Councils face budget gap of almost £1bn over next two years, report warns

Scotland’s councils are facing a near £1 billion budget gap over the next two years, with watchdogs warning local authorities will face “difficult decisions on what services can be delivered”.

The Accounts Commission said for this year, the budget gap between the country’s 32 local authorities stands at £647 million – up £52 million from 2024-25.

This comes despite councils receiving £15.2 billion from the Scottish Government in the budget for 2025-26 – with the amount of cash rising by 6% in real-terms.

Looking ahead, the Accounts Commission said: “Councils are currently anticipating a cumulative revenue budget gap of £997 million over the next two years.”

The commission added this means councils could either have to raise more cash – which they could do by increasing charges or council tax – make “further savings”, or seek to “transform” services.

Its latest report on local government budgets for 2025-26 highlights the “recurring pressures” authorities face, from inflation, annual staff pay deals and the growing demand for services.

The hike in employers’ national insurance contributions is also impacting councils, with local government body Cosla saying this could cost £370 million a year – more than double the £144 million provided by the Scottish Government towards the rise.

Councils across Scotland increased council tax for 2025-26 to help with their finances – with rises ranging from 6% in South Lanarkshire to 15.6% in Falkirk.

However the Accounts Commission said higher bills for local people means “there is greater expectation on the performance of local services”.

Accounts Commission member Derek Yule warned of a “growing expectation gap” for authorities.

He said: “Councils don’t have enough money to meet current demand, at a time when local communities are being asked to contribute more through increases in council tax and charges for some services.”

As a result, Mr Yule said “councils need to provide clearer budget information and work with communities to determine how services will be delivered in the future” – although he added “these conversations won’t be easy”.

Mr Yule also warned: “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.”

The report also told how councils are due to make “around £210 million of approved savings” in 2025-26, with this including £68 million of savings from corporate services and £58 million from children’s services.

Conservative finance and local government spokesman Craig Hoy said: “This eye-opening report confirms that years of chronic underfunding from the SNP is having a devastating impact on council budgets.

“It is completely unsustainable for councils to continue facing budget shortfalls of hundreds of millions of pounds.

“The black hole the SNP have overseen in local authority budgets means hard-pressed taxpayers are now paying more and more but getting less and less in return.”

Labour local government spokesman Mark Griffin also criticised the Scottish Government, saying: “This stark report shows people right across Scotland are paying more and getting less as a result of SNP incompetence and cuts.

“Councils have faced years of budget cuts under the SNP, leaving services threadbare and making long-term reform more difficult.”

Scottish Liberal Democrat finance spokesman Jamie Greene said: “Local authorities have had a raw deal from the SNP over many years and that has had a knock-on impact on the provision of vital local functions.

“This report shows there is a titanic gulf between what the SNP have provided and what councils say they actually need to maintain basic local functions.”

A Scottish Government spokesperson said: “This report confirms that the Scottish Government provided a real-terms increase in funding for local government in 2025-26, building on continued increases in recent years.

“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.”

Cosla resources spokesperson councillor Katie Hagmann said the report was “further evidence of the financial constraint under which councils are operating”.

Ms Hagmann said: “Despite an improved settlement for 2025-26, the stark reality is that local authorities continue to face persistent financial pressures that far outstrip the resources available to them.

“Rising inflation, increased costs resulting from higher employer national insurance contributions and pay, and ever-growing demand on vital services like social care are pushing local budgets to the breaking point.

“Councils have worked tirelessly to protect the services that matter most – such as schools, roads, housing, and supports for vulnerable people, to name but a few – yet the gap between what is needed and what is available continues to widen.

“Years of these mounting pressures have left councils with no alternative but to make extremely difficult decisions to close this year’s budget gap of around £647 million.”

She continued: “Looking ahead, the outlook remains deeply concerning.

“As the report highlights, councils are staring at a projected budget shortfall of up to £1 billion over the next two years.

“This is not just a number. It represents a very real risk to the quality of life for people in every part of Scotland.

“Without urgent, fair and sustainable investment from the Scottish Government, councils will be forced into making even more tough choices in the immediate future, including severe cuts, with lasting consequences for our people and our communities.”