Draft Scottish Budget - read with care!

If you are struggling with the different interpretations of the Scottish Government’s draft budget, don't panic, it is confusing!

My briefing for UNISON branches attempts to cut through the spin and outline the impact on the services our members deliver. In this blog I will instead focus on a few key points.

Firstly, this is a real budget, not just spending plans, because it includes the revenue raising powers.

So we start with the block grant, which is being cut by 9% due to UK austerity plans between 2010-11 and 2019-20. However, in the coming year the Scottish Government has a little wriggle room because there is a small real terms increase in funding of £188m. The next two years are considerably tougher under current UK plans.

Then you add in any of use the devolved tax powers. They have decided not to increase income tax, although not cutting tax for higher rate (40p) taxpayers should generate an additional £79m. Other devolved taxes on land transactions, landfill and aggregates, generate small additional revenues.

Of course taxes can be reduced as well, and the budget confirms that they remain committed to a 50% cut in Air Passenger Duty - an unaffordable, environmentally damaging tax cut for the better off. Thankfully, not this year though because it would cost a massive £171m to implement. That's the same as this year's real term increase in NHS spending.

The most confusing spin is over the local government budget allocation. I'm afraid when our branches sit down with their councils to discuss the budget, they will find that their director of finance doesn't recognise Derek Mackay's extra £240m. Unsurprisingly, the reality is somewhere in-between his spin and that of some councils.

We should remember that the Scottish budget only determines the Scottish Government's allocation to councils - important though that is. There is a real terms cut in the local government (including grants) budget allocation of £327m. The Scottish Government argues that this is mitigated by the extra income from the council tax bands (£111m) and helpfully they have abandoned plans to expropriate that for their own priorities. While this shouldn’t appear in the Scottish budget, it is a real additional source of revenue, albeit one that will benefit better off councils with higher banded properties. Councils with disadvantaged communities will also have to fund the improvements to the council tax reduction scheme.

The government then adds in the extra £107m coming from the NHS budget for social care. This won’t impress your finance director because it is for a specific additional commitment (contractors living wage) so won’t help to mitigate grant cuts. That's not to say that it isn't very welcome and desperately needed to help stave off a staffing crisis in social care. There are some other additional pots, but again these are ring-fenced. Yes, they did claim they would stop doing that!

The government then gets very cheeky by assuming that councils will increase the council tax by the maximum 3% they are allowing - generating £70m of real extra revenue. Again, this is a matter for councils, who may reasonably point out that the government isn’t using its tax raising powers. The Scottish Government will not 'pass on austerity to the household budgets' with a national tax, but has an expectation that councils should do that locally. This looks like an exercise in political buck passing.

Branches will also find that their finance director has a long list of unavoidable commitments that also don’t appear in Derek MacKay's calculations. Not least the cost of the UK Apprenticeship Levy that the Scottish Government appears to be pocketing the revenue from. Councils can reasonably argue that they have a good record in creating apprenticeships and should get this cash reimbursed.

So, the bottom line is that councils are yet again facing the biggest budget cut. In fairness, there is some scope for mitigation, but nowhere near the spin the government is putting on the figures.

We should also have a quick look at the health budget. Health boards get a cash increase of £321m, but that falls to £170m in real terms. The assumption is that inflation will be 1.5%, but health inflation is usually significantly higher.

Health branches will also find their directors of finance are less than impressed by this figure. They also have unavoidable commitments including the Apprenticeship Levy. However, the biggest issue will be the £107m directed to integration authorities to pay for the increase in the living wage. This is very welcome and a justifiable priority, but it’s not NHS spending. It is blatant double counting to include this in NHS budgets and the local government finance order.

Part of the problem with the 'Draft Budget' is that it isn't really a budget document at all. Most of the 186 pages set out a political narrative, which is not unreasonable, but adding in numbers that have nothing to do with the government's budget to spending tables, crosses a line for me. So read with care!

Time to look again at PPP schemes

The Scottish Government’s spending plans for 2017/18 is unlikely to be a cheery read when it's published on Thursday. However, when budgets are being cut, it is all the more important that government ensures that resources are not being wasted.


A good example of this is set out today in a joint Guardian/Ferret investigation into the Scottish government’s NPD model of PPP schemes in Scotland.


The report covers errors over interpreting EU rules which is expected to cost the Scottish government the equivalent of £932m in lost expenditure because it must now match the private finance spending under the NPD (PPP) programme with money borrowed from the Treasury. The scramble for matching funds is also expected to have knock-on effects on budgets.


The investigation also found that the private consortium building Scotland’s largest NPD hospital in Dumfries is expected to generate £160m in interest and finance fees on loans totalling £242m, including the £212m spent on building the hospital.

The consortium is charging an interest rate of 5.1% on borrowings of £218m. This results in the consortium earning more than £100m in interest payments from the public sector. It is also charging 11.3% on a further £24.2m in “subordinate debt”, which will earn financiers £37.5m in interest.


If Scottish ministers had instead used public borrowing they would expect interest rates from the state-run national loans fund of about 1.6%. If government argues that their borrowing consent was insufficient, then a deal could have been done with the local council who can also borrow at this rate.
 
A similar deal has been done by Northumbria Healthcare Foundation NHS Trust for its PPP contract at Hexham General Hospital, saving £67 million. This was funded by a loan from Northumberland County Council, which borrowed from the loans board.

This is precisely what UNISON Scotland suggested over a year ago in our ‘Combating Austerity’ report. We calculated that the austerity cuts in Scotland could be wiped out by refinancing PPP schemes in this way. Sadly, progress has been at a snail’s pace with a handful of projects being examined. Ironically, we believe Dumfries hospital may be one of those.


When jobs and services are being lost, it is absolutely vital that we chase every available saving. Effective monitoring, restructuring and refinancing PPP schemes are just some of the range of proposals we set out - and some authorities, to their credit, have acted on these. On PPP refinancing, it requires the Scottish government and their arms length agency the Scottish Futures Trust to take action.

Cutting Air Passenger Duty is the wrong priority

The scale and destination of the cuts to the Scottish Budget will become apparent with the publication of the Scottish government's spending plans on Thursday. This is not the time to cut taxes such as Air Passenger Duty.

This is first Scottish budget with the full devolved fiscal powers in play. The Tories, despite voting for the new powers, don't want to use them. The SNP wants to use them a little. Labour, Liberals and Greens want to take a different course to Tory austerity, by making greater use of the powers.

I may not agree with the Scottish government's cautious approach, but I understand the argument. A tax rise for most of us isn't likely to be popular, particularly when wages are depressed. However, railing against Tory austerity is simply not credible when you have the powers to take a different course and more importantly, you are actually cutting taxes for the better off.

The proposed cut in Air Passenger Duty (APD) follows a consultation, which followed predictable battle lines. The airports and airlines think it is a wonderful idea and churn out nicely rounded claims on jobs and revenue. The environment lobby responds by pointing to the extra emissions the plan will pump into the atmosphere, damaging our already overheating planet.

For me the case against a cut in APD has four pillars.

Firstly, even if it had economic merit, we can't afford it. Today's Fraser of Allander Institute report lays bare the dire state of Scotland's public finances. This leaves Derek MacKay with few options. He will claim to be protecting the NHS budget, while awarding a 'fair' settlement to local government. Needless to say, this is impossible and is achieved through some cosmetic double counting of the social care budget. 

APD yields more than £300m to the Scottish Budget. That's a significant amount of revenue, more than half of last year's cut to the local government budget and the equivalent of more than half a penny on income tax. Even cutting it by half will result in significant cuts to jobs and services.

Secondly, for a government that claims to be 'world leading' on climate change, this tax cut could have a damaging impact on the environment. The Scottish government's own analysis of a 50% cut in APD estimated a consequential increase in emissions of up to 60,000 tonnes CO2 per year. Air travel already accounts for 13% of Scottish greenhouse gas emissions from transport - a sector that has not contributed nearly enough to climate change action. Yes, we are making progress in reducing emissions in Scotland, but mostly on the back of the recession and the closure of Longannet power station.

Thirdly, air travel already has a privileged tax position. Airfares are not subject to VAT and aviation fuel is tax-free. Implementing fuel duty at the same rate as private fuel tax would result in £5.7 billion of revenue at UK level, adding VAT to tickets would result in £4.0 billion, and the abolition of duty free would yield £0.4 billion. This means the aviation industry already benefits from an annual tax exemption of at least £10 billion, which amounts to around £1 billion lost to Scotland. In contrast, rail fares have been increasing at three times the rate of wages, for a service that many more of us rely on every day.

Fourthly, this is a regressive tax proposal. Propensity to fly increases with income and socio-economic group, and 15% of the population of the UK take over 70% of all flights. Scotland’s lower income groups will achieve no or minimal benefit from a cut to APD, and higher earners (and corporations) will achieve a disproportionate benefit. No wonder the Tories have abandoned their manifesto commitment to oppose the APD cut!

The Scottish government's spending plans are challenging enough without the additional burden of a cut in APD . It is simply unaffordable, damaging to the environment and provides more support to an already tax privileged sector. A tax cut for the better off is a strange priority for a government that claims to be opposed to austerity.

       

             

Tackling fuel poverty

There has been a welcome drop in the number of households in fuel poverty in Scotland. However, it’s still a long way from the eradication that was supposed to happen this year and still higher than the first year statistics were collected in 1996.

 

Some key points from the report:

 

• Between 2014 and 2015 the rate of fuel poverty declined by 4%. In 2015 there were around 748,000 fuel poor households representing 30.7% of all households. 

 

• Around 203,000 households, or 8.3% were living in extreme fuel poverty in 2015.

 

• Just over half of the reduction in fuel poverty rates can be attributed to the drop in energy prices and around a third to improvements in energy efficiency

 

• On average the private and the social housing sector have similar rates of fuel poverty: 30 and 33% respectively. There is more noticeable decline in fuel poverty in the social sector, reducing the social-private gap which was seen in the SHCS sample for 2014.
   
• In 2015 37% of Scottish homes were in EPC band C or better and half had an energy efficiency rating of 65 or higher (SAP 2012). This is similar to 2014.

 

Norman Kerr, Director of Energy Action Scotland said:

 

“Just last month the statutory duty under the Housing (Scotland) Act 2001 for the Scottish Government to eradicate fuel poverty expired and the target was missed.  Two working groups were tasked to advise Scottish Ministers on their next steps and they have made over 100 recommendations.  It is now vital that the Scottish Government uses this advice to develop a new strategy, set a new fuel poverty target and increase funding for its programmes in the upcoming Budget Statement. The progress to date on solving the problem of cold, damp and unaffordable to heat homes must not be lost, but can and should be built upon.”

 

With energy prices remaining relatively low, spending on energy efficiency remains an important element of a fuel poverty strategy. Twenty businesses have written a letter, with the backing of the Existing Homes Alliance, calling on ministers to increase spending on energy efficiency in next year’s budget to £190m. They say this would allow for existing schemes to be expanded and provide confidence to the sector at the start of the new Scotland’s Energy Efficiency Programme (SEEP).In the longer term, the alliance wants spending to be ramped up to an average of £450m a year over ten years.

Another measure that would help with eliminating fuel poverty is ending the price differential between pre-payment meters and direct debit. Prepayment customers represent just 15% of the domestic market, but account for over 30% of all fuel poor households.

 

A recent UK analysis shows that removing the price disparity between tariffs could lift between 95,000 (12%) and 181,000 (23%) of fuel poor prepayment customers out of fuel poverty and reduce the gap for the remainder.  The widespread adoption of SMETS2 smart prepayment meters (Smart PPM) could deliver real competition in the prepayment market, driving down prices towards parity with direct debit payment. 

 

The reduction in fuel poverty in Scotland is welcome, but there is still much to do when nearly a third of households remain in fuel poverty. This is the time to develop a new strategy and invest in energy efficiency.

Time for action on investment management

If you read anything about pensions this year, you should include the recently published Financial Conduct Authority (FCA) interim report on the asset management market. It may not be the easiest read, but it shines a light on why we get such poor value for money from our pensions in the UK.

OK, I don’t expect you to read all 206 pages! There is an executive summary. It should certainly be required reading for pension trustees and in the SLGPS, pension board and committee members. It confirms what UNISON has been shouting about for some time – we need much greater transparency over the real cost of using investment managers.

The UK’s asset management industry is massive. It manages £6.9 trillion of assets. Over £1 trillion for individual investors in the UK and £3 trillion on behalf of UK pension funds and other institutional investors. The service offered to investors comprises a search for return, risk management and administration – although it is the investor that bears virtually all the risk. 

Over three quarters of UK households with occupational or personal pensions use these services, including over 10.2 million saving for their retirement through pension schemes. There are also around 11 million savers with investment products such as stocks and shares ISAs. 

There will be very few UNISON members who are not touched by this industry, although most will probably have never heard of it. More importantly, they will have little idea how much of their hard earned cash goes to the industry. The report states that asset management firms have consistently earned substantial profits with an average profit margin of 36%! These margins are even higher if the profit sharing element of staff remuneration is included. The saying ‘we are in the wrong job’ has a whole new meaning!

On transparency of costs the report states that investors are not given information on transaction costs in advance. These costs can be high and add around 50 basis points on average to the cost of active management for equity investments. The report says:

“In addition, we have concerns about how asset managers communicate their objectives and outcomes to investors. Investors may continue to invest in expensive actively managed funds which mirror the performance of the market because fund managers do not adequately explain the fund’s investment strategy and charges.”

This is something the LGPS has been addressing through its transparency code and the Scottish LGPS has issued guidance to funds in Scotland to adopt the code. However, its still only voluntary at present and measurable outcomes are some way ahead. The drive for transparency is not as present on the retail side with only half of investors even aware if they are paying charges.

One of my colleagues likes to illustrate this issue using a fridge analogy. If you buy a fridge you can compare the marked price. But the real comparison should include, energy use, delivery charges, warranties and much more. Very few of these charges are transparent when it comes to asset management.

More of us will be familiar with the investment disclaimer, "past performance is no guarantee of future returns". The FCA report highlights the reasons for this. Funds measure performance over different time periods and there is a practice of merging poorly performing funds, “giving investors the false impression that there are few poorly performing funds on the market”. Even those who do outperform don’t continue to outperform the relevant market index or peer group for more than a few years. 

Pension trustees are often sold active investment strategies on the grounds that they deliver higher returns than passive funds that track an index. In the UK the split is around 20% passive to 80% active, whereas in the USA the split is closer to 50:50. However, the evidence in the FCA report suggests that actively managed investments do not outperform their benchmark after costs. And the costs of active investments are significantly higher than passive investments as this chart from the report shows. 

Charges have also have remained stable, unlike charges for passive investments, which have been falling. The FCA suggests that this reflects competitive pressures and unwillingness in the active fund market to undercut each other. Weak pressure on prices can lead to weak cost control.

The FCA report is particularly scathing about the role of investment consultants, with 60% of the market controlled by three firms. For example, they found that investment consultants accept hospitality from asset managers, suggesting a further conflict of interest and could result in poor outcomes for end investors. They are considering a market investigation reference to the Competition and Markets Authority (CMA).

The report concludes with a number of very welcome interim proposals on remedies – not least on transparency and all-in fees. However, this is a hugely powerful and profitable industry and they will be lobbying hard to water down any action. It’s up to us to reclaim our pension funds for the workers who rely on them.

Audit Scotland on Council Finance

Audit Scotland have published their annual  Financial Overview of Councils . It doesn’t paint a happy picture, in fact it should probably come with a soundtrack.

The report talks of ‘significant challenges’ for Local Government finance.  If that sounds like accountant speak for bad things – it is. Boiled down to its absolute basics they say “All councils face future funding gaps that require further savings or a greater use of their reserves.” For “further savings”  read “cuts.

The reports says that councils are, generally speaking, managing their finances well but that funding gaps are developing which will mean either more cuts or greater use of council reserves.  They urge councils to do more long and medium term financial planning but acknowledges that single year grant funding from the Scottish Government can cause problems with this.

 Overall Council Spending is at £19.5 billion. This is lower than in 2011/12 although spending on some services has increased - the most obvious being social care due to rising demand. Some councils are overspending on their social care budgets and Audit Scotland warn that this needs  to be tackled (BTW  that isn’t accountant speak for cuts – they mean that councils should be doing better at saying how much they will be spending on particular services).

Scottish Government grants are councils’ major source of income. Between 2010/11 and 2015/16, Scottish Government funding (combined revenue and capital) for councils reduced in real terms by around £186 million (1.7 per cent) to £10.9 billion. Taking into account 2016/17 funding, councils have experienced a real-terms reduction in funding of 8.4 per cent since 2010/11.

Councils have usable reserves of £2.5bn that can be used to support services . Most (23) Councils added to their reserves in the last year. Reserves can be used to support services but obviously this is not a sustainable source of long term funding. The Commissions estimate is that Councils are planning to use a total of £87m ( 75) of total reserves  in the coming year to plug gaps in funding . Reserves are what might be reasonably considered as rainy day money – and it might be reasonably considered to be wet weather  so there use to maintain services and jobs is a good thing. But as Audit Scotland point out , this is hardly a sustainable method of funding services.

Recent years have  seen a decrease in the amount of funding coming from Council Tax and in increase in both the number of services for which councils charge and the amount charged.  Councils are criticised for not being clear about how charging decisions affect local citizens.

Around 2250 staff  took packages and left Local Government in the last year giving a total of just over 13 000 staff leaving councils in the last five years .   Audit Scotland note that equal pay ‘remains a substantial issue’ for local government – they will publish a report on this in 2017

Councils spend around £1.5bn a year on servicing debt.  Most tales the form of traditional fixed interest rate loans. The exceptions to this are PFI /PPP/NPD and LOBO’s ( Lender Option, Borrower Option)  loans. The commission notes that PPP/PFI/NPD predict ( repaymants are often inflation dependent – so exact repayment levels  are more difficult to plan for) . This just backs up the case that UNISON Scotland has made that effort needs to go in at both council and Scottish Government Level  to explore either buying out or Combating Austerity toolkit these projects. It’s also the case trhat the Public Works Loan Board isn’t always the cheapest way of doing things either . Some ideas that might help kget the cost of debt down are explored in our combating austerity toolkit     

Looking ahead Councils are expecting demographic changes to put demands on key services like social care and are assuming a ride in the wage bill of between 1%-1.5% in each of the next two years. Overall  councils anticipate an £87m in-year shortfall between their  General Fund revenue income (before using reserves ) and expenditure. That’s after approving savings or cuts of £524m. You hum it he'll play it. 

In other news councils are also urged to do  more long and medium term financial planning but acknowledge that single year grant funding from the Scottish Government can cause problems with this.

The Audit Commission are also making it plain that  Councillors need to get better at scrutinising the plans put to them by senior officials Councils need to get better at explaining their financial position – so that it’s in an  understandable format for a wide audience.  Being polite accountant types who talk about savings rather than cuts they don’t say any more than that – but perhaps they might be thinking that the need  for councils to explain things might be about to go up sharply. For all too obvious reasons,  altogether now 

The case against Trident replacement

The replacement of the Trident missile system cannot be justified on moral, economic or defence grounds. That's the conclusion of a new report launched in the Scottish Parliament today by the Jimmy Reid Foundation.

The moral and philosophical case against renewal is well understood, even by those who support Trident replacement. Inherently indiscriminate nuclear weapons can never satisfy the just war principles of discrimination and proportionality. 

There is also a defence case against renewal; one increasing supported by former defence chiefs and others who recognise that the massive expenditure on Trident is at the expense of conventional defence. Equipment and resources that are needed to address real threats to our security, rather than a vanity project maintained largely to maintain a seat at the UN Security Council.

Important those these arguments are, the strength of today's report is in making the economic case against Trident renewal. The often vastly inflated claims of job losses are carefully debunked and the report calculates that some 600 civilian jobs are dependent on the existing Trident system at Faslane and Coulport.  The replacement of Trident will cost at least £205bn - a figure that is likely to go up with the weaker pound (as much of the spending goes to foreign companies) and the normal cost drift of defence programmes. That means every Trident job costs £18m.

We also need to recognise the opportunity cost of spending £205bn on other public services. With more than 30,000 devolved public sector jobs lost in Scotland since the crash, these resources would provide many more jobs and services that people really need. It could also boost real manufacturing jobs in the UK, rather than transfers to banks and foreign multinationals.

As trade unions we cannot argue the indefensible, simply because it has job implications. What we have to do is to minimise the impact and negotiate a just transition to other work. It might be argued that this is easy for a union with no members linked to Trident replacement to make. However, there are other policy areas where we have taken just such an approach. For example, we are in favour of public ownership of the gas and electricity sectors, a policy that would result in the loss of sales jobs in the industry done by UNISON members. Our approach is not to defend the obvious waste in the current system, but rather to make the case to transition our members into more useful and more satisfying work.

In this context, the report calls on the Scottish Government to establish a Scottish Defence Diversification Agency, whose main focus would be the planning and resourcing of jobs away from Trident. The report outlines how this could be done and points to case studies from other parts of the world.

Spending staggering sums of public money on a useless weapons system cannot be justified at any time. However, given the current state of the public finances it is beyond indefensible. The strength of this report is that it focuses on the economic case against Trident replacement and offers a just transition for those who may be impacted by non-renewal. Their skills are much needed elsewhere.

The report will be available on the Reid Foundation website

http://reidfoundation.org

Autumn Statement - impact on Scotland

Today’s Autumn Statement failed to live up to the rhetoric. There was little for those who have suffered the most from austerity and nothing for our beleaguered public services.

The main significance of the Autumn Statement for Scotland is the impact on public spending. Under the new devolved powers the Scottish Budget is made up of the Barnett formula, less the Block Grant Adjustment, plus devolved tax changes agreed by the Scottish Government.  This means the Barnett formula remains an important component of the Scottish budget and is based on a proportion of English spending on devolved services, like health and local government.

The Barnett consequentials of today's Autumn Statement are an additional £800m for Scotland. Sadly, this is less attractive than it sounds because it refers to capital spending. While capital spending is welcome, including the City Deals, we have to recognise the significant leakages it has from the Scottish economy. In contrast, revenue spending is much more likely to be spent on the high street.

The departmental revenue spending plans remain the same, which means we are still facing substantial cuts to services over the next three years - up to £1.5bn, most of which the Scottish Government is likely to pass on to local government. There was no hoped for increase in English NHS or social care spending, which would have had positive Barnett consequentials. 

This all means a tricky Scottish budget for Derek Mackay MSP when he sets out the Scottish Government's spending plans on 15 December. 

Other announcements today that impact on Scotland include an increase in the so called National 'Living Wage' from £7.20 an hour to £7.50 from April next year. This only applies to those over 25 years of age and is not to be confused with the real Scottish Living Wage, calculated based on what people need to live, which has recently been increased to £8.45.

There is an increase in the lower income tax threshold to £11,500 that benefits higher income taxpayers as much as the low paid. The same applies to the higher rate tax thresholds and the previously announced cut in Corporation Tax. As IPPR argues, this tax cut for the top is the wrong priority.

There is also some modest relief for low paid members who will transfer to the new Universal Credit benefit, because the taper rate is to be cut from 65% to 63% from April next year.

The economic forecasts in the statement are generally gloomy. Growth forecasts are down, debt and borrowing will rise, in a large part due to Brexit. There has been a relaxation from Osborne's unachievable targets, but as the OBR says, it isn't going to be easy to balance the books in the next parliament either. Ageing along could add 0.8% of GDP by 2025/6. All of this shows that austerity has failed dismally, yet the UK government ploughs on regardless. 

The OBR has identified delayed investment since Brexit along with inflation as the big driver of lower growth, only partly offset by export opportunities from the lower pound. In a separate announcement today, the ONS released their post-Brexit population forecasts for Scotland. This chart shows how population growth will be much slower in Scotland and that has economic consequences as well.

The more informative OBR forecasts offer little cheer. Wages will be £1000 lower in 2020 than the government predicted in April. 

Overall, as Dave Prentis puts it, "Despite all the rhetoric, the previous Chancellor’s austerity plan is still very much intact. There was precious little, if anything, for our beleaguered public services"

Inequality: moving from analysis to action

The causes of poverty and inequality are well understood, we now need to have the difficult conversations about taking action.


All this week, BBC Scotland have been running a series of features under the heading Unequal Scotland. They have looked at education, health, life expectancy and income. This fairly describes inequality and the impact it has, not just on those most impacted, but also the economy and everyone in Scotland.


As Douglas Fraser explains, this issue is being given a lot of attention by those in power, including heads of government, central bankers, the International Monetary Fund, even the Davos gathering of the economic elite. Nicola Sturgeon has put the tackling of inequality alongside economic growth as her twin priorities. Even a Tory Prime Minister has targeted her political message at those "struggling to get by".


Describing inequality is something we are very good at doing. Taking real action is more tricky, primarily because it involves some difficult conversations with those of us who are not in poverty.


A good example of this is highlighted by Gideon Calder from Swansea University. His research asks, is it okay for parents to pass wealth down to their children? So the kids gain a house when mum dies, for example. And before that, get everyday benefits just because their parents are relatively well-off? He concludes that we are not willing to have this conversation because the 'family' is sacrosanct.


The First Minister's poverty tsar touched on a similar point with her call for increased taxes, not least by addressing inheritance tax. She also picked on tax increases for the richest and the need for a progressive council tax - something the Scottish Government has ducked yet again. She said: "When people say they want a really wonderful NHS they don't say I want to pay more taxes for it. Well, I'm afraid you cannot have a really wonderful NHS unless you are willing to pay more taxes for it."


However, her most telling comment was that she was not convinced governments would raise taxes to the levels needed. She said: "You [governments] can always go further but you'll always have your eye on the next election and what people can expect". This goes to what I call Scandamerica, the idea that we can have Nordic levels of public services without most of us, not just the very rich, having to pay more taxes. Remembering that we now have the powers to address this in Scotland.


The Scottish Government is currently consulting over what a Scottish social security system should look like. This is important because some 37% of benefits will be devolved to Scotland, when you exclude pensions. However, as Govan Law Centre and others have highlighted, the consultation is almost entirely about process, not about adequacy of benefits, a crucial element of any strategy for tackling income inequality.


This theme is also covered by the tax lawyer Jolyon Maugham QC who points out that this year we’ll collect around £170bn of income tax, but forego through reliefs about £30bn of income tax - almost £500 a year for every man, woman and child in the UK. He says these reliefs go  overwhelmingly to those who need it least, the inevitable consequence of two deliberate policy choices: to distribute that £30bn through the tax system and to fail to monitor what good it does.


Tackling these reliefs would include some difficult conversations on issues like ISA's and tax relief on pension contributions, which are valued by middle income groups. Perhaps his most striking statistic is that the highest earning 15,000 taxpayers, almost 0.05% of all taxpayers, netted 5.5% of total deductions and reliefs. Most will have seen six figure reductions to their income tax bills.


This isn't just a parochial issue for us in Scotland and the U.K. As Thomas Piketty argues in the Guardian this week, Trump’s victory is primarily due to the explosion in economic and geographic inequality in the United States over several decades and the inability of successive governments to deal with this. Fiona Buchanan from Christian Aid makes a similar point in relation to the developing world, also highlighting the issue of gender justice.


There are some serious attempts at developing a consensus around some solutions. The IPPR's Economic Justice Commission is one such initiative. Their background paper makes the point that for all the rhetoric about a strong economy, it isn't an economy that works for all. Half of all UK households have seen no meaningful improvement in their incomes for more than a decade. The JRF's 'Talking about Poverty' project also points the way to a better understanding of the solutions.


So, hats off to the BBC for doing what a good public service broadcaster should do - educating us on probably the most important issue of our time. However, we need to move on to some, often uncomfortable solutions. Tackling inequality is in all our interests, because more equal societies do better on every count. This means we all have to contribute to the solutions, and yes, it will cost us.

A practical approach to reducing council debt

Council borrowing has come under scrutiny with a call from the Scottish Greens urging the UK government to write off what they describe as "unethical" loans made to councils in Scotland. This is similar to Unite the Union's, 'Scrap the Debt' campaign.

The response from the UK Treasury was a predictable - no chance. That doesn't mean the campaign call isn't justified. After all there is precedent with housing stock transfer, albeit that was to achieve a specific, if flawed, policy objective. It is also important to understand that councils have been borrowing from the Public Works Loans Board at rates well above the cost to the Treasury. In effect this has been a nice little earner for the Treasury.

I understand the campaign reason for the analysis by the Scottish Greens that councils are typically spending about 42% of the money raised by the council tax locally on servicing debts. However, this is misleading as only 15% of council revenues now come from the council tax, largely as a consequence of the regressive council tax freeze.

Commentators often erroneously explain council borrowing by making comparisons with personal finance. It has to be understood that councils are under a legal obligation to produce a balanced budget. They do not borrow money simply to pay for the running costs, this is for capital spending on schools and other services. The exception is PPP schemes, which are funded from revenue, at exorbitant cost.

As the Treasury is going to ignore this call for debt cancellation, we need to look at what else councils and the Scottish Government can do to reduce the debt burden.

Following a call by UNISON Scotland, the Scottish Government has relaxed the rules governing loans funds, giving councils greater flexibility. This could save councils in Scotland as much as £50m.

Councils should also be looking at their borrowing books and refinancing the older debt, in a similar way individuals shop around with their mortgages  The interest rates on some of this debt is way above current rates. The primary constraint is that some councils unwisely signed up for punitive repayment penalties. The worst, but not the only, example of high exit fees is the Lender Option Borrower Option (LOBO). As ex Barclays Capital employee Rob Carver put it: “You just need a Bermudan swaption pricer to know the relevant volatility surface, some kind of interest rate model calibrated to the appropriate processes and the full forward and spot curve". Understandably, not skills present in most council finance departments!

The other option for replacement and future loans is using bonds. Something that used to be commonplace, but has gone out of fashion. Around 60 local authorities in England and Wales have joined together in the Municipal Bonds Agency, which has the express aim of reducing council’s capital costs by arranging loans at cheaper rates than the PWLB. The English Local Government Association, which worked to set up the agency, estimates council savings on  financing costs over 30 years could be as high as £1.45 billion. They have already forced the Treasury to cut PWLB rates. Scottish councils have sadly been very slow to consider this option, the recent exception being Aberdeen City Council. In our 'Combating Austerity' report we calculated that councils in Scotland could have saved between £270m and £337.5m over 30 years by issuing their own bonds.

Councils and health boards should also be robustly monitoring and restructuring/refinancing their PPP schemes. Refinancing usually requires the approval of the Scottish Government, who have been slow to do this, although the SFT are looking at a few schemes. I suspect part of government's reluctance is that a major use of refinancing requires the cooperation of councils using their prudential borrowing powers. Better progress is being made with monitoring contract performance.

Calls for debt cancellation are justified and would be a much needed boost to council finances slashed by Tory austerity and more than passed on by the Scottish government. However, the Treasury is unlikely to change its mind and therefore we should be actively pursuing practical alternatives to the more expensive borrowing provisions commonly used by councils

We need a clean energy future - not fracking

A busy week for the fracking debate in Scotland, but a decision still looks some way off.

There was some speculation ahead of today's publication of the research sponsored by the Scottish Government that the minister would announce a bill on fracking. Instead he announced a public consultation will be launched in January, before any decision is made on whether to allow fracking. At the same time, the government will publish its climate change plan and a full strategic environmental assessment. In the meantime the moratorium remains in place.

The independent research published today covers the following issues in relation to UOG:

Public health impacts

Economic impacts

Climate change impacts

Understanding and monitoring induced seismic activity

Understanding and mitigating community level impacts from transportation

Decommissioning, site restoration and aftercare.

The Minister for Business, Innovation and Energy Paul Wheelhouse said: “The extensive package of research published today will ensure the public has access to a comprehensive evidence base on the potential health, economic and environment impacts of UOG."

FoE head of campaigns Mary Church said: "The economic case for pursuing an unconventional gas industry in Scotland simply doesn't stand up, while the risks of doing so could be utterly devastating for communities and the environment. No state has had a moratorium on fracking, looked at the evidence and decided it's a good idea."

These are initial reactions and it will take all the interested parties some time to digest this research. Meanwhile, other studies will add to concerns over fracking. In particular, a report in TheFerret highlights a new study by scientists at Yale University that indicates chemical contamination from the fracking industry could increase the risk of childhood leukaemia.

Scottish Labour is keeping up the pressure on the Scottish Government by lodging a Holyrood member's bill aiming to "change the law to ban fracking in Scotland". Labour MSP Claudia Beamish has launched a public consultation as part of her bid to have fracking banned in Scotland. This follows a vote in the Scottish Parliament last June, in favour of an outright ban. 

Her Bill has a focus on the climate change implications of fracking. She said: "Scotland relying on fracking for our energy needs will lock us into an energy infrastructure based on fossil fuels long after our country needs to have moved to clean energy. SNP ministers now face an urgent choice - they can work with Labour to ban fracking, or they can work with the Tories to allow drilling under family homes in parts of central Scotland."

Climate change is certainly the right focus for a fracking ban. For me there are three key arguments against lifting the moratorium.

Firstly, we rightly follow the precautionary principle in terms of safety. Something our industrial heritage has taught us - just ask anyone suffering from asbestosis or other industrial diseases. Fracking in the wide open spaces of the USA has highlighted significant safety concerns. In Scotland fracking will take place under people's homes in a densely populated area.

Secondly, there is considerable doubt that gas from fracking is even economically viable. Many experts doubted the financial case, even before the falling price of gas. As for jobs, well, we have seen fanciful claims for other energy sources and few have delivered what was promised.

Thirdly, we don't need it. We should not compromise Scotland's climate change targets, or the UK's broader commitment to limiting global climate change to two degrees. Scotland should be leading the world in moving to clean renewable power, not aiming to extract ever more inaccessible fossil fuels. The risk is that shale gas doesn't just replace imported gas - it replaces renewables.

The third reason alone is reason enough to ban fracking in Scotland. Launching a consultation alongside the climate action plan is therefore a helpful juxtaposition. At the very least the Scottish Government's position is significantly less gung-ho than the UK government. However, an outright ban is now the way ahead, so we can concentrate on a clean energy future.

Local government and voting

The turnout in local government elections has been declining for a number of years. That's unlikely to change until we reinvigorate local democracy.

Today, I was giving evidence to the Scottish Parliament Local Government Committee's inquiry into local government and voting. There was a useful discussion of short-term initiatives to improve registration and voting. However, there was also a recognition that wider local government reform was needed to re-engage voters.

In the short-term, there is much that civil society, including trade unions, are doing to encourage registration, postal voting and greater engagement in the political process. Like others, we have found the traditional hustings less engaging than smaller tabletop discussions. As with other council services, registration sections are having to retrench to the statutory basics. None the less there are examples of best practice, such as staff working with schools to register young voters, that could be expanded, if the funding was made available. 

Creating more of a local media buzz around elections would help, although I am less convinced about the merits of the rapidly disappearing posters on street furniture. Schools are doing positive work through modern studies, but this is not consistently applied across Scotland in a crowded curriculum.

Political parties could do more to ensure their candidates are more representative of the electorate. Most obviously in terms of gender, with only 25% of councillors being women. There is also a shortage of working age councillors and more could be done to encourage employers to view civic engagement as something to be valued. 

The size of councils in Scotland, the largest in Europe, is also a problem. It means they are more remote from the electorate and seem less relevant to local issues. The turnout in some European countries with much smaller councils, based on real communities is impressively high. It also means people would be more willing to contribute their time to participate in local democracy as voters, engaged citizens and stand for election. Being a councillor shouldn't always be a full-time role.

Another relevant feature of councils in Europe is that they are often unitary authorities, responsible for almost all local services. In Scotland, we have an array of public bodies and quangos, only loosely brought together through community planning. We have also seen ever greater centralisation, with powers removed from councils and ministers taking greater powers of direction. With powers spread amongst so many decision makers, many at national level, it's not hard to see why people feel disengaged. 

Democracy is about more than voting every four years. Councils can do more to meaningfully engage with their communities. A range of initiatives from citizens juries to participatory budgeting have been tried, with mixed success. I suspect that won't change until people believe they have real power to effect change in their communities.

So, in the short-term we can take action to improve registration and postal voting, by resourcing councils with the active support of civil society. However, in the longer term we have to respect local democracy, with councils that have the powers to effect real change, working with citizens from the bottom up. Only then will more voters deem local elections important enough to fully participate.

Action on recruitment and retention of health and care staff

The health and care sector in Scotland is facing significant recruitment and retention problems at a time when we need to expand the workforce. We need to take action now.

Today, I was giving evidence to the Scottish Parliament Health Committee's inquiry into workforce recruitment and retention. It's a timely look at the issue given the problems the sector faces and the need to recruit thousands of extra staff to cope with growing demand. And that's before the uncertainties of Brexit, which understandably concerned MSPs as well.

We should start with the data. For the NHS we have pretty good workforce statistics because NHS Scotland uses a common payroll system and therefore ISD can publish a decent analysis of trends. For example, we know that nursing vacancy rates have been growing and currently stand at 2566 WTE. There are similar proportional problems with doctors and allied health professions, including Occupational Therapists.

The same is not true for the social care sector. This largely privatised sector is hugely fragmented and data is heavily reliant on registration with the SSSC. The problem with this is that not all staff are yet registered and some important groups, like PA's and childminders, don't have to register. The interaction with volunteers is another complication. We are therefore reliant on partial employer data and our surveys to plug the gap. We do know that many employers are holding high numbers of vacancies and have turnover rates that would make the worst outbound call centres blush.

This is also an ageing workforce. In social care the median age in all sectors is in the mid to late forties and younger staff are much more likely to be looking to get out of the sector. There is also gender segregation with men making up only 15% of the workforce. One of the barriers in attracting young men into the sector is the prevalence of part-time working. The data actually understates the problem because the SSSC defines full-time as more than 30 hours per week.

In preparation for today's session, I went back and looked at our member surveys in the last 18 months or so. What struck me was the similarity in the concerns of members from low paid home care workers, to professional posts such as district nurses and health visitors. They all point out that these are tough jobs, physically and emotionally, that are getting more complex. The job satisfaction that used to be a feature of the job has been undermined by cuts that leave them with not enough time to care. They also point to limited training and the loss of admin staff support and poor IT systems.

Pay and conditions are a big issue, particularly in the social care sector. In Living Wage Week we should be redoubling our efforts to ensure that care workers are getting at least that rate. We also need to tackle poor working practices such as insecure work, zero/nominal hours contracts and the treatment of travel time. As many staff have said to us, why should we work in such a tough job, with registration standards, when we can earn more stacking shelves.

Finally, let's look at some solutions.

We must start by valuing the care workforce. Paying them properly with fair work principles being delivered through procurement and sectoral bargaining. That will also help to address gender segregation.

Workforce planning is more of an art form than a science, but we could do better. Not least by widening the scope from the narrow group of professions currently included. We also need to recognise the scope for expanded roles and initiatives like UNISON Scotland's Skill Charter could contribute to this. 

Cutting admin support is a false economy, leaving front line staff to perform these functions, usually not as competently. Investment in IT systems and equipment that actually works would also help.

Structurally, in social care at least, fragmentation of providers has to be addressed. Does a country the size of Scotland really need a thousand adult care providers? 

With a growing demand for health and care workers we need to take action now if the workforce is going to be there when demographic change impacts on many more people living in Scotland. We can make some structural changes and coordinate workforce planning. However, none of that will work unless we value the workforce.

Living Wage Week: good progress, but more to be done

The Scottish Living Wage is the real living wage – the UK government just hijacked the brand!

The new rate of £8.45 is a welcome increase for many thousands of low paid workers. Also congratulations to public sector ferry operators Calmac, for their Scottish Living Wage Champions award.

The start of Living Wage Week is an opportunity to remind everyone that the real living wage is based on actual costs of living. While any increase in the national minimum wage is welcome, it remains a flawed approach - not least because the 'living wage' element only applies to the over 25's. Shops don't differentiate pricing for those under that age.

I was chairing a session at today's Living Wage Expo that highlighted the difference between the two approaches with experts from the Resolution Foundation and the Centre for Research in Social Policy. The ‘real’ Living Wage movement requires strong advocates who can offer clear differentiation against rates that are not based on cost-of-living. 

While there is a welcome cross party consensus on the real living wage, there is a more positive approach in Scotland. 

As First Minister Nicola Sturgeon said:

“For business, paying the Living Wage makes sense - it’s an investment in people and all the evidence shows it leads to increased productivity and reduced staff absence and turnover, while sending a strong signal to customers about fairness. Yet we also know around 20 per cent of Scotland’s workforce earn less than the Living Wage. With low pay one of the main drivers of in-work poverty, it’s vital that employers who can pay the real Living Wage do so."

The Scottish Government has made an important commitment to pay the living wage for adult care workers, even if the implementation has been partial and muddled. They should make a similar commitment for childcare workers, 80% of whom are paid below that level. The proposed voucher scheme won't deliver a well-trained and fairly paid workforce. Both of these sectors rely heavily on government funding and therefore government has the levers to make real progress on the living wage.

As TUC General Secretary Frances O’Grady said today:

 “The fight for decent pay won’t be won just by employer goodwill, however. We need strong unions who can negotiate with employers and win fair pay for their members, along with a rise in the government’s minimum wage."

Wages are also not the whole story. Bad employers cut other terms and conditions, like holidays and sick pay, to meet the statutory minimum wage. That's why the broader fair work approach in Scotland is so important. Again, the Scottish Government has taken a positive approach through the Fair Work Convention and the Labour Market Strategy. The challenge is to use the levers of government to deliver on the worthy ambition in these approaches.

Living Wage Week is an opportunity to promote the Scottish Living Wage. Today's conference heard some inspiring stories from workers and employers on the benefits for individuals and businesses. Scotland has made good progress, but there is much more to be done.

We need a new strategy to end fuel poverty

The Scottish Government has missed the statutory target to eradicate fuel poverty this year by some distance. So, new reports on fuel poverty should be welcomed, but only if they are quickly followed by a new strategy.


According to the latest statistics (2014), there are 35% or around 845,000 households living in fuel poverty in Scotland, and 9.5% (229,000 households) living in extreme fuel poverty. This high rate of fuel poverty is largely unchanged since 2009, and has doubled since the Scottish Government‟s fuel poverty target was set in 2002.


The Scottish Fuel Poverty Strategic Working Group and Scottish Rural Fuel Poverty Task Force reports have been published alongside a Scottish Government research paper on the likelihood of being fuel poor in rural Scotland. This is to help identify and target households in rural Scotland who have a high risk of being in fuel poverty.


The Strategic Working Group has made 4 high level recommendations:
• The fuel poverty strategy should be firmly based on the principle of social justice and creating a fairer and more equal society.
• The fuel poverty strategy must address all four drivers of fuel poverty: income, energy costs, energy performance, and how energy is used in the home.
• Strong leadership and a joined up approach across several portfolios within national and local government are required to develop and implement the strategy.
• The Scottish Government should review the current definition of fuel poverty and establish a policy objective and monitoring programme that addresses all four causes of fuel poverty


Housing Minister Kevin Stewart said:
“Everyone should be able to heat their home and keep themselves and their families warm, therefore tackling and eradicating fuel poverty is vital and we must make sure action we are taking is making a difference to those that need it most."


Scottish Fuel Poverty Strategic Working Group chair David Sigsworth said:
“The report explores why current programmes have failed to eradicate fuel poverty and concludes that experience over many years has shown that energy efficiency improvements, whilst important, are not enough. Recent increases in underlying costs of fossil fuel, due to devaluation, will exacerbate this situation.”


It would be hard to disagree with the recommendations in these reports, although it is strange that the Scottish Government chose to highlight a review of the definition of fuel poverty in their press release. The definition probably does need reviewing, but leading with that gives the impression that the problem can be wished away with a new definition.


High level recommendations are fine, but the test is in the delivery. That requires a new action plan. As Energy Action Scotland director Norman Kerr said:
“There is a wealth of information in the two reports which Ministers must now consider in order to review the fuel poverty strategy for Scotland. The Scottish government, and all political parties in Scotland, acknowledge the problem of fuel poverty and must be given credit for tackling the problem and continuing to fund programmes to that end. However, to meet their ambitions to end the blight of cold, damp homes, more action must now be taken. People across Scotland will want to know that one day the right that everyone has to be able to live in a warm, dry home at a price they can afford will be a reality.”


The acid test of today's announcement will be if Scottish ministers use these reports to set out a new fuel poverty strategy, which includes a new target date to eradicate fuel poverty in Scotland.