Councils faced with making ‘difficult decisions’ to balance the books, says the Accounts Commission

Scottish councils have avoided immediate financial risk in 2022/23 but there is no certainty that will continue, the Accounts Commission has warned.  

The commission commended all 32 local authorities for managing its coffers effectively and increasing reserves but warned that agreement between the Scottish Government and councils to secure a sustainable, long-term funding arrangement to deliver local services is “all the more urgent”.  

The Accounts Commission latest report assesses the financial position of Scotland’s councils during 2022/23 and the outlook for services. It found that councils are continuing to rely on savings and reserves.

Over half of councils used financial flexibilities during the period, which helped to lessen the burden of budget pressures. However, this approach defers costs to later years and fails to tackle the underlying challenges to financial sustainability, the Commissioned warned.  

While councils received more funding and income in cash terms, soaring inflation meant that this fell in real terms by three per cent compared with the previous year and spending flexibility is increasingly strained as funding was either ringfenced or directed towards specific services and national policy objectives.  

Council funding gaps increased due to pressures such as increased demand for services, inflation, and the cost-of-living crisis. The strain was also felt on capital budgets, which risks knock-on effects on the maintenance of key public buildings and infrastructure, for example schools, libraries and roads.    

The Accounts Commissions has urged that councils innovate at pace and make difficult decisions about cuts to services to remain financially sustainable.  

They added that some councils have been met with negative feedback related to the scaling back of public services, which reinforces the need for discussion and engagement with communities when planning change.  

Ronnie Hinds, interim chair of the Accounts Commission said: “There is intensifying pressures on council finances and services. Given the funding position for councils, there is increasing reliance on reserves and savings to deliver balanced budgets. This means councils are already making difficult decisions about future service delivery and the level of service they can afford. Having leadership and a workforce with the right skills will be crucial to deliver on this.  

“Local government is the second largest area of Scottish Government spending, but despite rising demand for services, the proportion of funding to councils has reduced over the last decade. Urgent progress is needed to agree a funding framework between Scottish and Local Government. This will bring much-needed clarity and certainty of budgets for future years.”