Is Highland Council Managing Its Budget Well? - A Deep Dive into the Finances, Challenges, and Future Direction of Scotland's Largest Council Area

6th October 2025

In recent years, Highland Council has faced some of the toughest financial conditions in local government.

Stretching across a vast, sparsely populated area with high infrastructure costs and limited opportunities to raise revenue, the council must continually balance ambitious investment in communities with the harsh realities of constrained funding.

So how well is it managing this challenge — and how does it compare with similar councils across Scotland?

Overall Financial Management and Audit Performance
According to Audit Scotland's most recent assessments, Highland Council's financial management and governance are broadly sound. The council has set balanced budgets for consecutive years and developed medium- and long-term plans that anticipate future risks. In 2023-24, the auditors even offered what they described as a "seal of approval" for the council's finances, recognising effective management and transparent reporting.

Over the past decade, the council has delivered around £200 million in cumulative savings, and its current three-year financial strategy includes a further £54.6 million in efficiencies, income generation and service redesigns. It has also introduced a ten-year Highland Investment Plan — a billion-pound capital programme covering schools, roads, housing and local infrastructure. In terms of long-term planning, that ambition is impressive.

Yet the same reports acknowledge that these achievements have come under immense strain. The council’s financial outlook remains tight, with a projected funding gap of £113 million over the 2024-27 period. Even after agreed savings, a gap of around £38-54 million still looms for the years beyond 2025. To maintain balanced budgets, Highland has increasingly relied on reserves and temporary "financial flexibilities." That approach buys time but is not sustainable indefinitely. Once reserves are depleted, the council’s ability to absorb future shocks — from inflation, pay pressures, or emergency repairs — becomes limited.

Key Risks and Underlying Challenges
The most significant financial risk for Highland lies in its combination of high borrowing, limited reserves, and the rising costs of service delivery across its massive geographic area. Borrowing levels are among the highest per head of population in Scotland, driven largely by capital investment projects. If interest rates remain elevated or construction costs continue to rise, that debt burden could constrain future budgets.

Service performance is another area under scrutiny. Audit and inspection findings suggest that, in education and some other key services, outcomes have declined relative to national benchmarks. The Accounts Commission has noted that while Highland’s governance has improved, progress on service improvement has been slow. The challenge for councillors and senior officers is to show that spending decisions are delivering tangible improvements for residents.

Operationally, the council has also faced administrative inefficiencies — such as overpayments to former staff, costing around £800,000 — though safeguards are now in place. These may seem minor compared with the scale of the overall budget, but they illustrate the importance of modernising systems and ensuring data accuracy across such a large organisation.

Comparison with Other Scottish Councils
To understand Highland’s position, it helps to look at similar councils facing comparable challenges: Argyll and Bute, Dumfries and Galloway, and Aberdeenshire. All of them are large, mostly rural authorities with dispersed populations and high per-unit service costs.

Argyll and Bute faces a mid-term budget gap of nearly £30 million and has drawn heavily on reserves that are now close to depletion. Dumfries and Galloway has a smaller gap but suffers major pressures in health and social care, while Aberdeenshire — though not immune to financial stress — appears better placed, with a stronger reserve position and more structured transformation plans.

In this context, Highland’s financial pressures are among the most severe in percentage terms. Its reserve levels are low, its borrowing per resident is high, and its medium-term gap is proportionally larger than many peers. That said it also manages a far greater geographic area, and the cost of maintaining rural services inevitably inflates its expenditure. Direct comparisons with urban councils therefore understate the scale of Highland’s logistical challenges.

Public Perception and Value for Money
Public satisfaction is mixed. Surveys suggest that fewer than half of residents believe the council provides good value for money or high-quality services. However, Highland’s geography again complicates these perceptions — in areas where communities are remote, service delivery is slower and more expensive by nature. Still, transparency and clear communication about how public money is spent remain essential if trust is to improve.

Signs of Improvement
There are signs of positive change. Recent leadership restructuring and new performance management systems have improved alignment between budgets and strategic priorities. Progress has also been made in digital services and community engagement, with thousands of residents now participating in budget consultations. Audit Scotland’s latest reports highlight better planning and clearer financial reporting than in previous years.

If these trends continue, Highland could emerge as a model for how large rural councils manage austerity-era pressures. But sustaining that progress will require discipline — especially in delivering recurring savings and avoiding the temptation to plug future gaps with one-off fixes.

The Road Ahead - What Needs to Happen Next

To strengthen its long-term financial sustainability, Highland Council needs to focus on six key priorities.

First, it must lock in recurring savings through permanent efficiency measures, not temporary fixes. Second, it should stress-test its capital investment programme, ensuring borrowing remains affordable even under adverse conditions. Third, rebuilding reserves to at least three percent of annual expenditure would provide vital resilience. Fourth, budgets should be linked directly to measurable service outcomes, so spending decisions clearly connect to community results. Fifth, investment in digital and workforce transformation can streamline processes and reduce costs, particularly in back-office operations. Finally, transparency and collaboration — both with the public and partner organisations like NHS Highland — are essential to maintaining confidence and accountability.

A Balanced Assessment
Overall, Highland Council is managing its budget reasonably well given extremely difficult circumstances. It sets balanced budgets, has strong financial governance, and is actively pursuing long-term investment and reform. Yet its financial flexibility is narrowing, and service performance in key areas needs renewed focus. Compared with peers, Highland faces greater structural pressures but is making progress in leadership and strategy.

The coming years will test whether these reforms can deliver real, recurring change. If the council can rebuild reserves, contain borrowing costs, and link financial decisions more directly to outcomes, it will not only stabilise its finances but also strengthen the quality and credibility of public services across the Highlands.

The latest 24/25 Audit Scotland report highlights the following -
Based on the 2024/25 audit findings:

Highland Council is doing much of the right work: it is transparent, open to correction, investing in transformation, and maintaining broadly appropriate governance frameworks.

However, the margin for error is now slimmer. The significant accounting adjustments (particularly around pensions and leases) mean there is less buffer. The shift in system infrastructure adds risk. The underlying financial pressures are mounting.

Compared to previous years, the council is under higher scrutiny and tighter constraints — it must deliver exactly (or better than) its forecasts, with very little slack.

Highland is still managing its budget relatively well, considering the constraints — but it must now operate with more caution, sharper execution, and greater resilience than ever before.
https://audit.scot/publications/highland-council-annual-audit-202425