Scots councils under ‘financial stress’, Accounts Commission warns

28 Nov 17

Scotland’s councils are in danger of emptying their financial reserves before the decade’s end as they struggle to absorb continuing budget cuts, the Accounts Commission has warned.

In its annual financial overview, the commission, staffed by Audit Scotland, says that after years of economies, the 32 Scottish local authorities are exhibiting “signs of increasing financial stress”.

It went on: “They are finding it increasingly difficult to identify and deliver savings and more have drawn on reserves than in previous years to fund change programmes and routine service delivery.

“Some councils risk running out of General Fund reserves within two to three years if they continue to use them at levels planned for 2017-18.”

Even now, says the report, the pressures of austerity are growing more not less intense. “Funding reductions are compounded by increasing costs and demands on services. In response, councils have needed to achieve ambitious savings plans, including around £524m of savings for 2016-17.

“Debt increased by £836m in 2016-17 as councils took advantage of low interest rates to borrow more to invest in larger capital programmes,” says the commission.

While debt levels were a problem at the moment, worries about affordability were starting to emerge at some councils.

Last year, the two-thirds of council budget provided by the Scottish Government fell by 5.2% to £9.7bn. Although the decade-long council tax freeze has now ended, the commission noted that, even if all councils chose to increase the tax by the 3% permitted maximum, it would only raise £68m – barely enough to fund a 1% pay rise for council staff.

At the same time, authorities are facing increasingly inflationary pressures and are having to direct a growing proportion of resources to meeting national priorities set by ministers, such as in education. Accordingly, discretionary spend, notably on culture and development, has been sharply reduced.

In the current financial year, councils approved a further £317m of savings but have also voted to spend £105m of their financial reserves.

The report is aimed at informing the budget-setting process for the year ahead. 

Accounts Commission chair Graham Sharp said: “Effective leadership and financial management is becoming increasingly critical and medium-term financial strategies and well thought out savings plans are key to financial resilience and sustainability.”

Don Peebles, CIPFA’s head of devolved nations, called the report sobering. He said: “This should be a warning to both the Scottish government and local authorities that they must continue with efforts to put the sector on a more sustainable footing. CIPFA has developed an assessment method that can help councils with this vitally important task.”

Alexander Stewart, local government spokesman for the Scottish Conservatives, called the debt levels “eye-watering”.

He said: “The Scottish Government needs to provide far more support to councils right across the country to ensure best practice is shared, debts are reduced, and council tax payers are receiving value for money.”

  • Keith Aitken
    Keith Aitken

    covers Scottish affairs for Public Finance from Edinburgh. He was formerly economics editor and chief leader writer on The Scotsman and now has a busy freelance career as a writer, broadcaster and event chair.

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