No improvement to the financial sustainability of councils across Scotland with seven in ten saying they will be unable to balance budget within five years
The latest research from the Local Government Information Unit’s (LGIU) third annual State of Local Government Finance in Scotland report reveals that all councils who responded will be increasing council tax and decreasing their spending on services this year.
Yet, despite utilising these and other available measures, the new research found that seven out of ten senior council figures believe they won’t be able to balance their budgets within the next five years, and not one respondent expressed confidence in the sustainability of local government finance.
Chief Executives, Leaders and Directors of Finance representing 81% of Scottish local authorities took part in the research, which paints a picture of a sector pulling out all the stops available to them to respond to rising service needs with ever-diminishing resources. These responses provide an unparalleled look into the view from the inside when it comes to managing local government finances.
Adult social care once again topped the table for both immediate and long-term pressures that council finances face, and the majority of councils want more powers to raise revenue, including the freedom to levy other local taxes. Seventy per cent also supported a local share of national taxes being made available.
Some of the other key recommendations from the report include enshrining in legislation the principles of the Verity House Agreement as well as a full-scale review of local government finance, including sources of funding, the formulae for distribution, and the place of local government in the wider public sector.
A full list of recommendations from the report can be found below.
Jonathan Carr-West, Chief Executive, LGIU, said: “Local government finance in Scotland is still not fit for purpose. Despite recent changes, the underlying problems that threaten councils’ financial sustainability have not been resolved.
“Financial pressures on councils continue to move in only one direction as service demands increase and local leaders have ever-diminishing budgets with which to respond. Local government is in a precarious position. With 70% of respondents indicating that they are close to effective bankruptcy, something has to give very soon.
“Our latest research, released as we approach the 2026 Scottish Parliament election, serves as a stark warning: councils overwhelmingly feel their current funding situation jeopardises their ability to protect vulnerable citizens, increases the risk of insolvency, and diminishes the quality of life in their communities.
“However, this negative trajectory is not inevitable. Councils across Scotland are ready and willing to collaborate with the Scottish Government to implement meaningful and lasting reform. Our research clearly defines the necessary changes and presents the sector’s solutions for achieving them.
“While the complexities of local government finance mean there is no single simple fix, the sector shares near-universal agreement on the problems and offers a wealth of ideas on how they can be solved.”
Summary of key recommendations
1) An agreed national convention between the Scottish Government and local government to outline procedures and actions for councils that are unable to pass a balanced budget.
2) The next Scottish Parliament should agree to implement and enshrine in legislation the principles of the Verity House Agreement, and commit to an annual review by the Scottish Parliament covering the key principles.
3) In this election year, parties should commit to a full-scale review of local government finance, including sources of funding, the formulae for distribution, and the place of local government in the wider public sector.
4) Scottish and local governments should be brought together in a standing commission or representative body, which should be defined in statute with a key role in pre-budget engagement processes, negotiation of the funding settlement, and any and all decisions that have an impact on councils.
The exact responsibilities and membership of this body should be a matter for future discussions, but should at a minimum include ministerial representation, and local elected representatives and senior officers from local government.