Greater transparency needed over non-domestic rates funding

The Scottish Government needs to increase the transparency of its financial reporting on non-domestic rates, says the Auditor General.

Non-domestic rates (NDR) are collected by councils and pooled by the Scottish Government before being redistributed back to local authorities through the Scottish budget.

NDR made up around 29 per cent of total revenue funding provided to councils by the Scottish Government in 2016/17. However, forecasting and timing differences mean the balance on the NDR account is either in surplus or deficit.

A new report by Caroline Gardner, the Auditor General, highlights that the balance on the account was £297 million in deficit at the end of 2016/17. This means the Scottish Government has redistributed more NDR income in recent years than councils have collected.

Ms Gardner's report notes that although the Scottish Government has signalled its intention to bring the account into balance over a number of years, it has no formal plan in place.

The Auditor General also found that information about non-domestic rates is currently fragmented across a number of different Scottish Government accounts and budget documents. She said:

"The arrival of new financial powers brings significant changes and increasing complexity to the Scottish budget.

"Better and more transparent information about the key components of the budget, including non-domestic rates, is essential to supporting effective parliamentary decision making in this new environment."

Ms Gardner said that the establishment of the Scottish Fiscal Commission to provide independent forecasts of non-domestic rates provided an opportunity to increase transparency of NDR financial reporting. She added:

"This will help the Parliament to build a comprehensive picture of non-domestic rates and better understand how it contributes to the Scottish budget and its impact on longer-term financial sustainability."