1st July 2026
The latest Scottish Government local government finance figures reveal a story that is both reassuring and worrying. Councils are not collapsing financially, nor are they suddenly awash with cash. Instead, they are becoming trapped in a financial squeeze where more money is buying less flexibility.
Every year, when councils announce budget cuts or increases in council tax, the same question is asked.
"Where has all the money gone?"
The latest Scottish Government provisional outturn for 2025–26 and budget estimates for 2026–27 helps answer that question. At first glance, the report appears to contain little more than pages of accounting tables showing how Scotland's 32 councils have spent billions of pounds of public money.
Look a little deeper, however, and a much more significant story emerges.
The figures suggest that Scotland's councils are not running out of money.
They are running out of choices.
Bigger Budgets Don't Necessarily Mean Better Services
Many people assume that because council spending increases almost every year, local services should also improve. The reality is rather different.
Council expenditure has continued to rise in cash terms, reflecting higher pay settlements, inflation, rising energy costs and increasing demand for services. On paper, local government is spending more money than ever before.
Yet much of that additional funding never reaches the services people actually notice.
Instead, it is absorbed almost immediately by unavoidable costs. Staff wages have increased after years of inflation. Construction projects cost significantly more than they did before the pandemic. Fuel, utilities, software contracts and everyday supplies all cost more than they did only a few years ago.
A council may receive millions of pounds in additional funding and still have very little left to improve services once those unavoidable bills have been paid.
For households, the comparison is familiar. A family may receive a pay rise but still feel no better off if their mortgage, food bills, insurance and energy costs have risen by even more.
Scotland's councils are facing much the same challenge.
The Quiet Shift Towards Care
Perhaps the most important trend hidden within the statistics is not how much councils spend, but what they spend it on.
Over the past decade, a growing proportion of local authority budgets has been directed towards statutory responsibilities that councils have little choice but to provide.
Adult social care continues to grow as Scotland's population ages.
Children's services have become more complex.
Homelessness services have expanded as housing pressures have intensified.
Support for children with additional support needs continues to require increasing resources.
None of these services are optional. Councils have legal duties to provide them.
As these essential services consume a larger share of available funding, less remains for many of the services that residents often notice most—parks, libraries, leisure facilities, economic development projects, environmental improvements and cultural activities.
This is not necessarily the result of political choice. It is increasingly the consequence of demographic change.
Investment Is Becoming the Pressure Point
Perhaps the greatest concern is what is happening to capital investment.
Revenue spending keeps today's services operating. Capital spending builds tomorrow's Scotland.
It pays for new schools, roads, bridges, flood prevention schemes, housing developments, transport improvements and community facilities.
While day-to-day spending has largely been maintained, capital budgets remain under much greater pressure.
That may not be immediately obvious to residents, but the effects gradually become impossible to ignore.
Road resurfacing programmes become smaller.
School replacement projects take longer to begin.
Housing developments are delayed.
Town centre regeneration moves at a slower pace.
Infrastructure ages faster than it is renewed.
For areas such as Highland, where geography already makes construction more expensive, the consequences can be particularly significant.
Major projects—including new education campuses, healthcare facilities and transport improvements—often require many years of planning before construction even begins. If capital funding slows, those waiting periods become even longer.
More Money Is Already Spoken For
One misconception often repeated in political debate is that governments simply need to "give councils more money."
The latest figures illustrate why the issue is far more complicated.
Even where additional funding is provided, much of it has effectively been allocated before councils begin preparing their budgets.
Pay agreements must be honoured.
Inflation increases contractual costs.
National policy commitments require funding.
Existing buildings require maintenance.
Debt repayments continue regardless of economic conditions.
By the time these obligations have been met, councillors often have relatively little discretion over the remaining budget.
This explains why councils frequently face difficult decisions despite receiving larger settlements than in previous years.
It is not that they have less money.
It is that they have less room to decide how to spend it.
The Growing Gap Between Expectations and Reality
Public expectations continue to rise.
Communities understandably want better roads, more affordable housing, faster planning decisions, cleaner streets, improved recycling, better leisure facilities and greater investment in local regeneration.
At the same time, governments expect councils to deliver national priorities while keeping council tax increases within politically acceptable limits.
These expectations are not necessarily unreasonable.
The difficulty is that they increasingly compete for the same limited resources.
As more spending becomes committed to essential statutory services, discretionary spending inevitably becomes squeezed.
This creates frustration on all sides.
Residents pay higher council tax yet often perceive declining services.
Councillors find themselves defending decisions they would rather not make.
Governments announce additional funding while being criticised for underfunding local authorities.
Everyone feels dissatisfied, even though total spending continues to increase.
The Highland Perspective
For Highland Council, these national trends are particularly relevant.
The region faces unique financial pressures.
Delivering services across an area stretching from Argyll to Caithness costs considerably more than providing the same services within densely populated urban authorities.
Schools, roads, waste collection, winter maintenance and social care all involve greater travel distances and higher operating costs.
At the same time, Highland continues to pursue major capital projects designed to support long-term economic growth.
Balancing today's service pressures with tomorrow's investment needs is becoming increasingly difficult.
If capital funding remains constrained over several years, communities may notice that large infrastructure projects simply take longer to materialise—not because they have been abandoned, but because councils have fewer opportunities to finance them.
The Long-Term Challenge
Perhaps the most striking conclusion from the latest figures is that local government finance has entered a new phase.
The emergency responses to the pandemic are largely behind us.
Inflation has eased from its peak.
Yet councils have not returned to financial comfort.
Instead, they appear to have entered a period of permanent financial pressure.
Demand for public services continues to rise.
Construction costs remain elevated.
An ageing population requires increasing care.
Infrastructure needs continued investment.
All of these pressures are likely to persist for many years.
The Bottom Line
The latest local government finance figures should not be interpreted as evidence that Scotland's councils are in financial crisis.
Nor do they suggest that everything is improving.
Instead, they reveal something arguably more significant.
Local government is becoming steadily less flexible.
Budgets continue to grow, but an increasing proportion of every additional pound is already committed before councils even begin making local spending decisions.
That leaves fewer opportunities to invest in communities, fewer options to improve services and fewer choices for elected councillors.
In the years ahead, the real debate may not be whether councils receive more money.
It may be whether Scotland is prepared to rethink what it expects local government to deliver—and how those expectations can realistically be funded.
Because the latest figures suggest one thing with increasing clarity.
Scotland's councils are not running out of money.
They are running out of choices.
Local Government 2025-26 Provisional Outturn and 2026-27 Budget Estimates
See Also
The 100 Million Pound Question