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Local government finance circular 1/2022: settlement for 2022-23

Local government finance circular containing the settlement for 2022-2023 and redeterminations for 2021-2022.

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Local Government Finance (Scotland) Order 2022 - settlement - for 2022-23 and redeterminatinos for 2021-2022

Non-domestic rates for 2022-2023

The Scottish Parliament today debated and approved the Local Government Finance (Scotland) Order 2022. This Order provides the statutory authority to pay the General Revenue Grant (GRG) for 2022-23, and the changes made to amounts payable to each authority for 2021-22 since the 2021 Order.

This Circular provides a summary of the 2022-23 figures (and the revised revenue allocations for 2021-22) which have been updated from those contained in Local Government Finance Circular No. 9/2021. The total 2022-23 funding changes from Finance Circular 9/2021 are detailed in Annex A. 

The Cabinet Secretary for Finance and Economy wrote to the COSLA President, copied to all Council Leaders on 9 December 2021 providing details of the proposed settlement. The Scottish Government requires local authorities to deliver on the full package of agreed measures as set out in the letter, including the shared priorities which will improve outcomes for local people. 

The total overall funding package for 2022-23 now includes:

  • real terms growth to the overall settlement
  • an increase of £120 million in the core budget in cash terms
  • £353.9 million previously announced for Health and Social Care integration
  • £174.5 million for continued delivery of the real Living Wage within Health and Social Care
  • £15 million for uprating of free personal and nursing care payments
  • £20.4 million for implementation of the Carers Act
  • additional investment of £124 million to provide care at home
  • £20 million to support Interim Care
  • an additional £200 million to support investment in health and social care
  • £145 million for Additional Teachers and Support Staff
  • funding for 100 day commitments including the removal of curriculum and music tuition charges and expanded School Clothing Grant
  • £68.2 million for Child Bridging Payments and
  • an extra £64 million revenue and £30 million of capital funding to support the expansion of Free School Meals

The Cabinet Secretary for Finance and Economy also announced a £290 million cost of living support package at Stage 3 of the Budget Bill on 10 February. £280 million will be utilised to provide £150 to every household receiving a Council Tax Reduction, irrespective of what band their property is in, and £150 to all other households living in a property in band A to D. The Scottish Government will provide £249.5 million in April to allow a direct payment or credit to council tax bills to be made according with the agreed guidance. The undistributed sum of £30.4 million will be distributed based on actual payments made and included in the 2023 Order as agreed by COSLA Leaders. It should be noted that while £249.5 million has been included in today’s Order, it has been excluded from the annexes below, (other than it being shown separately in Annex B as the funding is not being treated as part of the 2022-23 local government finance settlement.

On a point of clarification in respect of the additional 2022-23 health and social care funding which is set out above you should note that any new money allocated in 2022-23 is excluded from the calculation of the main funding Floor which ensures that all 32 local authorities will receive their full formula share of all the additional health and social care funding. For previous years as the health and social care is included in the block grant it is therefore not separately identifiable. The process for calculating the impact of the Floor, agreed with COSLA, does not allow for individual general funding allocations within the block grant (other than a change in quantum) to be excluded.  

Alongside the funding set out in this Circular, it should be noted that there are a number of further funding streams outwith the local government finance settlement for particular policy initiatives which benefit local government services. Table 5.17 in the Scottish Government’s “Budget Document: 2022-23”, which was published on 9 December 2022, provides further details of these funding streams.

On 15 March the Local Government, Housing and Planning Committee will consider the draft Local Authority (Capital Finance And Accounting) (Scotland) (Coronavirus) Amendment Regulations 2022 which will extend the loans fund repayment holiday flexibility for a further year. This extension will deliver the request of Directors of Finance to allow local authorities to choose to utilise this flexibility in 2022-23 if this has not already been utilised in either of the preceding two financial years. The amendments also deliver an extension to the audit completion deadline for the 2021-22 annual accounts of local authorities from 30 September 2022 to 30 November 2022.

The various parts and annexes to this Circular, listed below, provide more of the detail behind the calculations.     

Part A: Local Government Finance Settlement – Revenue: 2022-23 and changes in 2021-22
Part B: Local Government Finance Settlement – Capital: 2022-23
Part C: Non-Domestic Rates for 2022-23

The various Annexes included in this Circular are as follows:

Annex A: All Scotland Aggregated Funding Totals 2021-23
Annex B: Individual Revenue Allocations for 2022-23
Annex C: Revised Individual Revenue Allocations for 2021-22
Annex D:  Explanatory Notes on the Revenue Distribution
Annex E: Estimates of Ring-Fenced Grant Revenue Funding for 2022-23
Annex F: Floor calculation for 2022-23
Annex G: Redeterminations of Individual Revenue funding for 2021-22
Annex H: 2008-23 Changes Column
Annex I: General Capital Grant and Specific Capital Grants 2022-23
Annex J: General Capital Grant – Flood Allocations Per Local Authority 2022-23 and
Annex K: Total Local Government Funding Settlement 2022-23

Part A: Local Government Finance Settlement - Revenue: 2022-23 and changes in 2021-22

This Finance Circular sets out the distribution of revenue funding allocations for 2022-23. Annex A of this Circular sets out the all-Scotland aggregate totals for 2021-23.

Annexes B and C set out the distribution of the total revenue funding allocation between councils and the allocation of the different elements (General Revenue Funding, Non-Domestic Rate Income and Ring-Fenced Revenue Grants) for each council for 2022-23 and 2021-22. The basis behind the grant distribution methodology is as recommended in the report from the Settlement and Distribution Group (SDG). The explanatory notes contained in Annex D explain the basis behind the calculation of the individual council grant allocations.

Annex E gives a breakdown of the provisional individual council shares of all the estimated ring-fenced revenue grant allocations for 2022-23. 

The calculation and effects of the main floor adjustment for 2022-23, which provided councils with a maximum decrease in the funding used in the calculation of the main floor was set at minus 0.42%, is set out in Annex F of this Circular. The setting of the floor is in line with the revised arrangements agreed following the SDG review of the floor methodology during 2018

This Circular confirms the continuation of the 85% funding floor for 2022-23. The methodology compares total revenue funding plus local authorities’ assumed council tax income and any council whose total support under this method falls below 85% will be topped up to ensure that all councils receive 85% of the Scottish average total revenue support per head.

This Local Government Finance Circular provides details of 2021 22 redeterminations at Annex G for the General Revenue Grant, both core settlement and COVID-19 related. It should be noted that only the core settlement additions have been included in the revised 2021-22 settlement set out in Annex A and Annex C.  

Annex H summarises the column within the settlement titled 2008-23 Changes Column.

Part B:  Local Government Finance Settlement – Capital Grants 2022-23 

In 2022-23 the Local Government Settlement provides capital grants totalling £684.6 million. This is made up of General Capital Grant totalling £545.5 million and Specific Capital Grants totalling £139.1 million.

Annex I sets out the provisional distribution of the Settlement for capital per local authority for 2022-23. The methodologies used to calculate these provisional allocations have been agreed with COSLA.  Capital grants which remain undistributed are identified as such.  

The provisional distribution for the General Capital Grant includes allocations for flood schemes. The allocations for these schemes is set out in Annex J. Where schemes have slipped and the grant paid in a prior year exceeds the grant due the scheme will show a negative value which will reduce the total General Capital Grant payable to that Council. 

Annex K summarises the Local Government Finance Settlement for 2022-23.

Part C: Non-Domestic Rates for 2022-23

The Distributable Amount of Non-Domestic Rates Income for 2022-23 has been set at £2,766 million. This figure uses the latest forecast of net income from non-domestic rates in 2022-23 and also draws on council estimates of the amounts they will contribute to the Non-Domestic Rating Account (the ‘Pool’) in 2021-22. The figure incorporates the Scottish Fiscal Commission’s estimate of the contributable amount and includes a calculation of gross income; expected losses from appeals; estimated expenditure on mandatory and other reliefs; write-offs and provision of bad debt together; and estimated changes due to prior year adjustments.  The distribution of Non-Domestic Rates Income for 2022-23 has been based on the amount each Council estimates that it will collect (based on the 2021-22 mid-year estimates provided by councils). General Revenue Grant provides the guaranteed balance of funding. This method of allocation provides a clear presentation of the Non-Domestic Rates Income per council and transparency in the make-up of council funding.

The 2022-23 Non-Domestic Basic Property Rate (‘poundage’) is provisionally set at 49.8 pence. Two additional rates are levied on properties with a rateable value over £51,000 (51.1 pence) and £95,000 (52.4 pence) respectively.

The Scottish Budget 2022‑23 also introduces the following policies:

  • 50% Retail, Hospitality and Leisure relief for the first three months of 2022-23, capped at £27,500 per ratepayer
  • Business Growth Accelerator relief will be expanded by making increases in rateable value due to the installation of solar panels a qualifying improvement eligible for relief from 1 April 2022
  • Enterprise Areas relief will be extended for one year to 31 March 2023

The Scottish Budget 2022‑23 maintains the following reliefs which are set annually:

  • Small Business Bonus Scheme relief, which lifts over 111,000 properties out of rates altogether as at 1 June 2021 and
  • Transitional Relief, which caps annual rates bill increases at 12.5% in real terms for Aberdeen City and Aberdeenshire offices and for all but the very largest hospitality properties across Scotland

The following reliefs will also be maintained: day nursery relief, disabled rates relief, district heating relief, empty property relief, Fresh Start relief, hardship relief, hydro relief, mobile masts relief, new fibre relief, renewable energy relief, renewable heat networks relief, reverse vending machine relief, rural relief, sports club relief and stud farms relief. Charitable rates relief will also be maintained, however from 1 April 2022 mainstream independent schools will no longer be eligible for this relief, as recommended by the independent Barclay Review of Non-Domestic Rates in 2017.

The Barclay Review also recommended that: “To counter a known avoidance tactic for second homes, owners or occupiers of self-catering properties must prove an intention let for 140 days in the year and evidence of actual letting for 70 days.”  This policy will be implemented on 1 April 2022, from which point self-catering premises will be required to meet these criteria. Councils will have discretion in the event of exceptional circumstances, which lead to the criteria not being met, to determine that a property can continue to be treated as a self-catering premises. 

We have laid legislation to help local authorities tackle a known avoidance tactic on empty non-domestic properties. From 1 April 2022, this policy will provide local authorities with the discretion, in prescribed circumstances, to restrict the awarding of 100% empty property rates relief where the occupier has entered insolvency, compulsorily (by the court) or voluntarily. This will deliver greater fiscal empowerment for councils in advance of the devolution of empty property relief in April 2023.

NDR reliefs, like other subsidy or support measures, may be subject to the conditions set out in the EU-UK Trade and Cooperation Agreement, which in certain cases limits sectoral public subsidisation to 325,000 Special Drawing Rights (equivalent to approximately £335,000) over any period of three fiscal years.  

Councils may also offer their own local reliefs under the Community Empowerment (Scotland) Act 2015.

Information on the Business Rates Incentivisation Scheme (BRIS) will be set out later.

Enquiries relating to this Circular 

It should be noted that figures in this Circular may be marginally different from final allocations due to roundings. Local authorities should note that if they have any substantive specific enquiries relating to this Circular these should, in the first instance, be addressed through COSLA. We have given an undertaking to respond to these queries as quickly as possible. Contact details for COSLA are: 

Mirren Kelly Mirren@cosla.gov.uk 

Any other queries should be addressed to the following: 

Local Government Revenue Settlement and BRIS. 
Bill Stitt Bill.Stitt@gov.scot 

Local Government Finance Settlement (Capital)
Craig Inglis Craig.Inglis@gov.scot 

Non-Domestic Rates 
Anouk Berthier Anouk.Berthier@gov.scot 

This Circular, along with the supporting tables will be made available through the Local Government section of the Scottish Government website.

Yours faithfully

Ellen Leaver
Deputy Director, Local Government and Analytical Services Division

Annexes A-C (tables) are available in the accompanying spreadsheet. 

The explanation of each of the columns within the tables at Annex B is as follows:

Column 1 – represents the updated on-going service provision and includes the following combined information: (i) the updated Grant Aided Expenditure (GAE) assessments; (ii) the revised Special Islands Needs Allowance (SINA); (iii) each council’s individual share of the on-going revenue grants which have been rolled up into the core local government finance settlement; (iv) each council’s share of all the baselined redeterminations since Spending Review 2007; and the previous loan charge adjustment.

Column 2 – is the new combined total, non ring fenced, changes in general provision resulting from Spending Reviews 2007, 2010, 2011, 2013, 2015 and budget revisions for 2016 - 2023 allocated pro rata to each council’s share of TEE as agreed with the Settlement and Distribution Group (SDG). 

Column 3 – represents the updated share of the loan charges support for outstanding debt and the same level of on-going PPP level playing field support. The methodology for calculating Loan Charge Support (LCS) and support for Public Private Partnership (PPP) projects (level playing field projects only (LPFS) is set out on Annex H of Finance Circular 2/2011.

Column 4 – is the main floor adjustment which has been calculated using the revised methodology agreed following the 2018 review.

Column 5 – this is the net revenue expenditure recognised by the Scottish Government and represents the sum of columns 1 to 4.

Column 6 – is the assumption of the amount of Total Estimated Expenditure to be funded from the council tax. Any changes are as a result of buoyancy or projected numbers of properties, as well as the estimated additional council tax income to be collected and retained by each local authority as a result of the changes to bands E to H.

Column 7 – is each council’s estimated share of the on-going Ring-Fenced Grants for Gaelic, Pupil Equity Fund (PEF), Criminal Justice Social Work, Early Learning and Childcare, and Inter-Island Ferries.

Column 8 – is each council’s share of the estimated non domestic rate income which has been distributed proportionately on the basis of council’s 2021-22 mid-year income.

Column 9 – is the balance of funding provided by means of general revenue funding and is calculated by deducting columns 6, 7 and 8 from the Total Estimated Expenditure in column 5.

Column 10 – represents the total revenue funding available to each council in 2022-23.

Column 11 – is the 85% floor adjustment which has been calculated to meet the Scottish Government’s commitment to ensure that no Local Authority receives less than 85% of the Scottish average per head in terms of revenue support.

Column 12 - is the revised total funding including all the changes and the 85% funding floor adjustments. 

Annexes E-K (tables) are available in the accompanying spreadsheet.

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