Highland Council's Finances - Rural Realities, Structural Pressures and the Consequences for Local Services

21st December 2025

Highland Council offers a stark illustration of the financial challenges facing Scottish local government, amplified by geography and demography.

Covering a vast, sparsely populated area, Highland must deliver services across long distances with limited economies of scale.

As real-terms funding pressures have intensified, these structural realities have made balancing the budget increasingly difficult — with tangible consequences for local services and communities.

Revenue Pressures in a High-Cost Environment

Although Highland has received increased funding in cash terms over recent years, its real-terms spending power has not kept pace with rising costs. The council has consistently faced some of the largest proportional budget gaps in Scotland.

Several factors make Highland particularly vulnerable -

Higher per-unit service costs due to remoteness and low population density

An extensive road network requiring ongoing maintenance

A large number of small rural schools

Significant demand for adult social care, often delivered in remote settings

These pressures mean that even relatively small real-terms funding shortfalls translate into large absolute gaps in the council's budget.

Budget Gaps, Council Tax and Reserves

In recent years, Highland has faced annual budget gaps measured in tens of millions of pounds, forcing the council to adopt a mix of measures:

Council tax increases, now a regular feature after years of constraint

Large-scale savings programmes and service redesign

Use of earmarked reserves to smooth short-term pressures

While these measures have allowed budgets to be set, auditors and council leaders alike acknowledge that reliance on reserves and repeated savings rounds is not sustainable in the long term.

Service Impacts on the Ground

As with other councils, Highland has prioritised statutory services particularly education and social care but this has come at a cost elsewhere.

Discretionary Services Under Pressure

Financial pressures have led to:

Reduced investment in leisure, culture and community services

Increased fees and charges for facilities and permits

Staff reductions, particularly in management and support roles

Ongoing reviews of how services are delivered in rural areas

Because Highland communities are often geographically isolated, reductions in local provision can have a disproportionate impact, increasing travel times and reducing access to essential services.

The Limits of Local Revenue Raising

Highland’s ability to raise additional income locally is constrained. Council tax increases generate less revenue per percentage rise than in more urban authorities, and alternative income streams — such as tourism-related charges — have so far delivered limited returns. This leaves the council heavily dependent on national funding decisions over which it has limited control.

Looking Ahead

Highland’s financial position highlights a broader challenge for Scotland’s funding system - uniform national settlements do not fully account for the higher costs of rural service delivery. Without funding mechanisms that better reflect geography, demographics and long-term demand, councils like Highland will continue to face sharper trade-offs than their urban counterparts.

Highland Council’s experience demonstrates how long-term real-terms funding pressure, combined with structural rural costs, translates into difficult local decisions and visible service impacts.

While statutory services remain protected, the scope and quality of wider local provision have narrowed. As future Scottish Budgets approach, Highland’s situation underscores the need for funding solutions that are not only adequate in headline terms, but genuinely sustainable for the communities they are meant to serve.

We have already seen tax increases from the UK Government budgets and as the Scottish Budget looms in January the settlement for Scottish councils does not look promising with the possibilities for increases in council tax and charges of one sort or another. Balancing a budget is not easy.