Councils face ‘challenging’ financial future – watchdog

Scotland’s councils face a “challenging” future and continue to face severe financial pressures, the country’s public finance watchdog has said.

The Accounts Commission found that councils’ total revenue and income fell in 2023/24, including another real-terms decrease in revenue funding from the Scottish Government.

It said that councils are increasingly reliant on identifying savings, which becomes progressively more difficult year-on-year, and again used reserves to remain within their agreed budgets.

Councils closed a budget gap of £759m during 2023/24, but this required them to make further and deeper savings.

The watchdog warned that using reserves and other non-recurring measures is “unsustainable and is only a temporary plug for a budget gap in that one year”.

In 2023/24, the Scottish Government allocated councils total revenue and capital funding of £13.7bn.

The commission said the financial outlook for councils remains challenging, despite an increase in overall revenue and capital funding for them in 2024/25 and the Scottish Government’s budget proposals in December 2024 indicating a further real-terms uplift in funding for 2025/26.

It noted that there is still uncertainty as to how increased employers’ national insurance contributions, announced by the UK Government, will be funded.

The Convention of Scottish Local Authorities (Cosla) estimates these will be an additional £265m cost pressure for councils in 2025/26.

Jo Armstrong, who chairs the Accounts Commission, said: “Scotland’s councils face a challenging future, with significant financial risks and uncertainties.

“This has been compounded by pressures outwith their control, including ever-increasing demand on services and inflation.

“An expected increase in funding for the year ahead doesn’t cancel out the urgent need for transformation, at a pace and depth we’ve not yet seen.

“With services already being impacted, councils must be clear with communities the scale of financial challenge being faced. Working with communities to deliver differently is vital.”

In its Local Government in Scotland Financial Bulletin for 2023/24, the Accounts Commission found there was a 3.3% reduction in councils’ total revenue funding and income in 2023/24 compared with 2022/23.

It also found that 12 out of 29 councils which provided data on the issue made unplanned use of their reserves in 2023/24 to manage budget pressures.

The watchdog said councils need to “intensify transformation activity, progressing at scale and pace to ensure their financial sustainability”.

It also said that how councils plan to use their reserves, make savings and transform their services needs to become more transparent.

And the need to consult local communities and clearly communicate the implications for local services of the budget decisions taken has “never been more important”, according to the watchdog.

Scottish Conservative finance spokesman Craig Hoy said: “This stark report paints a bleak picture about the financial position faced by Scottish councils.

“The SNP has been starving councils of resources for years and Scots have seen public services crumble as a result.

“It’s simply not sustainable for local authorities to be using savings or reserves to plug the gaps left by the SNP’s lack of funding to deliver day-to-day services.”

Scottish Labour local government spokesman Mark Griffin said: “The SNP cannot ignore this stark warning and continue to bury its head in the sand about the timebomb in local government finances.

“Years of brutal budget cuts by the SNP and growing demands have left councils across Scotland at breaking point.”

A Scottish Government spokesperson said: “The 2025-26 Budget gives Scotland’s councils record funding of more than £15bn, up more than £1bn on the previous year – the highest increase in recent times.

“This increased funding settlement will allow councils to deliver pay rises agreed for all local government workers, including teachers, social care workers, refuse collectors and early years assistants.

“Alongside additional funding for local authorities to spend as they require for their communities, there is targeted investment in teacher numbers, additional support for learning and councils’ work to tackle the climate emergency.”

Cosla has been asked for comment.