Publication: Transparency, transformation and the sustainability of council services

In our latest review of council finances, we highlight the intensifying challenges all councils in Scotland are facing.

Relying on savings and using reserves to deliver services within agreed budgets is unsustainable. Nor does it deliver the changes so urgently needed to protect services into the future.

Steps are being taken to meet significant financial and demographic pressures, but unless councils deliver more far-reaching transformation, at a scale and pace we’ve not yet seen, they will find financial pressures further impacting services. We set out our thinking around this late last year in our report on Transformation in councils.

Councils need to make sure budget decisions are clear and understood

Our view is that councils need to be more transparent in how they report and monitor the financial decisions underpinning their annual budgets, and how these impact services. This information needs to form a central part of engagement and consultation with partners and citizens.

The scale of change now needed means involving local communities and clearly communicating the implications of budget decisions for services. This has never been more important.

In 2025/26, councils will again face a challenging set of circumstances

The current pressures on UK and Scottish public finances are well understood and will continue to impact councils for years to come.

Councils have faced and managed increased costs year on year, due to general inflation, annual pay awards and increasing demand. In 2025/26, however, councils will likely face a challenging set of circumstances.

Measures introduced over recent years meant councils could manage their debt repayments, reducing the amount they paid or paying it over a longer time period. They were also allowed to use money from the sale of assets to support day-to-day costs. By using these, however, councils simply deferred some costs to later years.

The one-off benefits from using these measures won’t be available in the future, the costs of borrowing and servicing debts will likely increase, and National Insurance costs will increase significantly as employer contributions rise.

Indications are that the 2025/26 Scottish Budget will result in increased funding for councils. Councils will also be free to set their own levels of Council Tax. But it is unlikely this increased funding and income will be able to keep pace with increasing costs.

Funding also continues to be announced for single years, which makes it challenging for councils to plan for the future.

We’re encouraged that councils are making greater efforts to better assess their own financial sustainability. However, this now needs to become embedded and underpin every decision councils take.

We continue to develop our views on how we can support councils to do this.

Upcoming work

Our cycle of overview reporting means we will soon report on how councils intend to meet these ongoing challenges.

After the Scottish Government has finalised its 2025/26 budget, and councils have set their own budgets, we will publish our annual report on council budgets for the year ahead. This will provide an update on council funding; the measures councils intend to take to manage their finances; and how they have consulted with local citizens.

Later in 2025 we will then review how council services are performing.

We remain committed to working with councils, Directors of Finance and others, including the Improvement Service, to ensure that the challenges councils face are well understood, and that they are supported to meet them.

We look forward to progressing our strategic priorities in 2025.