Despite an increase of funding received by councils of £500 million in 2019/20, local councils have seen greater reductions in funding over the last seven years than other areas of the Scottish Government budget.

The Accounts Commission reports that councils received higher revenue and capital funding than in previous years and many were able to increase their financial reserves. However much of the additional funding councils received from the Scottish Government must be used for specific purposes, including over £200m for expanding early learning and childcare. And capital finance funding will drop by 305 in 2020/21.

Looking ahead, the spending watchdog said Scotland’s councils face significant additional pressures due to Covid-19. This includes substantial and ongoing reductions in income, increased costs and the administration of business support grants and other measures of support to their communities during Covid-19.

The Commission has also repeated its serious concerns about the financial stability and leadership of Integration Joint Boards (IJBs), the bodies set-up to manage local health and social care services. Most IJBs couldn’t deliver services within their budgets and needed extra money from health boards and councils. There were also changes of chief officer in 12 IJBs, and this leadership instability makes it harder to manage both finances and the major changes needed in health and social care.

Elma Murray, interim chair of the Accounts Commission, said: “Councils and Integration Joint Boards play a vital role in supporting Scotland’s communities. Even before Covid-19 the pressures and demands on council services had intensified. At the same time reductions in local government funding over the past seven years have been greater than in other areas of the Scottish Government budget.

“Covid-19 has fundamentally affected local government services, increasing their reliance on working with their partners and communities. The financial impact of the pandemic on our public services is extreme and creates increased uncertainty of how those services will be provided in the future. Good governance, strong financial management and transparency of decision making will be critical as councils and IJBs deal with the impact and consequences of the pandemic.”

Just two days before finance minister Kate Forbes delivers her draft Budget at Holyrood, the umbrella organisation for Scottish local authorities COSLA is calling for “fair funding” to mitigate the “unprecedented strain” on budgets.

Resources spokesperson, Gail Macgregor, said: “This report lays out why we need fair funding for local government in Thursday’s Budget. The trend of recent settlements for local government needs to change because on top of existing pressures, the Covid pandemic – as the Accounts Commission report recognises - has placed unprecedented strain on the finances of Scotland’s councils this year.

“Sustaining this lifeline support is placing extreme pressure on already strained budgets and without fair funding for local government this year, the consequences for the most vulnerable in our communities would be unacceptable.

“That is why we need fair funding for 2021/22 that respects our communities. Without this, there will be further cuts to services, reductions in spending locally, increases in the inequalities exposed by the pandemic and a much slower recovery.”