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It is not just local government that needs to look at service reform; rather, we need to look across the public sector to see how we can do things differently. That is not about having a diminution or reduction in the quality of service; it is a recognition that, if we look towards years 3 and 4 of this budget cycle, we see that continuing with business as usual is really not an option, given the reductions in resources that will be coming to the Scottish Government. Over the next couple of years, we need to look at how reform could happen.

The Accounts Commission has likewise said that local government needs to be part of the story, and it is a huge part of the public sector landscape. We have just touched on local government’s role in health, but there is interaction between local government and other public services and interaction between local authorities regionally.

We need to have quite a rapid dialogue. It is a dialogue; it is not for us to tell local government how it should reform. It needs to be primarily a dialogue in local government about the appetite for reform and change. I certainly think that there is an appetite in the Scottish Government to support that type of thinking. If we can be of assistance to local government and, indeed, other parts of the public sector, we are keen to do that.

Do you mean in respect of the financial framework and borrowing powers?

Of course. Absolutely.

There has been agreement to talk, but there has not been much detail about any progress being made specifically. I would be happy to drop the committee a note on what the latest position is.

Maybe I am being entirely optimistic here, but I would like to think that the UK Government perhaps recognises the fact that the arrangements that have been around for over 20 years are now wearing a bit thin and are not fit for purpose. That might be a good starting point. I will write to you, or I will ask the DFM to write.

I will perhaps ask colleagues to come in on some of the detail of financial transactions. Financial transactions are available to the Scottish Government. It is for it to decide how to allocate them. Because there are restrictions on how financial transactions can be used, housing has done quite well out of them when they have appeared. They have fluctuated, however, so we do not really know well in advance what financial transactions allocation we will get through the UK Government. The allocation comes quite late, so it is hard to plan a 10-year investment around financial transactions. When we have had notice of financial transactions availability, the affordable housing supply programme has generally done quite well out of that. This year, we have seen an increase of £17.6 million in financial transactions, which has helped with the balance of capital availability.

I do not know whether anybody wants to add anything on FTs.

Are you referring to the open market shared equity scheme?

The OMSE scheme works to reduce risk, in that you have to meet certain criteria to be able to access it. It is right that we have that flexibility to support those who are on low to moderate incomes, and who would not be able to afford to buy their home otherwise, to access the housing market.

It is important that strict affordability criteria are in operation for the scheme. That will, we hope, mean that people will not get access to the scheme if they are not able to afford it. They are encouraged to seek independent financial advice before taking out any shared equity agreement, in addition to any requirements that their lender has. That said, it would be remiss of me not to point out that, whether you are in a rented property or are paying a mortgage, interest rates, inflation and the cost of living—everything that is bearing down on household costs—put pressure on every household budget. We need to be very much alive to that. However, it is important that we provide that opportunity to people who otherwise would not have it.

Ian Storrie will keep me right, but the funding formula is a matter for COSLA. Over the years, adjustments have been made to the funding formula, but it is a thorny issue among local authorities. There is probably quite a lot of hesitance in COSLA and local government more widely about opening up that Pandora’s box, because there will be winners and losers from any adjustment to the formula. It is not something that we can do to local government; it has to be initiated by COSLA. If COSLA and local government were to pitch up and say that they wanted to look at that again, we certainly would not stand in the way of reviewing the formula, but it would have to be led by them. I think that that is the position.

There is regular dialogue with various people in local government. The cabinet secretary for finance—the Deputy First Minister—regularly meets various local government representatives, as do I. The meetings tend to be with the presidential team of COSLA or, in my case, I have spent a lot of time meeting housing conveners, for example, directly. We are well aware of the points that you have raised, and there has been extensive correspondence on those matters.

I do not think that anyone in the room would say that finances are not challenging and difficult. That is for all parts of the public sector, and local government is no exception. I will add some context to the £1 billion ask. The consequentials for 2023, for local authority and education spending in England—bear in mind that that is where Barnett consequentials flow from—are circa £242 million, net of national insurance contributions reversal. To be blunt, if we tried to meet that £1 billion ask, we would have to go well beyond the Barnett allocation for local government from the UK Government. In addition, the global additional resources coming from the UK Government are about £800 million.

Clearly, inflation impacts on every part of public sector investment, including local government. For example, in housing, it is important that there is some flexibility in the contracts in order to be able to keep projects coming through and enable them to be delivered. Capital investment through local government and other public bodies provides an important stimulus to the local economy, so we recognise its importance.

We need to think about innovation. In housing, there are two areas with a lot of potential. One is joint procurement—perhaps trying to pool spending power in negotiations for materials, for example—and doing things on a more joint basis across the housing sector. The other is looking at more off-site construction, which provides efficiencies because it allows for all-year-round build. The interruptions of winter are not as profound with off-site construction. That area probably needs to expand, and I would hope that the cost per unit would also come down if there were those economies of scale from large-scale purchase through the affordable housing project.

Those are two areas. There are others that can be looked at, but those areas offer the opportunity to drive forward efficiencies and ensure that we get as much return for investment as possible.