Scottish councils could slash services in bid to make up £400m budget shortfall

Council services are at risk of serious cutbacks as local authorities wrestle with “increasingly fragile” budget shortfalls, according to a new report.

The Accounts Commission warned soaring levels of debt and a £400m funding gap could force some Scottish councils to dip into cash reserves.

The watchdog said total debt had increased by £0.3bn to £19bn across the country’s 32 local authorities, while 16% were considering council tax increases in order to make up for the deficit following the emergence from the Covid-19 pandemic.

But the report added the reliance on “non-recurring reserves” was “unsustainable in the medium to long term”.

A spokesperson for the Convention of Scottish Local Authorities (COSLA) said councils were facing “extremely difficult financial choices,” adding the data “clearly and impartially set out the worrying state of local authority finances”.

Councils received £20.3bn in combined revenue funding and income from other sources in 2021-22, with this down by £0.3bn on the previous year in real terms.

Almost a quarter of revenue funding (23%) was ringfenced for spending on specific areas or projects last year, the report added, with this up from 18% in 2020-21.

However, a “budget gap” between income and spending rose to £0.4bn, which the Scottish Government said was as a result of “real terms” UK Government cuts to Scotland’s overall budget.

Accounts commission chairman, William Moyes, said: “Councils are having to deal with the effects of inflation, the increasingly desperate cost-of-living impacts and rising demand for services, whilst at the same time delivering vital day-to-day services to their communities.”

“To be financially sustainable, councils must deliver savings and reduce reliance on non-recurring reserves to fill budget gaps.

“If they are to find a safe path through the difficult times ahead, councils need to focus more on service reform, alongside meaningful engagement with their communities, about what services can be provided given the financial pressures they are facing.”

The Scottish Government said local authority funding was 22.9% higher in the current financial year than it was in 2013-14, amounting to around £2.2bn in additional funding.

COSLA resources spokesperson, cllr Katie Hagmann, warned local authorities were in an “extremely precarious financial situation” compounded by the impacts of inflation, the cost-of-living crisis and the impact of the Covid-19 pandemic.

“There is a real danger that as well as cuts, some essential services may stop altogether – we have already seen reports in the media of what councils are considering,” she said.

“This is as a consequence of real-term cuts to the core budgets of Scotland’s 32 councils over recent years.”

A Scottish Government spokesperson said local authorities would have autonomy over how to spend 93% of new funding provided by Holyrood.

But Tory local government spokesman Miles Briggs said the report showed how “Scotland’s councils are now beyond breaking point”.

He said: “This damning report makes it clear that is only set to get worse for our local authorities.

“With a significant proportion of their budgets tied-up in ringfenced policy areas, councils have little room for flexibility due to orders from the SNP-Green government.”

A Scottish Government spokesperson said: “The Scottish Government recognises the crucial role councils and their employees play in our communities across Scotland and the challenging financial circumstances they face.

“The Scottish Government’s settlements from the UK Government have suffered a decade of austerity, with average real terms cuts of more than 5% equating to a loss of £18 billion. Despite this, local authority revenue funding is £2.2 billion or 22.9% higher in cash terms in the current financial year than it was in 2013-14.

“It is the responsibility of individual councils to manage their own budgets and to allocate the financial resources available to them on the basis of local needs and priorities.”