How Highland Council Debt Affects Local Services

29th January 2026

Highland Council's high debt connects to local services and council tax, in practical, day-to-day terms.

Council debt doesn't pay for services directly — but it affects them.

Local authority debt is almost entirely capital borrowing (long-term loans), used for things like:

Schools and school refurbishments

Roads, bridges and transport infrastructure

Care facilities and housing

IT systems and major public buildings

Day-to-day services (teachers' salaries, refuse collection, social care staff, libraries, road maintenance, etc.) are paid for from the revenue budget, not from borrowing.

However
Debt must be repaid from the revenue budget every year.

That's the key link.

Annual debt repayments squeeze the services budget

Highland Council has to make annual loan repayments and interest payments (called debt servicing).

Because Highland’s debt per head is high:

A larger share of its yearly budget is locked in for repayments

That money cannot be spent on services

In simple terms:

Before deciding how many teachers, care workers or road repairs it can afford, the council must first pay its lenders.

When budgets are tight (as they have been for years), this means:

Less flexibility to protect services

Cuts or reductions fall more heavily on discretionary services (libraries, leisure centres, bus subsidies, road maintenance, youth services)

Why this hits Highland harder than some other councils

Highland faces a triple pressure:

Geography

Largest council area in the UK

Long roads, dispersed settlements

Infrastructure costs more per person than in cities

Population size

Smaller population to spread costs over

Debt per resident is therefore high

Past investment choices

Large capital programmes (schools, infrastructure)

Long-term benefits, but repayments are happening now

So even if two councils pay the same total debt repayment:

Highland has fewer taxpayers and service users to absorb the cost

How this links to council tax

Council tax is one of the few taxes councils can control, but it covers only part of total spending.

What council tax actually does

Council tax contributes to:

General services

AND indirectly to debt repayments (because repayments come from the same revenue pot)

When debt servicing costs rise:

The council either

Cuts services

Raises council tax

Or (most often) does a bit of both

Why council tax rises don’t "fix" the problem

Even a large council tax increase raises relatively little compared with total spending needs

Much of the extra money gets absorbed by:

Inflation

Pay settlements

Energy costs

Debt repayments

So residents may see:

Higher council tax, but still fewer services

Why debt can still be justified — but risky

It’s important to be balanced:

Why borrowing made sense

Schools and infrastructure last decades

Borrowing spreads cost across generations who benefit

Not borrowing would have meant worse buildings and services earlier

Where the risk lies

Rising interest rates increase repayment costs

Flat or falling government funding makes repayments harder

High debt limits options when crises hit

High debt doesn’t mean bankruptcy, but it does mean:

Tougher budget decisions

Less room to respond to local needs

Greater pressure for service reform, centralisation, or withdrawal

6. Bottom line (plain English)

Highland’s high debt per head doesn’t automatically mean mismanagement

But it reduces the money available for everyday services

It increases pressure for:

Service cuts or redesigns

Council tax rises

Fewer local choices