Nearly a quarter of Scottish councils ‘facing effective bankruptcy and unable to balance budgets next year’

Nearly a quarter of Scottish councils face effective bankruptcy, according to new research published on Wednesday.

The Local Government Information Unit (LGIU) Scotland said many local authorities fear they will not be able to balance their budgets in the 2024/25 financial year.

Concerns remain despite the fact that every single council in Scotland plans to cut spending on services in the next financial year, with around two-thirds of respondents cutting spending on education, parks and leisure, and business support.

Alongside planned cuts, nearly all (97%) said that they would be increasing fees and charges, and nine in ten (89%) that they would be spending reserves. 

Jonathan Carr-West, chief executive of LGIU Scotland, said: “Councils in Scotland are raising a red flag that council finances are completely unsustainable.

“With nearly a quarter of councils warning they may be unable to fulfil their statutory duties, it is only a matter of time before we see the first council in Scotland declare effective bankruptcy. 

“Councils are pulling every lever available to them to balance their books. Every respondent said they were cutting spending on services, 97% that they would be increasing fees and charges, 89% that they would be spending reserves.

“But it is not enough. Councils have little to no confidence in local government finance and the issues behind the crisis are not going away.

“The Scottish Government must work productively with councils to restore trust, remove ring fencing, identify revenue streams and reform core funding for councils to ensure residents, and particularly the most vulnerable in communities, are able to access the services they need and pay for.”

The publication of the report comes just over a week after council leaders in Scotland also warned there is a risk of bankruptcy for local authorities if funding provided by the Scottish Government is not improved.

Local government body COSLA made the comment after Birmingham and Nottingham city councils effectively declared themselves bankrupt.

Both authorities have issued Section 114 notices, which prevent spending on virtually everything apart from statutory services.

The LGIU survey found more than three quarters of respondents (76%) believe cuts will be evident to the public.

Every local authority said it would have raised council tax had it not been for the Scottish Government decision to unilaterally declare a council tax freeze, most often by a significant amount.

The current state of the economy, manifested in high rates of inflation, affects wages, utilities and food, thus making service provision even more expensive for councils and was considered to be a problem by every respondent who answered. The associated cost of living crisis – which puts additional demand on services – was also considered to be a problem by over 90% of respondents. 

There was widespread agreement on the most pressing issues in council finances: in addition to inflation, ring-fencing, staff recruitment, cost of living crisis and pressures linked to demographic change were all considered to be problems by more than 90% of respondents. 

Adult social care and children’s services were considered the greatest shortest-term pressures on council finances, and adult social care by far the greatest long-term pressure. 

Councillor Paul Kelly, COSLA’s health and social care spokesperson, said: “We have an ageing population, with more complex care needs than ever before, and whilst this is obviously to be welcomed – it does require fresh thinking and resource as the pressure on our health and social care services increases.

“Social care staff across the country face immense pressures but continue to show incredible dedication to support people in their communities. However, the current challenges are not sustainable for those delivering or accessing care support.

“A better deal for our local councils is a better deal for all of us – councils are key to preventing problems occurring in the first place. Funding needs to be focused on making sure that people in our communities get the services they need at the right time and in the right place.”

To deal with the impact of inflation and the council tax freeze – announced by First Minister Humza Yousaf without first informing local authority leaders – COSLA said councils need almost £14.4bn in the 2024-25 budget to “stand still”.

No details have emerged on how much money local authorities will get to compensate for the council tax freeze, but the Scottish Government has insisted the policy will be fully funded.

A spokesperson said: “Scotland is facing the most challenging budget settlement since devolution as a result of sustained high inflation and a UK Government autumn statement that failed to deliver the investment needed in Scotland’s public services.

“The Scottish Government has increased the resources available to local government in 2023-24 by more than £793m, a real-terms increase of £376m or 3%, compared to the 2022-23 Budget figures.

“Work is also ongoing with COSLA to establish a new fiscal framework for councils through the Verity House Agreement, a landmark agreement that is forging a stronger partnership between the Scottish Government and local councils through the spirit of collaboration and engagement.

“Decisions on local government budget allocations for future years are subject to the outcome of negotiations with COSLA, the results of which will be confirmed in future Scottish budgets. Any assumptions relating to possible future budget reductions are entirely speculative at this stage.”

The Scottish Government will deliver its budget on December 19.

Scottish Conservative MSP Liz Smith, shadow cabinet secretary for finance and local government, said: “We have now reached the point where council finances are completely unsustainable, and almost a quarter of them say that they are effectively bankrupt. Every single one is planning cuts and almost all intend to raise fees and charges.

“This is the predictable consequence of years of SNP mismanagement and underfunding, and of the sudden U-turn that introduced a council tax freeze – but without anyone having given any thought to where the money was to come from.

“SNP ministers have continually failed to address problems in the public sector, where reform is essential if services are to be maintained. They must now urgently redirect their attention to those vital services, and ditch huge vanity projects such as the National Care Service, which is diverting money and attention away from frontline provision.”