Tag: balancing the books

Seventy per cent of councils in Scotland warn they may be unable to pass balanced budgets

New research from Local Government Information Unit (LGIU) Scotland reveals that 70% of all councils believe they will be unable to pass a balanced budget within the next five years without immediate changes.

The second annual State of Local Government Finance in Scotland, found councils are taking every measure available to balance their budgets including raising council tax, reducing expenditure and increasing fees and charges, sharing services and engaging in commercial activity. However, many councils believe this will still not be enough to prevent the risk of an unbalanced budget.

Nearly every respondent said they believe cuts to services will have a negative impact on quality of life in their council, and over 90% that cuts will increase the risks to vulnerable people. 

The report found satisfaction with the Scottish Government is alarmingly poor across the sector. Not a single respondent said they were happy with the Scottish Government’s performance on delivering a sustainable funding system or considering local government in wider policy decisions.

Respondents representing 84% of Scottish councils, made up of council leaders, CEOs and CFOs said times are increasingly hard for local authorities, with ongoing pressure from the cost of living crisis and inflation adding new burdens on top of long-term challenges: demographic change, financing of Scottish Government priorities, and pressures with recruitment and retention of staff.

With councils’ confidence in the sustainability of council finances critically low, the sector is in favour of widespread reform, including multi-year financial settlements, ending ring-fencing, and reform of council tax.

Councils are optimistic about the role that local government, sufficiently funded and empowered, could have to advance the prevention agenda, tackle local and national shared priorities, deliver services and empower communities.

The report recommends an agreed national convention between Scottish Government and local government to cover procedures and actions that would then be needed to set a balanced budget; enshrining in legislation the principles of the Verity House Agreement, and committing to an annual review by Scottish Parliament covering the key principles.

Some of the medium to long-term recommendations include reconsidering a whole-system approach to funding wider public finances including a review of council tax, the funding formula and increasing the range of revenue-raising options available for councils.

Jonathan Carr-West, Chief Executive, LGIU Scotland, said: “This year’s results make for grim reading about the state of local government finances in Scotland. The message from our second annual State of Local Government Finance in Scotland  builds on last year: we are nearing the point of no return. The report paints a picture of a system under continual and significant strain, with the scale of financial pressures increasing from 2023.

“Local government finances in Scotland are hanging by a thread. However, the thread has not yet broken. Today’s report delivers a stark warning that councils are in a precarious financial position and there is not much time until the sector starts to see potentially catastrophic consequences.

“Change is urgently needed. Councils will soon be unable to balance their budgets, meet their statutory duties, or provide for their communities. We need to change course now before it is too late.

“The challenge now is how do we move from the situation we are in now, to one where councils are able to deliver the transformative impact they are confident that they could deliver.

“Reform is necessary, empowerment will be essential, and trust between Scottish Government and local government – in a critically poor state – must be restored.”

The LGIU asked Scotland’s Council Leaders, Chief Executives and Chief Finance Officers about their experiences trying to run councils in the last financial year, and their views on how councils’ financial sustainability could be assured.

The report highlights concerns COSLA has continually emphasised, most recently through our Invest Locally In Scotland’s Future budget campaign.

COSLA Resources Spokesperson, Councillor Katie Hagmann, commented: “The publication of today’s report by the LGIU highlights the sheer scale of the financial challenges facing our councils. 

“The fact that 70% of councils in Scotland may be unable to balance budgets in the near future should serve as a warning to all. Additionally, it emphasises the need for the Scottish Government to provide Local Government with an increased funding settlement which is both fair and flexible in 2025/26.

“COSLA also welcomes the LGIU’s call for a whole system approach to Local Government finance. 

“This echoes our asks in our ‘Invest Locally in Scotland’s Future’ budget lobbying campaign. Without a clear focus on prevention and upstream investment, along with local flexibility, our councils will be unable to tackle higher demand, in key areas such as homelessness prevention and social care.

“COSLA is calling for the Scottish Government to provide at least £14.5bn in revenue funding and £872m in capital funding in the 2025/26 Budget. 

Meeting this demand would not make up for the cuts councils have faced and felt by our communities in recent years, however it would be a positive step forward in providing fair and flexible funding to meet the challenges outlined in the LGIU report.”

Read about Invest Locally In Scotland’s Future, COSLA’s budget campaign.

Read the full report from LGIU.

Scotland’s councils face severe challenges to balance the books

Scotland’s councils faced a collective gap of up to £585 million between the money needed to deliver services and the money available when setting their budgets this year. This is estimated to increase to £780 million by 2026/27. Ever tougher decisions must be made to ensure councils are financially sustainable.

Councils are addressing this most commonly by making ongoing savings, using reserves and raising money through charging citizens for some services.

An Accounts Commission report on the budgets set by councils for 2024/25 says that a near six per cent increase in Scottish Government revenue funding to councils – totalling £13.25 billion – masks significant underlying financial challenges and strain. Almost all the increases in funding have been ring-fenced for policies and to cover the costs of pay increases in 2023/24.

Whilst councils received £147 million of government funding to mitigate the impacts of this year’s council tax freeze, there are longer-term financial consequences as future rises will provide less income for councils. Also, a third of councils say the government funding does not fully-fund the freeze.

The full impact of proposed savings by councils on service delivery and communities is unclear. There has been significant public opposition in some council areas to cuts to services, with new and increased charges also affecting people.

We will continue to monitor this area closely, as councils must meet savings in full this year. Failing to do so will intensify and exacerbate the impacts on services in future years, as further savings will be needed.

Councils must look to the future as they make increasingly difficult decisions to deliver savings, at scale, to address projected budget gaps. Planning and delivering on transformational change are vital if councils are to be financially sustainable.

Derek Yule, Member 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.

“Fully engaging with local people and being clear about the different and difficult budget choices is vital, whilst understanding the impacts on the most vulnerable.

“Councils need to improve the way in which they present financial information, and do this in a clear, consistent and accessible way.

“The Accounts Commission calls on councils to increase the accessibility and transparency of publicly available budget information. This will allow for improved comparison between councils, particularly around key information including actions to tackle existing and future budget gaps, as well as savings plans.”