By Steve Bargeton, political editor

HARD-PRESSED SCOTTISH council taxpayers could be spared any increases for the next three years under a historic deal unveiled by the Scottish Government yesterday.

Delivering the SNP administration’s first budget, finance secretary John Swinney said he had signed a groundbreaking agreement with local authority umbrella group CoSLA.

“I am delighted to announce that, as part of the historic agreement we have reached with local authorities, I am putting in place the resources to deliver a freeze in the council tax—just as we promised we would do,” he told MSPs.

If the deal is agreed by Scotland’s 32 councils, local tax payers will save £70 million a year.

A key part of the deal is to remove so-called ring-fencing from councils, enabling them to allocate resources according to their own priorities.

CoSLA president Pat Watters, a signatory to the agreement, said, “This deal signals the start of a new relationship between the two spheres of government in Scotland. Local government through CoSLA is looking at the long term rather than immediate short-term benefit.

“The package has been agreed within a tight financial context but the role that local government plays in the governance of Scotland has been substantially enhanced and the decline in local government’s share of total expenditure has been halted.”

Later at a press conference Mr Swinney said he “hoped” all councils would deliver a council tax freeze. If they did not they would not get the 2.7% increase in funding he was putting on the table and would have to explain to the public why council tax rates would rise.

In his address to MSPs, Mr Swinney admitted the Government would not be able to deliver all their election pledges in full due to the “worst financial settlement since devolution” from the UK Government.

He admitted there was no spare cash for emergencies.

There would be no money to wipe out student debt—a key manifesto pledge.

The promise to reduce class sizes in primary 1-3 to a maximum of 18 has been replaced by a commitment to “move as quickly as possible” to that situation—but with no extra money attached.

Earlier this week ministers announced funding to recruit 500 new police officers—half the number promised in their manifesto.

Setting spending plans into context Mr Swinney said, “Unlike previous budgets in Scotland, this budget will match our spending with our over-arching purpose of government. It is a major step forward in aligning the whole of the public sector in support of our key objectives.

“We will invest explicitly in making Scotland wealthier and fairer, smarter, healthier, safer, stronger and greener with the overall purpose of increasing sustainable economic growth.”

The budget contained a raft of spending announcements to be considered by MSPs over the next three months.

From April next year 150,000 small firms will see their business rates reduced and ultimately removed. And £75 million has been set aside for preparation work on a new Forth crossing.

There will be £270 million of new money (£90 million a year) to ensure that by the end of 2011 no one will wait longer than 18 weeks from GP referral to treatment for routine conditions.

And £97 million will be made available to phase out prescription charges, £30 million to provide out of hours GP services.

There will be £5.24 billion invested over three years in the further and higher education sectors, with 20,000 new teachers in training and 570 hours of nursery provision for 100,000 three and four year-olds.

£1.6 billion is to be spent on housing and regeneration, £120 million a year capital investment in modern prisons and £126 million to local authorities for flood defences.

Mr Swinney said the 1.5% annual efficiency savings target for the public sector will rise to 2%, freeing up £1.6 billion.

Of the council tax freeze Labour’s local government spokesman Andy Kerr said, “Whatever the SNP say, no decision has been made on whether council tax will be frozen. That will be decided in the months ahead by 32 individual councils.

“The SNP made a number of clear pledges which affect local government, including class sizes of 18 by 2011. It is now clear they will abandon most if not all of these.

“Councils have not been offered the £2 billion they need to meet every SNP pledge, freeze council tax and maintain services.”

Lib Dem shadow education secretary Jeremy Purvis slated the budget as one of “deception, spin and half truths.”

“There is no budget for smaller class sizes—only a pledge to ‘work towards’ it,” he said.

“Students across Scotland will be wondering what happened to the pledge to abolish their debt. Without even bringing a proposal to Parliament, the Government has dropped over £70 million of proposed spending on students.

“They are not even putting that money to university funding. The universities needed £168 million of funds. They are getting £30 million.”

Scottish Tory finance spokesman Derek Brownlee said, “We view today’s budget as the beginning, not the end, of the process.

“We will seek to use the budget process to establish where the resources are available to increase police recruitment beyond what was announced on Monday.

“We also want to see an independent assessment on whether the local government settlement is sufficient to allow a council tax freeze which does not lead to a reduction in services.”

The budget will now go to Holyrood’s powerful committees for scrutiny. In January the finance committee will make recommendations on any changes.

The budget bill will be laid before parliament by January 20 at the latest before going back to the finance committee for further scrutiny.

In early February Parliament will decide, in a final vote, whether to pass the budget.