Scotland’s public finance watchdog, the Accounts Commission, has raised alarm over the growing financial pressures on local councils, urging them to accelerate reforms to avoid unsustainable losses.
Financial Strain on Local Authorities
In its latest report for the 2023-24 financial year, the Accounts Commission revealed that councils were facing a £759 million budget gap due to a real-terms decrease in revenue funding from the Scottish government. This shortfall is putting immense strain on local authorities, which are increasingly relying on reserves to meet their budgets and deliver essential public services.
According to the report, a 3.3% reduction in total revenue funding and income in 2023-24 compared to the previous year has compounded the financial challenges. Twelve out of 29 councils that provided data had to dip into their reserves to cover budget pressures. The watchdog warned that this approach is becoming more difficult year-on-year, with the demand for services and inflation continuing to rise.
The Need for Transformation
Jo Armstrong, chair of the Accounts Commission, emphasized that Scotland’s councils face a “challenging future” with significant risks and uncertainties. The situation has been worsened by factors outside local authorities’ control, such as increasing demand for services and inflationary pressures.
Armstrong stressed the need for a “transformational pace and depth” in council operations to ensure their long-term sustainability. Councils must be transparent with communities about the financial challenges they face and work closely with residents to deliver services in innovative ways.
“An expected increase in funding for the year ahead doesn’t cancel out the urgent need for transformation,” Armstrong said. “With services already being impacted, councils must be clear with communities about the scale of the financial challenge.”
Potential Council Tax Increases
As the current freeze on council tax rates is set to end in April 2025, local authorities may face tough decisions regarding potential increases. While the Scottish government has committed to offering an additional £1 billion in funding for 2025-26, it hopes that this will mitigate the need for large hikes in council tax.
However, the Convention of Scottish Local Authorities (Cosla) has estimated that councils will require an additional £265 million in 2025-26 to cope with pressures from inflation, pay demands, and changes to Employers’ National Insurance Contributions. Cosla’s resources spokesperson, Councillor Katie Hagmann, highlighted the difficult balancing act faced by councils, which must continue delivering essential services while also adapting to the changing landscape of local governance.
Political Reactions
Scottish Conservative finance spokesman Craig Hoy criticized the SNP-led government’s handling of council finances, claiming that years of underfunding have contributed to the deterioration of public services. “The SNP has been starving councils of resources for years and Scots have seen public services crumble as a result,” Hoy said.
Meanwhile, Scottish Labour’s local government spokesman Mark Griffin warned that the financial crisis in local government is reaching a “tipping point.” He called on the Scottish government to acknowledge the scale of the crisis, saying, “Years of brutal budget cuts by the SNP and growing demands have left councils across Scotland at breaking point.”
Scottish Government’s Response
A Scottish government spokesperson pointed to the £1 billion funding increase for 2025-26, emphasizing that this would provide local authorities with more resources to meet their communities’ needs. The government also highlighted targeted investments in areas such as teacher numbers, additional support for learning, and climate change initiatives.
However, despite this additional funding, the pressure on councils to reform their service delivery and manage their finances effectively remains high.
