of earlier public procurement
were due to circumstances outside the control of the procuring
authorities and the contractors. For example, the starting and
stopping of funding and the lack of provision for maintaining
assets over their life times. It is disingenuous to claim that
PFI is a superior form of procurement because it will not be
subject to funding cuts. In reality, whilst PFI schemes may
be proofed against cuts, the rest of the public sector is not.
UNISON is especially concerned that whilst public funds for
PFI schemes are protected and guaranteed, the remaining public
services will have to disproportionately bear the brunt of any
future cuts in funding.
Local services are not like other commodities.
They exist where a community decides that a particular activity
is vital for the general interest and cannot be provided by
the market alone. The state then assumes some degree of responsibility
for the service. This could be by funding the service or at
the other extreme by regulating for its quality and delivery.
In undertaking this, the state also assumes the ultimate responsibly
for the risk of the service failing - a risk for which there
can be no adequate financial compensation and a risk that cannot
be transferred from government. These risks are one factor that
uniquely define public services and that are not adequately
taken account of in PFI deals, where it is often assumed that
risks of failure can be transferred to a private, service provider.
UNISON has reservations about the treatment of
risk and it is our view that it is not unusual for retained
risks to be undervalued whilst transferred risks are overvalued.
The calculation of risk is sensitive to small variations in
assumptions. There are also issues about the assumptions underlying
risk calculations, such as those for time and cost overruns
and whether these are representative of the present or based
on special circumstances in the past. A further issue is the
extent to which penalties reflect risks. Risk is a key element
of PFI and UNISON would like to see more information and discussion
about the risks in each project.
UNISON also wishes to draw attention to the secrecy
that surrounds PFI schemes, despite Scottish Executive advice
to the contrary. Public authorities need to make more information
available to stakeholders at every stage of the PFI process.
UNISON is still meeting resistance to providing information
on signed local government deals and projects that are still
The Implications of PFI/PPP for Scottish Executive
expenditure and the definition of PSBR/PSNCR
One of the key reasons why the PFI was conceived
by the former UK Conservative government was that it had lost
control of public borrowing. The present UK Labour Government
has turned the public finances around, so that they are in surplus
and this has resulted in significant increases in grant allocation
to the Scottish Executive. It therefore makes no sense to insist
on public investment through PFI, when it is estimated that
for every £1bn of PFI contracts, the cost to the public
purse is £50 million per year more than if the public
sector could borrow directly.
At the heart of the government's commitment
to PFI is a desire to achieve public sector investment without
appearing to increase public borrowing. Now that the public
finances are so healthy this position is even more untenable.
In recent years the Public Sector Net Cash Requirement (PSNCR)
(formerly known as the Public Sector Borrowing Requirement)
has recorded record surpluses and with more money coming into
government than going out, it is absurd to pursue PFI, with
its very expensive borrowing. The government could borrow the
money to be spent on PFI schemes without breaching the guidelines
of either the Golden Rule or the Maastricht criteria.
By sticking to the narrow definition of the PSNCR
the government places the public sector at a great disadvantage.
First, public enterprises are prevented from borrowing to invest
and from developing the enterprise culture that the government
values. Second, public authorities are prevented from taking
advantage of the full range of cheap loans for investment available
in Europe, such as from the European Investment Bank.
The government has relaxed the PSNCR in some cases,
such as local authority owned airports and for the Channel Tunnel
Rail Link and needs to extend this to a wider range of public
The GGFD should be adopted as a measure of public
borrowing and public authorities should be allowed to borrow
to invest from the European Investment Bank and European Investment
Fund. These bodies lend at very advantageous rates and since
their funds are not guaranteed by governments, they do not count
against public borrowing, except in Britain and the Netherlands.
Furthermore, under the auspices of the Amsterdam Special Action
Programme of 1997, these bodies have been concerned to make
funds available for investment in health, education, urban environment
and environmental protection. In addition, the EIB and EIF accept
direct applications for funding for schemes as small as £6.5m
(about ECU 10m). These conditions would suit many of the projects
currently in the PFI programme.
The restrictions placed on Scottish local government
by the use of the PSNCR definitions are preventing them from
borrowing to invest in essential infrastructure, and to optimise
Britain's competitiveness within Europe.
Evidence from PFI schemes on affordability
As the body of research and information on actual
PFI schemes builds up, a disturbing pattern is emerging of a
significant funding gap between what the public authority can
afford and the actual, annual charges of the PFI scheme. Even
more disturbing is the way in which this gap is being met, namely
by cuts in services and by drawing in additional funds, with
knock-on effects for other services.
In the NHS, the increased costs of PFI are met
from hospital closure programmes, reductions in services and
capacity, subsidies from the Treasury and trusts' operational
budgets. Higher PFI costs have led to service contraction, and
increased pressures on revenue budgets. On average, bed numbers
in PFI hospitals will be reduced by 31% over the next 3 to 5
years, a fact that is difficult to reconcile with the recent
bed crisis in the NHS. The evidence suggests that decisions
on bed numbers in PFI schemes reflect financial expediency rather
than clinical judgement.
PFI has not provided additional funds for the
NHS but is rather a method
of financing for which the costs must be met from NHS budgets.
It allows the government to defer public spending, but at a
higher cost. PFI schemes have been subsidised through the NHS
capital budget and regional NHS capital allocations. However,
these measures have still not been sufficient to make the PFI
schemes affordable within existing hospital budgets.
The Public Sector Comparator
The Public Sector Comparator should be a benchmark
to ensure that the taxpayer is getting good value for money.
However, its role has evolved through the development of PFI
and instead of being a genuine comparator it is, rather, an
unequal comparator. This is because the PSC and the PFI project
may not compare like with like.
Furthermore, UNISON takes the view that in order
for a thorough economic appraisal to take place, the costs of
both the PSC and the PFI scheme will need to be broken down
into their component parts and shown to stakeholders, including
trade union representatives. This will also serve to demonstrate
the value for money implications of including or excluding services
in the scheme. Frequently the economic appraisal of PFI schemes
fails to distinguish between the payments for services and payments
for availability. This makes it impossible to determine whether
the services component represents VFM in its own right. Whilst
this may have been sufficient for gaining Treasury approval
in the past, if the new policy of only including services where
they represent value for money is to be pursued, then the costs
of the service component will have to identified separately.
This information would also clarify any assumptions about the
future pay and conditions of the workforce. If the economics
of a PFI project are dependent on lowering pay and conditions,
then this should be explicit at the outset, so that the consequences
can be taken into account when comparing the PSC.
Differences between the design of the PFI facility
and the PSC may mean that service costs may differ between the
two options for reasons other than the efficiency of service
If PFI Proceeds then Exclude Services
UNISON believes that PFI is a wasteful and expensive
way of procuring infrastructure. If, however, PFI is to continue,
in Scottish Local Government then services should be excluded.
At the very least, this scales down the size of the projects,
and therefore, the amount of resources devoted to PFI, and,
crucially, allows services to be retained under the direct control
of public authorities and staff to remain as public employees.
Keeping all local government services under a
single, public sector employer gives a flexibility that can
meet the anticipated and unforeseen needs of the coming years.
It leaves the scope for change within the public sector's
control, rather than tied up in very long contracts. The public
sector can be an agent of change and innovation, and is responsible
for many improvements to service delivery. UNISON does not believe
that the private sector has a monopoly on innovation or service
improvement for public services.
Facilities management contractors want to retain
services in PFI deals and this confirms UNISON's fears
that in the long run, contractors intend to secure their profits
by cutting jobs and the overall pay and conditions of our members.
If this were not so, then the same conditions of service would
apply to new recruits and not just to transferred staff.
Impact on Staff
UNISON's primary concern is for the impact
of PFI projects on staff. The trend in PFI contracts has been
to reduce the salaries of staff taken over from the public sector
and to cut jobs.
UNISON's earliest experience of PFI has been
in health where after lengthy negotiations we have reached agreements
with most major contractors on protections for staff. We welcome
the progress that has been made but there are still major areas
not covered by the agreements.
Even where agreements have been reached UNISON
has examples of attempts to get transferred staff accept variations,
that is, to accept new, inferior contracts. Where protections
exist, they may be limited to a period of time after which the
employer may try to lower pay and conditions. Good quality public
services require good quality employment practices.
In most PFI schemes, the terms and conditions of staff transferring
do not extend to new staff taken on. UNISON wants to see all
staff treated fairly and in particular, staff should be paid
for the work they do and not the historic circumstances under
which they were taken on.
Most contractors make no provision for pensions
for new staff. Even contractors with a good record on many issues
do not offer pensions for new staff. Where pensions are provided
for transferred staff, they are often not as good as those being
Most contractors do not yet provide an equivalent
and satisfactory injury benefit scheme.
Where PFI goes ahead, UNISON is working to secure
proper transfer arrangements working in partnership with contractors,
but in general, staff still suffer some detriment from transfer
and our experience is that, given a choice most would prefer
to stay in the public sector.
7. Other Comments - Openness and Accountability
UNISON believes that more could be done to make
the system of Scottish local government finance more transparent
and to enable local council tax payers to see how money is raised
and then spent on local services. We believe that local authorities
themselves can do much more to explain the system - through
websites, exhibitions and council magazines.
UNISON would like to see far greater scope for councils to involve
the community in the budget making process secure in the knowledge
that this will not then be subject to later central government
interference. We believe this would improve the general understanding
of the role of local government, enhance participation in local
democracy, and strengthen citizenship generally.
UNISON will continue to make the case for adequate
funding for local government services. Our members in local
government are committed to the provision of high quality services
but need to resources to be able to deliver. The need for capital
investment is evident and urgent. Local authorities also continue
to need the revenue support to deliver basic services and to
give meaning to the role of community planning and community
leadership set out by the Scottish Executive.
UNISON is committed to a vision of local government
which is vibrant and engaging, in which local citizens feel
they have some real say over the distribution of local resources
and the future of their local environment. We believe that the
local government workforce has a vital contribution to make
to the regeneration of communities and neighbourhoods. But we
are also clear that enhancing local democracy will only be achieved
if the Scottish Executive is prepared to let local councils
have the freedoms and powers to take meaningful local decisions.
9. For Further Information
For further information please contact:
14 West Campbell Street
Glasgow G2 6RX
0141 332 0006 (phone)
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