The budget deficit for local authorities is on course to reach around £529 million as a Holyrood funding increase risks being swallowed by teachers’ pay rises and other existing commitments.
Scotland’s public spending watchdog has warned that the two per cent funding increase for councils is not keeping pace with rising costs – forcing them to borrow more or potentially cut services.
The Accounts Commission, a part of Audit Scotland which oversees local government finances, identified a budget gap of around £529 million in 2026/27 daily operating costs for councils – around three per cent of their revenue funding.
With capital funding down by 15 per cent, it means councils will have to borrow more to build houses and other infrastructure, which ‘heightens long-term financial risk’.
According to the Commission, every local authority increased council tax by an average of 7.7 per cent for 2026/27, which should raise an extra £248 million.
Councils expect to bring in around £1.2 billion from fees and other charges, such as for leisure centres and some refuse services. They are also planning to make savings of £180 million – around 1 per cent of councils’ total revenue budget. But these savings will have to increasingly affect services people rely on.
Social care makes up a high proportion of council spending and increasing demand for these services is ‘putting major pressure on local budgets’, the Commission warned.
‘Anticipated reductions in Scottish Government funding over the medium term are expected to intensify these pressures and increase the risk of councils becoming financially unsustainable,’ it said.
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.”
In a detailed report, the Commission highlighted that Scotland’s local authorities are planning to make savings of £179.6 million this financial year, but more might be needed if ‘unforeseen’ pressures arise.
Statutory service provision such as education and social work make it hard for local authorities to reduce spending, so £66 million in cuts to councils’ corporate services are planned this year – around a third of all savings.
‘Around 74 individual saving measures are within culture and leisure, economic development and environmental services. This represents around £46.6 million of saving measures,’ the report adds.
All councils increased their council tax rates in 2026/27, with increases ranging from four per cent at the City of Edinburgh Council to ten per cent in Aberdeenshire and Moray councils.