Scotland's Councils Face Mounting Financial Challenges - Highland Council Faces Difficult Decisions

12th January 2023

Councils across Scotland faced significant financial challenges during 2021/22 and are now entering the most difficult budget setting context seen for many years. Increasingly difficult choices about spending priorities will need to be made.

The Accounts Commission, the independent body that holds councils to account, said that even with additional Covid-19 funding during 2021-22, councils had to make significant savings last year to balance their budgets. Many councils have also used reserves to bridge funding gaps and fund vital services. This is expected to be the case in 2022/23. The £570 million of additional funding for 2023/24, announced in the December budget, will help councils address upcoming cost challenges, but further change and reform across all councils is required to ensure longer-term financial sustainability.

When compared to the 2013/14 Scottish Government revenue funding position to local government, 2021-22 represented the first real-terms increase in six years (excluding one-off Covid-19 money). But an increasing amount of council funding is either formally ringfenced or provided on the expectation it will be spent on specific services and national policy objectives. This supports the delivery of key Scottish Government policies yet removes local discretion and flexibility over how these funds can be used by councils.

William Moyes, Chair of the Accounts Commission, said, "It's clear the financial situation of councils is increasingly fragile. 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.

Read the full report HERE
Pdf 29 Pages

Comment on Highland Council Budget
Highland council will announce it's 2023/24 budget decisions on 1 February 2023. Given previous papers released there will undoubtedly be cuts to services and at present an unknown number of job losses. Speculation has suggested anything up to 500 job losses. Reserves may temporarily plug some of the gaps in funding but as Audit Scotland point out this cannot go on indefinitely.
The report to the Corporate Resources committee of Highland Council on 1 December 2022 set out the huge issues facing Highland council with regard to its finances. See the report HERE
The report highlights -
Based on present expenditure trends a year end overspend of £8.947m is forecast. A significant element of the forecast overspend relates to the increased cost of the staff pay award in excess of the budgeted level of 2%. It should be noted that whilst agreement
on the 2022/23 pay award has been reached with the SJC unions, the pay award for teachers and nursing staff has not yet been concluded.

It is important to note that nearly all of the cost pressures seen in the current year will recur into 2023/24 and in all likelihood costs will increase further. Both of these factors will contribute to the budget gap for 2023/24 which is currently estimated to be in the region of £40.9m, far in excess of those seen in more normal times.

Firstly, the teaching and nursing staff pay awards for 2022/23 have not been agreed. Discussions with these staffing groups to reach a conclusion on the pay award are continuing but it is uncertain when agreement will be reached. The forecast outturn position included in this report reflects an overall award to these staff groups to the value of 5%. The current offer has been rejected by the unions and any award with an overall cost in excess of 5% will increase the pressure forecast for the current year.

The third specific risk relates to non-staffing cost inflation. Inflation continues to remain high with no sign of any decrease soon. Many contracts that have been reprocured over the last few months have experienced considerable cost rises due to inflation. Any further contracts required to be reprocured in the current year, are likely to be at risk of significant cost increases.