Finance Minister, Angus Mackay

The Local Government Finance (Scotland) Order 2001 was approved in the Scottish Parliament with 61 votes in favour, 16 votes against and 30 abstentions.

It outlines the Scottish Executive's grant support for councils' revenue expenditure from 2001 to 2002.

Mr MacKay told MSPs that the funding deal would produce a "fundamental change" for Scottish councils.

He said it allocated the first instalment of an extra �1.2bn being given to local authorities over the next three years.

"It increases local authorities' revenue grant by 6.4% next year and it gives every council an increase at least twice the predicted rate of inflation," he said.

"Every council, whether urban or rural, whether its population is growing or shrinking, will get at least 5% more than this year.

Spending flexibility

"That is a real terms increase in grant this year for all councils."

Mr MacKay said the executive remained committed to working towards three-year settlements for councils and allowing them to set council tax levels for the same period.

He also said that 36 local projects, 22 of which will be run by councils, would receive cash from the �25m Modernising Government Fund.

The finance minister confirmed that councils would be given flexibility in their spending and in setting council tax levels.

He also said the executive would pilot "local outcome agreements" with councils to guarantee success in key policy areas like school standards, social justice, children's services and community care.

"If they produce the desired results we will be able to review the need for ring fencing of the resources we allocate to local authorities," he said.

Kenny Gibson

The funding package received a mixed welcome from the opposition parties in the Scottish Parliament.

Kenny Gibson, the SNP's local government spokesman, said: "It is disingenuous to raise the public's expectations when the reality of the funding is that it is being displaced from other high priority areas."

He said other financial pressures were appearing on the horizon, such as the impact of councils losing contracts to maintain trunk roads and new rules governing housing management.

Pay deal

Conservative local government spokesman, Keith Harding, said: "In the past Labour was critical of the Conservatives' settlement, saying it was insufficient and there was constant talk of crisis and the danger of reductions in the number of jobs.

"If the Conservatives had given the current settlement, Cosla would be claiming there was a crisis, for the money that has been found is ring fenced for the executive's priorities.

The funding package has been approved as Scotland's councils prepare to settle a long running pay dispute with workers.

The Convention of Scottish Local Authorities has agreed to a rise of more than 14% over four years and a minimum wage of �5 an hour.

Officials from the main public sector union Unison, welcomed the offer and are expected to recommend it to members.