Council debt rose by more than £800m in 2016/17

Council debt rose by more than £800m in 2016/17, as local authorities continue to show increasing signs of financial stress, according to Scotland’s local government spending watchdog.

The Accounts Commission, which published its annual financial overview today, found that in terms of debt, councils took advantage of low interest rates to fund projects.

It stated that while this is not posing an immediate problem, some councils are concerned about longer term affordability.

Excluding Orkney and Shetland, councils’ net debt was £14.5bn, an increase of £835m.

Commission chairman, Graham Sharp said: “We live in a rapidly changing public sector landscape, where external issues such as the transfer of further powers to Scotland and the decision to withdraw from the European Union add to an already complex domestic environment.

“Against this general backdrop the commission is very aware of the importance of understanding the individual context faced by each council in terms of demand for services and resources available to sustain or develop them.

“A major element of this operating environment for councils is the continuing pressure on finances. There was a real terms reduction in councils’ main source of funding from the Scottish Government for 2016/17.

“This year has seen a further real terms funding reduction, with that trend forecast to continue into future years.

“Councils tell us that they are finding the situation more serious than ever, with savings becoming increasingly difficult to identify and achieve.

“The commission recognises this, but also recognises that some councils are in a better position to respond than others. Effective leadership and financial management is becoming increasingly critical and medium-term financial strategies and well thought out savings plans are key to financial resilience and sustainability.”

The Scottish Government provides around two thirds of council budgets, this fell by 5.2 per cent in 2016/17 to £9.7bn.

2016/17 was also the last year of the council tax freeze, with council tax providing 14 per cent of councils' income.

The report noted that if all councils chose to raise council tax by three per cent, it would yield an estimated £68m - broadly comparable to a one per cent pay rise for staff.

Ronnie Hinds, deputy chair of the Accounts Commission, said: "Our evidence tells us that councils are finding the financial pressures increasingly difficult to manage.

“The elections in May this year brought in major changes in council administrations across Scotland.

“Councils that have demonstrated effective leadership and robust planning will be in a better position to deal with the challenges that lie ahead."

The report also highlighted a number of financial pressures, including a rising proportion of council funding directed towards national priorities such as educational initiatives means councils have to look at deeper cuts in other services.

The commission also looked at the current financial year (2017/18) where councils have approved £317m of savings and use of £105m in reserves.

It stated that some councils could risk running out of general fund reserves within two or three years if they continue to draw on them at current levels.