Why Are Scotland’s Councils Still Struggling Despite Bigger Tax Bills?

Scotland’s councils face a shortfall nearing £1 billion over the next two years. But wait—local taxes are up by almost 10%, and Holyrood’s funding has increased in real terms. So why do potholes remain unfilled, libraries face cuts, and nurseries are under threat? Let’s unpack the financial squeeze behind this familiar frustration.

More Money Coming In—So Why Isn’t It Enough?

First off, yes, councils have more cash flowing in than before. Holyrood’s contribution to local government hit over £15.2 billion this year—about a 6% increase in real terms. That sounds pretty solid. Plus, council tax hikes are hitting double digits across Scotland’s 32 councils. Falkirk even pushed it to 15.6%! On average, local taxes rose by 9.6%, expected to add around £275 million extra next year.

And it’s not just council tax. Some councils have raised fees on services like second-home charges, garden waste collections, and council house rents. North Lanarkshire, for example, anticipates £1.5 million annually from a new garden waste fee. That’s no small change.

Yet, despite this, councils are still stretched thin.

A Massive Budget Gap and Rising Costs

Here’s the kicker: Across Scotland’s councils, there’s a £647 million gap between planned spending and actual money available for this year alone. Edinburgh faces a £70 million shortfall—pretty staggering. Almost every council, except six, has a deficit north of £10 million.

The future looks just as bleak, with projections showing another £528 million shortfall for 2026/27 and £496 million for 2027/28. That’s no small potatoes.

Why is this happening? The biggest driver is rising demand for services, especially social care. Scotland’s aging population is a major factor here. People are living longer, while birth rates fall, which means more people need care and fewer younger taxpayers help foot the bill.

It’s estimated Scotland will have 341,300 more people over 75 by 2047. This demographic shift is like a ticking time bomb for council budgets, especially for social care services that already consume about £4 billion out of an £18 billion local government budget.

But there’s more.

Ring-Fenced Funds and Shifting Priorities

Not all money flowing in is flexible. Much of it is ring-fenced, meaning councils must spend it on specific government priorities—like boosting teacher numbers or delivering free school meals. Sounds good, right? But it leaves councils less able to decide how to spend their overall budgets.

The stuff councils can control? Things like road maintenance and local amenities. Guess where cuts usually happen. Road repairs, street lighting, libraries, nurseries—the kind of services people notice when they disappear.

Aberdeenshire, for instance, despite a 10% council tax hike, faces a £40 million gap and is planning to mothball four nurseries. Parents are understandably furious, calling it “closure by stealth.” Lindsay Love, a parent, said it hits families hard, especially women juggling childcare and work.

Inflation Is Eating Into Budgets

Even with the cash injections, inflation is a sneaky budget killer. Prices for goods and services are up, making everything more expensive to run. The Castlemilk Youth Complex shows how real inflation bites. Their council grant hasn’t kept pace with cost of living, shrinking to about 20% of what it was in the 1990s, despite serving more young people now.

The youth complex has already cut staff this year, struggling to keep going.

Councils also face rising pay demands—3% increases are expected through 2027/28—and the hike in National Insurance Contributions for employers adds more pressure. The UK government provides some compensation, but Scottish ministers argue it’s nowhere near enough.

Shona Robison, Scotland’s finance secretary, pointed out that the compensation doesn’t reflect Scotland’s larger public sector workforce. COSLA estimates the real cost of NICs to councils could be around £370 million—far more than the £144 million funding announced.

The Unending Struggle and What Lies Ahead

Put it all together, and the Accounts Commission calls council finances “precarious and extremely challenging.” Local authorities have already squeezed out most fat; the cuts now slice into core services.

The status quo isn’t working. Every political party talks about reforming local taxation but none has taken meaningful action. The council tax freeze era masked some problems, but now the crunch is here.

People expect more when they pay more. But getting a bigger bill only to see fewer services is a bitter pill.

Here’s a quick look at how the council tax rise compares across the UK:

Scotland’s tax hikes are on the high side, but services aren’t keeping pace. That mismatch fuels frustration and protests.

Will councils find a better balance? That’s the question no one’s answered yet.