Mounting pressures from inflation, increasing costs and demand are exceeding the Scottish Government's additional investment in Scotland's councils. In 2025/26 councils received over £15 billion in government funding, with more money set to be raised from council tax and charges for some services. With communities paying more for services, their expectations are increasing.
In its latest assessment of local government finances, the Accounts Commission reports that additional costs from wage increases, higher employer National Insurance contributions and intensifying service demands, including social care as Scotland's population ages, mean councils must cover a budget shortfall of £647 million in 2025/26.
Whilst councils have partly met this shortfall through service savings and increased charges for services, continuing to use reserves and make one-off savings isn't sustainable. It intensifies pressures on future budgets. Longer-term change in the way services are delivered is happening but must accelerate. Action is also needed to better understand the impacts on the most vulnerable communities.
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. Capital funding from the Scottish Government is increasing but has not returned to previous levels. Councils remain heavily reliant on borrowing to fund their planned £4.7 billion capital investment in 2025/26.
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.
Leader of West Lothian Council Lawrence Fitzpatrick said: "Due to insufficient funding from the Scottish Government the council has a budget gap of £35 million over the next three years, with us having to make nearly £12 million of savings this year alone. By 2028 the West Lothian Council will have had to make budget savings of over £207 million (from April 2007).
As the Accounts Commission has confirmed, Councils don't have enough funding to meet current demand, at a time when local communities are being asked to contribute more. These are the stark facts and the pain is felt across all Scottish councils.
"The gap between what funding we receive and what services we are expected to deliver is significant and it is an unsustainable situation.
"The growing demand for service set against a backdrop of insufficient levels of funding means we are at breaking point. Councils are in an impossible situation in terms of what is expected of us and the services we provide, and our ability to provide them.
"Legally, the amount of funding the council spends needs to be equal to the funding we receive, so the impact on our communities is hugely significant. We cannot spend funding that we do not have and councils must - legally - agree a balanced budget.
"It is important that conversations and engagement with communities takes place but, in practice, councils are no longer able to provide the same level of services and that isn't something that is going to change without a significant increase in our funding."
"As the Accounts Commission has confirmed, the Scottish Government continues to limit local flexibility with a substantial proportion of funding being directed for specific Scottish Government policies, particularly within health and social care and education services. This is a continued undermining of local democracy. It is imperative that councils are given full flexibility of funding to deploy in schools and the wider community to best support the diverse needs of children and young people."
Kenneth Ribbon, Interim Head of Finance and Property Services said:
"The continuing financial crisis facing local government is of a magnitude never experienced before.
"Increases in Scottish Government funding fall well short of the funding required to stabilise finances as is the case with all Scottish Local Authorities. That is clearly highlighted by the Accounts Commission.
"The scale of the financial challenges are of such a level that this additional funding does not fully address the substantial and ever increasing cost of delivering services to our local communities. This is particularly the case in relation to delivering health and social care services.
"COSLA has emphasised that the additional funding only provides a real terms protection and is not an increase that will reverse the impact of many years of budget reductions and flat cash settlements."
Read more:
https://audit.scot/news/communities-face-growing-expectation-gap
