Submitted by Bill Fernie
3rd September 2026
There is a warning buried inside today's Audit Scotland report on Glasgow City Council that should concern every council in Scotland, including Highland.
It is not simply that Glasgow has a £110 million financial problem.
The more important warning is that a council can balance an annual budget and still face serious questions about whether its finances are sustainable over the longer term.
That distinction matters.
Glasgow City Council is now facing a combined funding gap of around £109.7 million over 2026/27 and 2027/28. It has already experienced its largest net overspend for six years, at £45.7 million in 2024/25.
At the same time, its usable reserves have fallen to £193.6 million, their lowest level since 2018/19.
And a Budget Support Fund originally established to help the council implement savings and become more financially sustainable has been effectively used up.
Audit Scotland's message is therefore much more serious than simply telling Glasgow councillors to find another £110 million.
It is questioning whether the council has the financial planning, transformation and governance arrangements needed to deal with what could be a prolonged period of financial pressure.
That should make every council leader in Scotland sit up and take notice.
Glasgow's £110 million problem
The headline figure is a projected £109.7 million funding gap across the next two financial years.
That is an enormous sum, but the circumstances behind it are perhaps more important than the number itself.
Glasgow has been dealing with a combination of rising costs, increasing demand for services, homelessness pressures, pay and grading issues and uncertainty about future funding.
The council also faces the problem that some of its largest financial pressures are not particularly easy to switch off.
Homelessness is a good example.
The cost of homelessness services is expected to rise from around £38 million in 2025/26 to approximately £56 million in 2026/27. This is partly driven by the numbers of asylum seekers arriving in the city
That is not simply a council deciding to spend more money on a discretionary service. It reflects a growing demand for accommodation and support which the council has a legal responsibility to deal with.
The result is that money which might otherwise have been available for other council services is being absorbed by an immediate problem.
The reserves are telling their own story
Perhaps the most revealing figures are those relating to reserves.
Glasgow's usable reserves fell by £22.7 million during 2024/25 to £193.6 million.
That is the lowest level since 2018/19.
More significant still is what has happened to the council's Budget Support Fund.
The fund contained £105.4 million at 31 March 2023.
It was intended partly to support the implementation of savings options, including costs associated with restructuring and severance, and to provide support for future budgets.
But Audit Scotland says a substantial proportion has instead been used to deal with emerging financial pressures.
The fund was expected to be exhausted by March 2026.
This is an important lesson for every council.
Reserves can give an authority breathing space.
They cannot solve a structural financial problem.
Once the money has been spent, the council still has to find a way of paying for the service the following year.
Then there is the equal-pay bill
Glasgow has another major financial uncertainty hanging over it.
The council has already paid more than £750 million in equal-pay settlements since 2019.
It is now working towards implementing a new pay and grading structure in April 2027.
The problem is that the final financial implications have not yet been determined.
Audit Scotland describes the decisions ahead as significant and complex and warns that further delays could have significant financial consequences.
This is a reminder of something which can easily be forgotten when looking at council budgets.
A council's financial position is not determined only by the spending decisions councillors make each February.
Long-term commitments can come back years later and consume substantial amounts of money.
Transformation is not a magic word
There is another part of the Glasgow report which deserves particular attention.
Like councils across Scotland, Glasgow has been pursuing transformation.
The basic idea is sensible.
If councils can redesign services, remove duplication, use technology better and change the way work is organised, they may be able to provide services more efficiently rather than simply cutting them.
But Audit Scotland makes an important criticism.
The financial benefits associated with public service reform have not yet been sufficiently clearly articulated and quantified.
That is a serious point.
It is relatively easy to announce a transformation programme.
It is much harder to demonstrate that a particular project will save £2 million, £5 million or £10 million every year, when those savings are actually going to occur and whether the saving will continue.
Councils cannot balance their books with aspirations.
They need measurable recurring savings.
This is where Highland needs to be careful
Highland is obviously not Glasgow.
The problems are different.
Highland has an enormous geographical area, a dispersed population, remote communities and a large infrastructure network which costs a great deal to maintain.
It also has major demands for investment.
Roads need repaired.
Buildings need upgraded.
Schools need investment.
Housing is required.
Transport infrastructure needs improvement.
There are also major ambitions around economic development and the future of the Highlands.
None of that means Highland should stop investing.
In fact, there is a strong argument that Highland cannot afford to stop investing.
But there is a financial question which deserves much more public attention.
How much of Highland's capital programme is ultimately being funded by borrowing, and what will that borrowing cost the revenue budget in future years?
Capital spending is not free money
This is an issue which can easily get lost in council budget debates.
Capital spending sounds different from day-to-day spending because it creates an asset.
A new school, road, housing development or major building improvement can provide benefits for decades.
But if the council borrows to pay for it, the borrowing creates a future financial commitment.
There will be interest to pay.
There will eventually be repayment of the borrowing.
And the cost of servicing that debt has to come from somewhere in the council's revenue budget.
This creates a potential trap.
A council under pressure from its revenue budget may decide that it must continue with a major capital programme because the investment is necessary.
The capital programme then requires additional borrowing.
The additional borrowing increases future debt costs.
Those costs put further pressure on the revenue budget.
The council then needs further savings.
That does not mean borrowing for capital investment is wrong.
It means that the two sides of the council's finances cannot sensibly be considered separately.
Scotland is already moving towards more borrowing for capital
This is not just a Highland issue.
The Scottish Parliament's latest briefing on local government finance points out that capital grants from the Scottish Government in 2026/27 are at their lowest real-terms level since 2013/14.
Yet council capital expenditure is expected to be considerably higher than in previous years.
The main reason is borrowing.
That creates a national question.
If councils are being encouraged, or effectively required, to borrow more to maintain investment while their revenue budgets are under increasing pressure, what does that do to their financial sustainability over the next decade?
The answer cannot simply be that the council will find savings later.
That is precisely the problem Audit Scotland is highlighting in Glasgow.
The real Glasgow warning
Glasgow's problems are partly unique.
It has a huge population, substantial deprivation, particularly severe homelessness pressures and the legacy of its equal-pay dispute.
Highland does not face exactly the same circumstances.
But the financial mechanics are remarkably familiar.
A council has rising demand.
Costs increase.
Funding does not always keep pace.
Savings have to be found.
Transformation is expected to produce further savings.
Reserves can be used to cushion the impact.
Capital investment continues.
Borrowing may increase.
And eventually the council reaches the point where there is less room to manoeuvre.
That is why Glasgow matters.
It is not necessarily a forecast of what will happen to Highland.
It is a warning about what can happen when a council's short-term financial decisions become increasingly difficult to reconcile with its long-term financial position.
Can councils really plan ten years ahead?
Audit Scotland is increasingly asking councils to think beyond the next budget.
That is absolutely right.
A council should be able to explain what it expects its financial position to look like not just next year, but several years ahead.
It should know what happens if inflation is higher than expected.
What happens if interest rates remain higher?
What happens if demand for social care rises faster than expected?
What happens if homelessness costs increase?
What happens if a major capital project costs more than anticipated?
What happens if government funding changes?
And perhaps most importantly, what happens if the expected savings from transformation do not materialise?
A genuinely sustainable financial plan needs to answer those questions.
The danger for Highland
This is where I think today's report should be of particular interest locally and perhaps voters in the upcoming by-election for Wick and East Caithness may want to ask candidates their views and how they might deal with it if they are elected to Highland council.
Highland Council is trying to deal with significant budget pressures while also pursuing a substantial programme of capital investment.
There is nothing contradictory about wanting both.
But the council needs to demonstrate that the two are financially compatible.
Residents should be able to see clearly how much is being spent on capital, how much comes from grants, how much comes from borrowing and what the resulting debt costs will be.
They should also be able to see how the council intends to pay for the services it will still have to provide while those capital commitments are being serviced.
Otherwise there is a danger that today's investment becomes tomorrow's financial constraint.
Glasgow's problem is therefore bigger than Glasgow
Audit Scotland is not saying that Glasgow is about to run out of money or become unable to operate.
Nor is it saying that every capital project should be cancelled.
Its concern is about financial sustainability, the quality of longer-term planning and whether the council can demonstrate that its transformation programme will actually deliver the financial benefits required.
Those are questions which apply across Scotland.
Indeed, the Accounts Commission's latest national assessment says that local government continues to face significant challenges, with demand and the cost of services increasing while funding has not kept pace. It says the need to redesign services is urgent.
That means Glasgow should not be regarded as an isolated financial accident.
It is a particularly large and visible example of a problem which other councils are already experiencing.
For Highland, the lesson is not that it should become Glasgow.
The lesson is that balancing this year's budget is only half the job.
The harder task is making sure that the decisions being taken today leave enough money, enough flexibility and enough borrowing capacity to run the council five, ten and twenty years from now.
That is the real meaning of financial sustainability.
And it is a question which deserves to be asked in Inverness, Wick, Thurso and every other community which ultimately has to pay for the decisions made in the council chamber.
Rad th Audit Scotland report HERE
The main report is 148 pages and there is short summary