Councils facing ‘significant challenges’ amid £585m budget gap – watchdog

Scotland’s councils face “significant challenges” in balancing the books amid an estimated collective budget gap of £585 million, a watchdog has said.

An Accounts Commission report into local government budgets found funding remained “constrained” despite a 5.7% real terms increase from the Scottish Government’s 2024-25 allocation.

The Convention of Scottish Local Authorities (Cosla) has said a “sustainable solution” is needed to address the “challenging” financial landscape.

Councils were allocated £13.25 billion, plus an added £144 million to fund a council tax freeze, and an additional £63 million to help local authorities meet this ambition.

However, the watchdog report stated councils were still struggling to balance budgets, with most of the increased cash directed towards Scottish Government priorities and agreed pay deals.

At the time of setting budgets, councils identified the almost £600 million difference between their anticipated expenditure, and the funding and income they expect to receive, for the financial year.

The watchdog has since warned tough decisions must be taken sooner rather than later as councils face an estimated cumulative budget gap of £780 million by 2026-27.

“It will be important for councils to deliver their planned savings in 2024-25 given the significant challenges they face in balancing their budgets in subsequent years,” the Accounts Commission report said.

Katie Hagmann, resources spokeswoman at Cosla, said the watchdog’s report reflected an “accurate portrayal” of the challenges facing local government.

She has urged the Scottish Government to find long-term solutions to the crisis.

“It is vitally important that these concerns, which have been consistently raised by Cosla leaders and are now backed up by evidence presented by the Accounts Commission, are acted upon for the sake of Scotland’s public services and our communities who rely upon them,” she said.

“Now is the time to take real action. Today’s Accounts Commission report is an accurate portrayal of where we are now – over half a billion pounds short for this year and a cumulative budget gap of £780 million by 2026-27.

“The reality right now for councils has never been more challenging. The effect of real terms cuts to core budgets has been compounded by additional policy commitments and less flexibility in how we allocate increasingly directed budgets. This makes the ability to take local decisions on most of our budget, almost impossible.”

She added: “We must seek a sustainable solution to these long-term issues in order to protect the essential front line service of our communities before it is too late.”

Derek Yule, of the Accounts Commission, 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.”

The report, however, has urged councils to ensure financial information is presented in a “clear, consistent and accessible way”.

Finance Secretary Shona Robison said: “The report from the Accounts Commission confirms that the Scottish Government provided a real terms increase in revenue funding for local government in 2024-25, building on increases in recent years.

“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.

“Despite UK Government decisions leaving the country in a challenging financial situation, the Scottish Government has made available record funding of over £14 billion to local councils this year – a real-terms increase of 2.5% compared with the previous year. We will also continue to work with Cosla to empower councils through a new fiscal framework.”