Councils face £647m budget gap due to rising costs, inflation and social care

Scotland’s councils are facing a budget gap of £647m over the next year due to rising costs, inflation and social care demands, according to the regulatory conciliar body.

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

The Accounts Commission says the country’s 32 local authorities are relying on unsustainable savings and borrowing and require urgent service delivery reforms to meet expectations.

It also said longer-term change in the way services are delivered is happening but must accelerate.

Capital funding is vital for councils to invest in public buildings such as schools and libraries, as well as roads. It also underpins the significant transformation needed in the ways services are delivered in the future.

Derek Yule, member of the Accounts Commission said: “There’s a growing expectation gap. 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.

“Councils need to provide clearer budget information and work with communities to determine how services will be delivered in the future. These conversations won’t be easy.

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

The hike in employers’ national insurance contributions is also impacting councils, with local government body Cosla saying this could cost £370m a year – more than double the £144m 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”.

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.”