Public Works is UNISON Scotland's campaign for jobs, services, fair taxation and the Living Wage. This blog will provide news and analysis on the delivery of public services in Scotland. We welcome comments and if you would like to contribute to this blog, please contact Kay Sillars email@example.com - For other information on what's happening in UNISON Scotland please visit our website.
Thursday, 25 February 2016
Tuesday, 23 February 2016
The Scottish Budget is debated at Stage 3 in parliament tomorrow. While there is plenty of pain for all public services, it is local government that is bearing the brunt of austerity in Scotland.
In our MSP briefing, I set out the implications of the budget for all public services - little of it is positive. However, the focus of the debate inside and outside parliament has rightly been on the local government budget settlement.
The budget allocation to local government in 2016-17 will be £10,152.3m, a substantial reduction on the 2015-16 allocation of £10,756.7m, even allowing for some reprofiling of capital expenditure. Within this allocation, the combined General Resource Grant + Non-Domestic Rates Income figure, which is used to calculate local government’s total revenue settlement, falls by 5.2%, or more than £500 million, in real terms (GDP deflator - inflation). The equivalent figure in cash terms is a reduction of 3.6%, or £349m. Both numbers are often bandied about, so it is important to differentiate them.
It is worth mentioning that the income from non-domestic rates is the second largest source of revenue after the Scottish Rate of Income Tax (SRIT). This year the estimated revenue is down by £31m, 2.8% in real terms. This decrease does not reflect the Scottish Government’s optimism about economic growth and in previous years the estimated income has risen considerably, e.g. by £150m last year. We can only hope that this isn’t a backdoor way of creating an under spend to the Scottish Government budget.
Scottish ministers often argue that local government has had a fair share of the Scottish budget over the years. This is a dubious claim when you consider that councils are the only main spending portfolio to have suffered a cash cut. However, it certainly isn’t true this coming year. Local government’s percentage share of the Scottish budget also falls 1.7% from 32.3% to 30.6% in 2016-17 (although on a like for like comparison, the percentage share falls by 1.1%).
If we take a slightly longer look, we can see that the Scottish Government is cutting councils more than itself. Since the 2013-14 transfer of police and fire, the local government settlement has fallen by 1.9% in real terms (-£200.9m), whereas the Scottish Government’s DEL+NDRI has increased by 3.2% in real terms (+£1,018.8m). This chart from SPICe illustrates this point.
In addition, councils have been blocked from increasing the Council Tax. This brings the total cost of the freeze in 2015-16 to £630m, and the total cumulative cost from 2008-09 to 2016-17 to £3,150m. Just imagine how many services and jobs could have been saved with this resource.
COSLA has estimated that this settlement will result in 15,000 job losses. It is difficult to estimate actual losses because it depends on the services councils decide to cut and how they use reserves and other financial instruments. Unavoidable commitments, such as employer National Insurance contribution increases (£125m for councils alone), will add to the pressure. Even if 15,000 is at the higher end, we know for certain that of the 50,000 jobs lost in devolved services since the crash, 40,000 of those are in local government. That certainly feels like councils are taking the brunt of austerity.
As the First Minister has fairly pointed out, unless you increase the overall budget available, protecting one service area inevitably means cuts to another. It used to be the case that the Scottish Parliament didn’t decide the size of the budget; it was largely limited to how it is divided up. That is no longer the case, because Parliament now has the Scottish Rate of Income Tax. We agree that the Calman powers are flawed, but they are still progressive and there will be an opportunity to make it more progressive when the new Scotland Bill’s powers are implemented.
I fully accept that the root cause of these cuts is the UK Government’s ideological attack on public services. However, devolution is about doing things differently in Scotland. We have the powers to mitigate austerity as we outlined in our report last year and by using the new tax powers. MSP’s should choose to combat austerity, not simply pass it on to community services.
Tuesday, 9 February 2016
The tax dodging activities of companies has come under a lot of scrutiny, but we could do more to tackle this abuse in Scotland with existing powers. Companies who want to bid for taxpayer funded contracts should pay all their taxes.
The recent focus has been on Google, following a deal with HMRC to pay £130m in back taxes and bear a greater tax burden in future. This constitutes a 3% tax rate, something small and medium size business across Scotland can only dream of. As Richard Murphy of Tax research put it: “George Osborne is not getting the deal the UK tax payer will be expecting. It is a special rate of tax that would not be available to anyone else.”
Even the EU has been shocked over the methods used by multinationals minimise their tax liabilities in Europe. We have had the Luxleaks revelations, media exposure of how hundreds of global companies including Pepsi, Ikea and FedEx had secured secret sweetheart tax deals with Luxembourg, allowing them to save billions of euros in taxes. Before that it was transfer pricing and investment loopholes that allow big companies to pay less tax.
This abuse also has an impact on global poverty. Just 62 billionaires own the same wealth as half the world’s population – that's 3.6 billion people. This extreme inequality is being fuelled by a global network of tax dodging. Poor countries are losing at least $170 billion a year to tax havens – money that is desperately needed for vital services like healthcare and education.
We don’t tend to think of Scotland when tax havens are discussed. However, as the Sunday Herald recently reported, Scotland is being advertised as a tax haven across Eastern Europe. As one advert proclaims; "Having registered a company in Scotland, by using offshore rules, you do not need to carry out any audits and, furthermore, there is no requirement to provide financial reports."
The number of limited partnerships in Scotland has more than doubled from just over 6,000 to nearly 15,000 since 2009. We now have more of these firms than England and Wales put together.
Scottish Labour raised questions about this last summer after an international investigation into the alleged fraud of three Moldovan banks uncovered that some of the companies used were in Scotland. Labour's Jackie Baillie said: "It is extraordinary that Scotland is being described as an offshore tax zone. Somebody should be looking long and hard at how to close this loophole."
The Scottish Government has urged Westminster to simplify the UK tax system and abandon what it claims is; “the unnecessary complexity which creates opportunities for tax avoidance through countless exemptions, reliefs, deductions and allowances”. The House of Commons Treasury Committee has launched an investigation, with the Chair making similar observations about complexity.
Nicola Sturgeon has described tax dodging as “obscene, immoral and downright wrong”. In response to a question on Amazon from Liberal Democrat leader Willie Rennie she said: “All companies should pay the tax that they are due to pay. The Scottish Government, with the limited tax responsibilities that we have, takes tax avoidance very seriously.”
The Scottish Government’s tax avoidance measure used by Revenue Scotland is better than the UK approach. However, the same cannot be said of procurement. The public sector spends some £11bn each year in the private sector and this should be used as part of stronger efforts to tackle tax dodging and tax avoidance. It is entirely wrong that companies seeking to avoid paying their fair share of tax should be awarded public contracts.
The Public Contracts (Scotland) Regulations 2015 were considered by the Infrastructure and Capital Investment Committee last week. UNISON’s briefing to MSPs questioned why the Scottish Government is not using powers that it has for mandatory, rather than discretionary, exclusion of companies that have not met their tax obligations and /or breached environmental, social and labour laws, and to exclude companies involved in aggressive tax avoidance? If we had these provisions in place, Anglian Water, or almost any of the privatised UK water companies, would be highly unlikely to have even bid for the public sector water contract.
Dave Stewart MSP highlighted this to the committee last week, he said: “there is a big gap in that there is no reference to or substantial action on tax dodging. I support the moves by Christian Aid, the Scottish Trades Union Congress, Unison and others to restrict from Government procurement companies that avoid paying tax.”
We have demonstrated how this can be done (including a 2014 proposed amendment to the Procurement Bill). It has been argued that it is too complex for procurement managers. The solution is to require companies to sign up to the Fair Tax Mark. A Scottish firm, SSE was the first company to do so.
Given the Scottish Government’s rhetoric on tax dodging and the practical steps in the Revenue Scotland and Tax Powers Act, I am at a loss to understand why they are not taking action on procurement. Local and regional authorities across Europe are taking a stronger line than Scotland.
The bottom line should be – companies who take the taxpayers pound, should pay their taxes in full.
The Chartered Institute of Management Accountants has been looking at how local government in England has responded to the swinging cuts in their budgets. While the report is very much in management speak: “financial resilience” and “developing anticipatory capacity” it is still a useful overview of tactics used in 4 English councils in the face of swinging cuts to their budgets.
The report states at the outset that while managers in local authorities had dealt with “financial shocks” before these cuts are of an entirely different level:
“ the context of austerity requires governments to put greater emphasis on flexibility, adaptability and a longer-term perspective in their financial management."
The four councils the team looked at were
• Wigan Council
• Manchester City Council
• Derbyshire County Council and
• Warrington Council.
Information was gathered through interviews with senior staff.
In the past “financial resilience” (responding to crises, budget cuts or increased demand) focused on continuous monitoring and localised shifting of funds between departments, incremental across the board savings (what we tend to call salami slicing) and the use of reserves. This report indicates that new approaches were needed for cuts at this level. Those who were interviewed say their responses involved developing better cohesion, prioritisation and better linking of financial and non-financial performance data. Councils have tried to decrease their dependency on central funds through increased and more widespread use of charges and (unlike Scottish councils, who are rate capped) raising council tax.
Pre-2008 council’s financial shocks tended to be
• policy issues i.e. changes to waste disposal due to land-fill tax
• Problems with the management of specific internal budgets
• One-off events: uninsured losses
• Gershon efficient savings targets
Post 2008, and increasingly after the 2010 election, the financial shocks have been on a whole different scale:
• Real terms reductions in central funding of 37%
• Increased demand for some services due to the economic crisis and reduced tax collection due to shrinking tax base
• Changes to business rates retention rules
• Responsibility to fund council tax benefits payments
The scale of budget cuts after 2010 meant that use of reserves and virements that had worked in the past would not cover the scale of the cuts, at best “putting off the inevitable” cuts. Healthy reserves are now considered even more important as it is clear that cuts would be long-term so would be less ability to “bounce back” in the next settlement. The level of cuts also means that there was less scope for short-term budget transfers. Departments are increasingly responsible for managing to deliver within a fixed budget including ensuring their own reserves are adequate. There is little if any scope to draw funds for other budgets as in the past in response to any issues. Even changes like increased national insurance costs had to be managed within department budgets with no access to extra funds. Managers interviewed felt that the only option to deal with cuts at the current is to change the way services are delivered.
Authorities also became much more focused on generating income locally. Unlike Scotland some authorities did make increases in council tax rates and like here increased both the rate and scope of fees and charges. A more strategic approach is being taken to growing the local tax base. For example
• Measure to help people into work to increase council tax base
• Loans to business to increase business tax base
• Supporting major commercial developments again to increase business taxes
Improving “risk management” in now seen as a priority. Monitoring tools are no longer seen as a “tick box” exercise but as a means gather accurate data to ensure that they can “see things coming” and are planning for future risks.
As stated earlier, salami slicing won’t meet the current level of cuts so there has been a move to priority based approaches which mean reviews of the affordability of non-statutory services and in some case withdrawal of those services altogether. There has also been an increase in work with voluntary and private sector bodies and setting up trusts and community interest companies to provide some services. This section of the report is couched in management jargon but the reality is that rather than spread the budget thinly authorities are increasingly giving up on whole areas of service provision. Services no longer exist unless volunteers or third sector organisations fill the gap.
Council leaders who took park were unsurprisingly pessimistic about the impact of the next range of cuts on the future of local government services.
Due to mystery IT problems it was not possible to add a hyperlink to a word in the blog today.
The report is Governmental Financial Resilience under Austerity: The Case of English Local Authorities
Wednesday, 3 February 2016
The cost of childcare is a substantial barrier to work for many parents and the lack of availability and complexity of both finding childcare and funding support make it even more difficult. For many families childcare is their single biggest monthly bill.
The new report calls for a simplified childcare system which focuses on tackling poverty. Currently childcare subsidies are extremely complex: supply side via “free hours” alongside the childcare element of tax credits, employer supported childcare vouchers and the tax free childcare scheme. Finding and accessing care is equally complex. There is no one place to go to even find out what’s available far less to apply for a place. Many parents struggle to access the current “free hours” entitlement never mind childcare that matches their working hours even if they can afford to pay.
The Rowntree report calls for a move to a “supply side” funding. Evidence suggests that this is the most effective way to fund a childcare service and means we can ensure quality, affordability and flexibility for all children regardless of their parents’ ability to pay. In terms of Scotland this could also mean more childcare funding could be devolved to the Scottish Government to invest in delivering on their promise.
If childcare is to be effective in reducing poverty and the impact of poverty on children then the focus has to be about more than reducing just the cost. The evidence is clear: childcare delivered by qualified staff working in a degree led setting is the most effective way to improve children’s outcomes.
Quality childcare requires:
• well qualified and experienced staff able to identify and respond to children’s needs
• An active approach to home learning
• A good social mix of children
• Strong links with local family and child support services (which again need to be well funded and high quality)
High quality childcare cannot be delivered without tackling low pay in the sector.
Some key recommendations from the report
Funding a decisive shift towards high quality childcare by:
• Moving to a qualified, graduate-led workforce and equalising wages across the private, voluntary and maintained settings in line with a national pay scale to support the professionalisation of the workforce
• Setting up a properly funded entitlement to full day childcare from age one to pre-school 48 weeks a year.
• Removing the parental contribution to childcare fees altogether for families with an income below the relative poverty threshold.
UNISON has long campaigned for a universal childcare service delivered in the public sector by a well qualified and appropriately paid workforce. This report is a very useful contribution to this campaign. Our Childcare Charter is available here.
Tuesday, 2 February 2016
In tomorrow’s Scottish budget debate, if they are serious about opposing austerity, MSPs need to do more than badly administer George Osborne’s efforts to wreck our public services.
The Scottish Parliament will debate the Budget Bill on Wednesday. The big loser in that budget is local community services with a cash cut of 3.5% or £350m in 2016-17 - that's 5.2% or £500m in real terms. On top of that there are additional commitments like the NI increases that could double the cuts. As well as the loss of valued local services, there could be as many as 15,000 job losses, with the consequential impact on the local economy.
This has inevitably resulted in a fraught discussion between CoSLA and the Scottish Government over the grant allocation. Not helped by John Swinney’s draconian penalties for any council daring to consider an increase in the Council Tax. CoSLA voted to reject the package last Friday, a position supported by those authorities not in CoSLA.
The one positive element from the budget discussions is an allocation from the £250m identified for social care, to pay the Scottish Living Wage to care workers. There still needs to be clarity over how this money is allocated, but this would make a significant contribution towards the staffing crisis in Scotland’s social care provision.
The problem with an austerity budget is that unless you expand the spending envelope, the debate simply deteriorates into robbing Peter to pay Paul, as the First Minister has fairly pointed out. The departing CoSLA Chief Executive Rory Mair hit the nail on the head in his parting interview in the Sunday Herald, he said:
“Scotland and local government have the power to raise more tax. So why are we keeping tax the same and making public service cuts? That’s the very definition of an austerity budget. If you self-deny the ability to raise more money and you decide that the way to deal with a downturn in resources is to cut, however you dress it up, that’s an austerity budget.”
Today, Scottish Labour leader Kezia Dugdale took a bold move to break away from austerity economics. She proposes increasing the Scottish Rate of Income Tax (SRIT) by 1p. This will raise around £480m, less a £50m rebate to ensure that low paid workers under £20,000 per year don’t lose out.
The reluctance to use the SRIT is in part because of our criticism of the Calman report on these powers. We have allowed a narrative to develop that, because we can’t have different rates or change the income tax bands, any use of these powers is not progressive. I confess that I have been one of those who has allowed my criticism of Calman to allow this narrative to develop.
The Calman tax powers are certainly flawed, but that doesn’t mean they are not progressive. As David Eiser from Stirling University explains, "the poorest fifth of Scottish households would experience a fall in net income of slightly less than 0.2%, whereas the richest fifth of households would experience income falls greater than 1%. So a rise in the SRIT is slightly progressive". And of course Labour’s plan means that low income earners are protected, making it even more progressive. In addition, the Calman restrictions on bands and rates will end when the Smith Commission powers are implemented, probably in 2017.
Research by the IFS into raising the basic rate of income tax across the UK found that the top half of the income distribution; “would contribute 84% of the revenue from an increase in the basic rate of income tax.”
In fairness, John Swinney accepted this in his evidence to the Finance Committee last month, when he said: “I view the Scottish rate of income tax as a progressive power... Clearly, people on higher incomes will pay comparatively more than people on lower incomes.”
There is growing evidence that people understand that if we are going to avoid these cuts, and protect the things we value, the money has to come from somewhere. Previous proposals to increase income tax have been in very different circumstances.
Scotland now has a real opportunity to break away from austerity. I hope the Scottish Government will take this opportunity to build a cross party consensus that stops the savage cuts to the services which vulnerable people rely on. That's what being an anti-austerity party really means.