Watchdog warning as councils’ budget gap hits half a billion pounds

Scotland’s councils face a black hole of half a billion pounds this year, auditors have found.

The £529m budget gap comes despite council tax hikes averaging 7.7 per cent across the country.

In a report released today, the Accounts Commission warns local authorities face “major risks to their financial sustainability as funding fails to keep pace with rising demand and increasing costs”.

Ministers have committed £15.7bn to local government for this financial year – a one per cent real terms increase. Revenue funding is up by two per cent, but much of that will be used to cover national commitments such as pay rises for teachers, and capital funding has fallen by 15 per cent.

The watchdog warns that local leaders will have to borrow more for infrastructure and housebuilding – something all town halls have committed to – making long-term financial risks more acute.

It is thought that extra cash could come in autumn amid spring budget revisions. An additional £177m was handed over in 2025-26 through this process. But a pot of that size will be too small to close the gap.

Accounts Commission member Derek Yule said: “As things stand, councils will continue to face increasing financial pressures unless they stop, reduce, or significantly redesign services. 

“Savings options are limited and will have to increasingly focus on changes to services people rely on. That makes it essential that councils talk to their communities about the difficult decisions they are facing.”

The extent of the problem varies across the country, with East Dunbartonshire said to have the biggest single budget gap at £23.7m, followed by South Ayrshire at £20.7m. For largest council Glasgow the figure is £86.7m, while Edinburgh’s is £27.9m.

Councils will bring in an extra £248m thanks to council tax rises which vary from four per cent in Edinburgh to 10 per cent in Aberdeenshire and Moray, while fees and charges for services like refuse collection and leisure services will bring in an estimated £1.2bn.

Savings of around £180m are planned, but this adds up to just one per cent of councils’ total revenue budget, and it’s warned that savings will “increasingly affect services people rely on”.

Meanwhile, demand for vital social care services – which make up a high proportion of council spending through Integration Joint Boards that are themselves under financial pressure – continues to grow.

Alexander Burnett, local government spokesman for the Scottish Conservatives, said the “damning report lays bare the impact of the SNP government’s systemic underfunding of Scotland’s councils over several years”.

He went on: “That yawning funding gap means that local authorities are struggling to provide core services, even after imposing huge council tax rises.

“John Swinney must finally provide a fair deal to councils – and the way to do that is by reining in the SNP’s ballooning and unsustainable benefits bill, not clobbering hard-pressed households with even more tax rises.”

His Labour counterpart Joe Fagan commented: “Councils have been cut to the bone by the SNP over the years and communities are paying the price.  

“This stark report lays bare the impossible choices councils are going to have to make to plug the gaps created by SNP underfunding. The SNP must work with councils to make sure services are working as they should and start delivering fair funding for local government so Scots don’t keep paying more for less.”

The Scottish Government said it "recognises the pressures facing local authorities, both in Scotland and across the UK as a result of external factors including geopolitical events”, adding: “Spending decisions in Scotland are directly impacted by decisions taken by the UK Government – indeed, the increase in employer national insurance contributions continues to be a challenge for local government. 

“Whilst it is up to individual local authorities to manage their day-to-day decision-making and allocate the total financial resources available to them, the Scottish Government will continue to work in partnership with local government to ensure that the people of Scotland continue to receive the high-quality public service that they expect and deserve.”

The publication of the report comes on the day that the SNP administration will ask MSPs to back its public sector reform strategy, which aims to address spending on services and facilities.

Swinney has made public sector reform a key part of his agenda, appointing Ivan McKee to oversee the process at cabinet level. Large-scale job losses are expected.

In today’s debate, McKee will argue that the government’s programme “centres on the importance of prevention in the development of public services” and that “the delivery of excellent and sustainable public services should be the goal of public service reform, rather than the preservation of existing corporate structures”. 

McKee is expected to argue that hundreds of millions of pounds of savings have already been delivered through efficiencies in procurement, digital transformation and collaborative working, and that targeted investment in poverty prevention could save the public purse £2.9bn.

McKee said: “Efficiencies isn’t shorthand for cuts to the frontline – quite the opposite. It’s about tackling unnecessary duplication, sharing services across organisations and making better use of data, digital tools and our public estate.

“No-one who uses, or works in, public services would argue they are perfect. No-one wants to spend more money on corporate costs than is necessary when we can instead target investment to improve frontline delivery and work to stop problems before they start, not just respond when they reach crisis point.

“Poverty, poor health and inequality are not inevitable, they are challenges we can address earlier and more effectively with better outcomes for people. Empowering staff, service users and local communities to help rewire the design and delivery of services is key as every pound saved from inefficiency is a pound we can invest in care, education and communities. People working on the frontline will know all too well where improvements can be made and we must ensure their voices are heard.”