Councils face shortfall of £585m, spending watchdog says

Councils face a shortfall of £585m this financial year, the public spending watchdog has warned.

The Accounts Commission said local government is having to find savings, use reserves and raise money through service charges to plug the gap.

It also said the increase in funding from the Scottish Government masks “underlying financial challenges”, with almost all that extra cash being ring-fenced.

And a third of councils says the extra cash provided to mitigate the council tax freeze is not enough.

The report comes at the same time as a coalition of anti-poverty groups urge the Scottish Government to deliver fair tax reform.

Criticising the council tax freeze, campaigners have called on First Minister John Swinney to replace local taxation, protect income tax changes made in the most recent budget, and introduce a wealth tax.

This, the group says, will help to tackle poverty and invest in public services.

The Scottish Government was due to publish its tax strategy this month but this was postponed.

Swinney has identified tackling child poverty as one of his defining missions in office, having taken over from Humza Yousaf earlier this month.

The Accounts Commission previously warned councils faced “difficult decisions” to balance the books and called for a sustainable, long-term funding arrangements if services – including those which alleviate poverty – are to continue.

In its latest report, the Commission reiterated this call. Member Derek Yule said: “It's getting harder for councils to do more with less. They have to find and then deliver significant levels of savings to address budget gaps.

“Fully engaging with local people and being clear about the different and difficult budget choices is vital, whilst understanding the impacts on the most vulnerable.”

The report warned of longer-term consequences of the council tax freeze as future rises will provide less income, and it says the full impact of proposed savings on communities is unclear.

It estimates that by 2026/27, the gap between what councils need to deliver and what they get will have increased to £780m.

Finance secretary Shona Robison said the government has moved to protect council funding despite cuts to the block grant.

She said: “I have been clear that the UK Government’s Spring Budget and Autumn Statement failed to deliver the funding Scotland needs for public services. When more support is desperately needed for public services and infrastructure, Scotland’s block grant from the UK Government is still less in real terms in 2024-25 than in 2022-23 by around £0.4 billion.”

Both the Conservatives and Labout have said the government must provide a “fair funding deal” to local government.

Conservative finance spokesperson Liz Smith said said: “This damning report exposes the truly eye-watering funding gap facing Scotland’s councils. Years of savage and sustained cuts have been passed down by SNP to local authorities, pushing them to breaking point.

“Councils simply do not have the resources they need to protect vital day-to-day services that communities across the country rely on.”

Labour’s Mark Griffin said: “Despite the SNP’s spin, local authorities across Scotland are once again facing impossible choices after getting their budgets cut to the bone.

“First Minister John Swinney was the architect of this mess, taking an axe to council funding year after year as finance secretary. Another year of funding cuts will mean more libraries closing, bins overflowing and potholes covering the roads.

“Local government needs a fair funding deal so it can continue to deliver the vital frontline services we rely on.”

With deep financial pressures on public services, a lack of change in the poverty rate and economic inequality on the rise, the first minister is being urgedby  Oxfam Scotland, STUC, IPPR Scotland and the Scottish Women’s Budget Group to show political leadership on fair tax reforms.

The organisations say he must build cross-party support, while making the case that using fairer taxes to finance smarter public investment and to reduce poverty will support a more prosperous economy

Oxfam Scotland's Jamie Livingstone said the new first minister must “prove his mettle on fair tax reforms”. He added: “The decision to delay the refresh of the government’s tax strategy shouldn’t stop the first minister from building upon positive changes to date by kick-starting common-sense, far-reaching tax reforms and from taking steps to build the cross-party support required to deliver them.”