Although Scottish Government funding to councils has been increasing, this hasn’t kept pace with rising costs and demand. Councils are overspending on delivering services and borrowing more.

In its latest update on council finances, the Accounts Commission reports that councils face a budget gap of nearly £1 billion by 2027.

In 2024/25, councils met 90 per cent of their savings targets. But for the first time in six years, they reported a collective overspend on the costs of delivering services. Debt levels are increasing. Many are relying on reserves. Whilst councils are increasing the amount of money they raise through fees and charges, income generated isn’t keeping pace with rising costs and inflation.

With Scottish Government funding to deliver capital projects falling, councils are also taking on more debt to deliver local infrastructure projects such as building schools and housing.

Derek Yule, member of the Accounts Commission, said: “Despite increased funding and income, councils are struggling to cope with the financial pressures they face. A growing gap between costs to deliver services and funding available is risking the financial sustainability of councils.

“We’re already seeing the impact on services – the pace of improvement is slowing, some services are being cut or are harder to access and there are growing levels of dissatisfaction from communities. Councils must fundamentally reconfigure how they operate and deliver services.”

Cllr Ricky Bell, COSLA spokesperson for resources, said: “While we acknowledge increases in uncommitted funding in the local government settlement, today’s report reinforces the message that local government finances are under severe and growing strain.

“Councils have worked hard to manage budgets responsibly, delivering significant savings year on year and meeting the vast majority of savings targets. However, there is a clear limit to what can be achieved without impacting the services communities rely on. Increasing reliance on reserves, borrowing and fees and charges is not a sustainable long-term solution.

“As we look ahead to 2026/27, the budget settlement falls far short of what is needed to sustain essential local services without difficult decisions being made locally.

“We are especially concerned by the continued underfunding of social care and the Real Living Wage across portfolios.

“The medium-term outlook for local government is deeply concerning, with continued de-prioritisation and the prospect of significant real-terms cuts. If councils are to remain financially sustainable and continue delivering for communities, there must be a more honest conversation about funding, priorities and local flexibility.

“Urgent action is needed to ensure councils have the resources and certainty required to support Scotland’s people and places now and in the future.”