Public services warning as councils face £530m budget shortfall

Scotland's councils are facing a collective budget shortfall of about £530m in 2026-27, a spending watchdog has warned.

The Accounts Commission has warned that local authorities will have to "stop, reduce, or significantly redesign" services.

It reported that a small rise in funding for day-to-day spending was not enough to keep pace with rising costs and demand, particularly on social care.

The commission found that with government cuts forecast in the coming years, councils risked "becoming financially unsustainable".

A Scottish government spokesperson said it recognised the pressures facing councils, and it would continue to work with local authorities to ensure people get high quality public services.

Most of councils' revenue funding - used for day-to-day costs such as wages, schools, road maintenance and bin collections - comes from the government.

The Accounts Commission said while the revenue budget was rising by 2% in the 2026-27 budget, much of it would go towards existing commitments such as increases in teacher pay.

The watchdog said that the gap between councils' predicted spending and the funding and income they receive was £529m - down from £647m in the previous year. The gap represents about 3% of their total revenue funding.

The budget gaps range from £86.7m in Glasgow City to £3.5m in East Lothian. South Lanarkshire is the only council with a surplus (£1.5m).

The combined capital budget for local authorities, used to to build infrastructure and schools, is down by 15% in this financial year.

The commission warned this would lead to councils borrowing more money, increasing their long-term financial risks.

To cope with the funding shortfalls, every local authority in Scotland has increased council tax - ranging from 4% in Edinburgh to 10% in Aberdeenshire and Moray.

The commission said these measures were expected to raise about £248m, with councils forecast to bring in a further £1.2bn from fees and other charges such as for leisure centres and some refuse services.

Local authorities are also planning to make £180m of cuts – amounting to about 1% of their total revenue budgets.

The commission warned this would "have to increasingly affect services people rely on".

Local authorities were forecast to spend £4.3bn on social care over the next year, representing almost a quarter (24%) of their revenue spending.

Derek Yule, a member of the Accounts Commission, said: "As things stand, councils will continue to face increasing financial pressures unless they stop, reduce, or significantly redesign services.

"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."

Labour's local government spokesman, Joe Fagan, said: "The SNP must work with councils to make sure services are working as they should and start delivering fair funding for local government so Scots don't keep paying more for less."

Alexander Burnett of the Scottish Conservatives said: "John Swinney must finally provide a fair deal to councils and the way to do that is by reining in the SNP's ballooning and unsustainable benefits bill, not clobbering hard-pressed households with even more tax rises."

Liberal Democrat finance spokesman Liam McArthur said: "We need real reform to push powers over both revenue raising and spending out to communities and help them to provide the reliable local services that people are crying out for."

Cosla resources spokesman Ricky Bell 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," he added.

A Scottish government spokesperson said the 2026/27 budget provided councils with "recording funding of almost £15.7bn" and it would continue to work with local authorities to ensure people get high quality public services.

They added: "The Scottish government recognises the pressures facing local authorities, both in Scotland and across the UK as a result of external factors including geopolitical events.

"Spending decisions in Scotland are directly impacted by decisions taken by the UK government - indeed, the increase in employer national insurance contributions continues to be a challenge for local government."