Scottish Council Budgets Are In Trouble - Will We All See Big Council Tax Increases?

28th January 2025

Scotland's councils continue to face severe financial pressures.
The need to consult with communities, clearly communicate the
impact on local services, whilst working together to shape and
deliver urgently needed transformation, is more important than
ever.

Councils closed a budget gap of £759 million during 2023/24, but this required them to make further and deeper savings. Reflecting on the state of council finances in that financial year, the Accounts Commission reports many councils made savings or used reserves to deliver services within budget and offset a 3.3% real-terms reduction in revenue and income.

Using reserves to routinely balance budgets isn't sustainable and risks financial sustainability.

Despite an overall increase in funding in 2024/25 and a further funding increase announced for the year ahead, intensifying demand for services, greater borrowing and depleting reserves pose ongoing challenges.

In 2023/24 councils borrowed more to invest in buildings and
infrastructure, whilst Scottish Government money to support capital investment continued to decline. Council borrowing increased by over £400 million and almost all councils now face higher levels of debt and annual interest costs. This investment is vital, however, in supporting spending on key areas including new schools and housing projects, whilst reducing the risk of buildings becoming unusable and impacting services still further.

Jo Armstrong, Chair of the Accounts Commission, said: "Scotland's councils face a challenging future, with significant financial risks and uncertainties. This has been compounded by pressures out with their control, including ever-increasing demand on services and inflation.

An expected increase in funding for the year ahead doesn't cancel out the urgent need for transformation, at a pace and depth we've not yet seen.

"With services already being impacted, councils must be clear with communities the scale of financial challenge being faced. Working with communities to deliver differently is vital."

Funding and budgets
• 1.8 per cent: the real-terms reduction in revenue funding from the Scottish Government in 2023/24 compared to 2022/23

• 21 per cent: the proportion of Scottish Government revenue funding that was ring-fenced or directed towards national policy commitments in 2023/24

• £759 million: the budget gap identified by our sample of 29 councils at the start of 2023/24. The 2024/25 budget gap identified by all 32 councils was £585 million

• 1.2 per cent: the real-terms reduction in capital funding from the Scottish Government in 2023/24 compared to 2022/23.

Financial performance
• 3.3 per cent: the real-terms reduction in councils' total revenue funding and income in 2023/24 compared to 2022/23

• 9 out of 29: the number of councils that reported overspends against their agreed revenue budgets

• 11 out of 30: the number of councils that achieved all their planned savings

• 25 out of 30: the number of councils that reported lower expenditure than planned across their capital programmes in 2023/24

• £19.8 billion: councils' net debt in 2023/24, a 15.8 per cent increase on 2022/23, as councils become more reliant on borrowing to finance their capital programmes

Financial position and outlook
• 5 per cent: the decrease in councils' total usable reserves

• 84 per cent: the proportion of the General Fund that is committed

• 12 out of 29: the number of councils that made unplanned use of their reserves in 2023/24 to manage budget pressures

• 15 out of 30: the number of councils that have long-term financial plans in place, with councils reporting difficulty planning for the longer term due to future uncertainty

Scottish Government every years say they are giving councils record levels of funding. Whilst that is true it hides the truth that costs are running higher than income

Facts From Audit Scotland
1. In 2023/24, councils' total revenue and income fell, including
another real terms decrease in revenue funding from the
Scottish Government. Councils are increasingly reliant on
identifying savings, which becomes progressively more difficult
year-on-year, and again used reserves to remain within their
agreed budgets.

2 In 2023/24, capital funding remained constrained, with councils borrowing more and managing a range of complex funding models. Capital funding from the Scottish Government reduced slightly in real terms, continuing a longer-term trend. Capital expenditure was lower than planned. Councils continue to borrow more to enable investment in their estates and council
debt, and annual interest costs, continue to increase.

Read the full Audit Scotland report HERE
Pdf 36 Pages