Scotland’s councils risk becoming financially unsustainable
Whilst councils have made significant savings, the cost of delivering services is rising faster than available funding.
This risks the financial sustainability of councils over the next three to five years.
Although Scottish Government funding to councils has been increasing, this hasn’t kept pace with rising costs and demand. Councils are overspending on delivering services and borrowing more.
In its latest update on council finances, the Accounts Commission report that councils face a budget gap of nearly £1 billion by 2027.
In 2024/25, councils met 90 per cent of their savings targets. But for the first time in six years, they reported a collective overspend on the costs of delivering services. Debt levels are increasing. Many are relying on reserves. Whilst councils are increasing the amount of money they raise through fees and charges, income generated isn’t keeping pace with rising costs and inflation.
With Scottish Government funding to deliver capital projects falling, councils are also taking on more debt to deliver local infrastructure projects such as building schools and housing.
Derek Yule, member of the Accounts Commission, said: “Despite increased funding and income, councils are struggling to cope with the financial pressures they face. A growing gap between costs to deliver services and funding available is risking the financial sustainability of councils.
“We’re already seeing the impact on services – the pace of improvement is slowing, some services are being cut or are harder to access and there are growing levels of dissatisfaction from communities. Councils must fundamentally reconfigure how they operate and deliver services.”
Labour spokesman Michael Marra, First Minister John Swinney and Jamie Greene of the LibDems.
Commenting on the report Scottish Labour finance spokesperson Michael Marra said: “The dire financial situation facing councils is the direct result of 19 years of John Swinney and the SNP.
“They have starved local government of funding, destroyed local services and seek to pass the blame to someone else.
“If we don’t get a change of government in May, it will be more of the same from John Swinney and the SNP, and local communities will pay the price.
“Scottish Labour is committed to delivering a fair funding settlement for local government and resetting the relationship with Scotland’s councils.
“In less than 100 days, the people of Scotland will have the opportunity to turn the page on SNP failure and choose a new direction with Scottish Labour and Anas Sarwar.”
Scottish Liberal Democrat finance spokesperson Jamie Greene said that councils need sustainable finances and to be handed back control over how their budgets are spent.
His comments come as a report from Audit Scotland Local Government in Scotland Financial Bulletin 2024/25, warns:
- The cost of delivering council services is rising faster than available funding,
- Across all 32 of Scotland’s councils the forecast budget gaps for 2025/26 is £647m.
- Councils are having to draw down their reserves to fill budget gaps.
- Councils now get less say on how money is spent with 24% of Scottish Government revenue funding ring-fenced or directed towards national policy commitments in 2024/25, up from 21 per cent in 2023/24.
Jamie Greene said:“There is a titanic gulf between what the SNP have provided and what councils say they actually need to maintain basic local functions.
“The SNP have demanded councils do more with less while an increasing proportion of spending decisions are dictated by ministers half a country away. As a result, we have ended up with school strikes, bin strikes and shortages of elderly care packages.
“The Scottish Government must act now to put local authority finances on a sustainable basis.
“We need real reform to push powers over both revenue raising and spending out to communities and help them to provide the reliable local services that people are crying out for.”