A new report from the public spending watchdog found that although councils received a 2% real-terms increase in funding from the Scottish Government, much of it was immediately absorbed by pre-existing commitments such as teachers’ pay deals, leaving little room to meet rising demand for services.

Every local authority in Scotland raised council tax for 2026/27, averaging a 7.7% increase that is expected to bring in an additional £248m. Councils also anticipate collecting around £1.2 billion from fees and charges, for services ranging from leisure centres to certain refuse collections, and have identified £180m in savings, equivalent to about 1% of total revenue budgets.

The Commission cautioned, however, that these measures fall well short of closing the gap, and that future savings will have to target services that residents depend on most.

Beyond day-to-day spending, capital funding has dropped by 15% - a cut the commission said would force councils to borrow more to build homes and maintain infrastructure, increasing their long-term financial exposure at a time when many are already stretched.

Social care accounts for a large share of council budgets, and demand is continuing to climb. The commission warned that anticipated reductions in Scottish Government funding over the medium term are likely to intensify these pressures and raise the risk of some councils becoming financially unsustainable.

“As things stand, councils will continue to face increasing financial pressures unless they stop, reduce, or significantly redesign services,” said Derek Yule, member of the Accounts Commission. “Savings options are limited and will have to increasingly focus on changes to services people rely on. That makes it essential that councils talk to their communities about the difficult decisions they are facing.”

The local government umbrella body COSLA echoed those concerns, calling the position of council budgets “perilous” and highlighting what it described as “critical financial pressures” facing Health and Social Care Partnerships.

Cllr Ricky Bell, COSLA resources spokesperson, said: “The report quite rightly expresses grave concern for local government finance over the medium term. Whilst councils are being forced into damaging cuts, we are also expediting service transformation, which must be recognised as we begin to consider our role and expectations in public service reform. We will continue to advocate for fair and flexible funding for our councils moving forward.”

The findings arrive as councils across Scotland are beginning early consultations with communities on where cuts may fall, a process the Accounts Commission said is now unavoidable.