Scotland's councils face a financially uncertain future

Scotland’s councils have increased reserves over the last year but must address the impacts of an overall reduction in funding and ongoing challenges caused by Covid-19.

An overview of local government finances in Scotland 2020/21, published today by the Accounts Commission, captures the full-year impact of Covid-19. Whilst councils’ total funding and income increased by £1.8 billion (10 per cent) in 2020/21, this was mainly the result of additional Scottish Government Covid-19 funding of £1.5 billion. Excluding this councils have seen funding reduce, in real terms, by 4.2 per cent since 2013/14, with increasing amounts of funding ring-fenced to meet Scottish Government priorities.

Whilst council reserves increased considerably, mainly due to late Covid-19 funding from the Scottish Government, this is committed to Covid-19 recovery. Other elements of councils’ reserves are earmarked for economic recovery, transformation projects and, in some cases, balancing budgets. This limits councils’ flexibility to respond to unforeseen challenges in the future.

The long-term funding position for councils remains uncertain. There are significant challenges ahead as councils continue to respond to the impacts of Covid-19 on services, finances and communities. Councils must also address cost and demand pressures pre-dating Covid-19, as well as develop long-term plans with partners to address complex issues. This includes addressing child poverty, inequalities, improving economic growth and delivering Scotland’s net Zero ambitions.

William Moyes, Chair of the Accounts Commission, said:

Councils face serious challenges, driven by financial constraints, increasing demands on service and resource. Alongside these longer-term issues are the financial uncertainties caused by the impacts of Covid-19, including loss of income and additional costs.

Now, as we look ahead and beyond council elections in May, councillors must determine how to restart services, deliver differently, save money and empower communities. They must do so alongside focusing on national priorities, including climate change. Whilst councils must address longer-term financial planning, having in place funding certainty, beyond a one-year settlement from the Scottish Government, remains a critical issue.