Councils' £650m funding gap threatens services, watchdog warns

Residents want more for their council tax – but mounting costs for local authorities are exceeding the money they get from the government, according to a watchdog.

The Accounts Commission said that, amidst continued financial strain, an "expectation gap" is opening up between what residents want and what councils can provide. 

And it said discussion about what services can be delivered, and how, is now needed.

Local government received more than £15bn in funding from ministers in 2025-26.

An end to the council tax freeze allowed authorities to raise local rates, with the largest hike of 15.6 per cent imposed in Falkirk.

Extra charges for services like garden waste collection have also been set on a region-by-region basis.

The Accounts Commission says a higher cost burden for householders is raising their expectations.

Meanwhile, "mounting pressures from inflation, increasing costs and demand" are making it harder for councils to cover the basics.

Local government must cover a combined budget shortfall of £647m this financial year, with those costs partially met through cuts and higher charges. The Accounts Commission has said the continued use of reserves and one-off savings is not sustainable as it exacerbates pressures on future budgets.

Longer-term change in service delivery is needed and the pace of this change must accelerate, the watchdog said, with more information needed on the impacts this has on vulnerable people.

And while capital funding has risen, it remains lower than previous levels and councils are "heavily reliant" on borrowing to meet their planned investments of £4.7bn this year.

Commission member Derek Yule commented: "There's a growing expectation gap. Councils don't have enough money to meet current demand, at a time when local communities are being asked to contribute more."

He went on: "Councils need to provide clearer budget information and work with communities to determine how services will be delivered in the future. These conversations won't be easy.

"With public finances tightening, however, not all cost increases faced by councils can be met by government funding. Local action is needed now to find solutions to immediate and future financial challenges. This means difficult decisions on what services can be delivered and making major changes in how they are delivered."

Lib Dem MSP Jamie Greene said the report reveals "a titanic gulf between what the SNP have provided and what councils say they actually need".

Mark Griffin of Labour said: "The SNP must deliver consistently fair funding for local government and work with councils across Scotland to modernise services so they are fit for the future."

The Scottish Government said the report confirms "a real terms increase in funding for local government in 2025-26, building on continued increases in recent years"

It added: "The Scottish Government will continue to work in partnership with local government to address the challenges facing council budgets and ensure we are operating sustainable people centred public services that communities expect and deserve."