The Accounts Commission said that councils had managed their budgets well over the last year, although they continued to face financial pressures, such as increasing demand and uncertainty over Brexit, in its annual financial overview, released today.
However, it expressed concern that factors linked to deprivation were given far less weight than those relating to population in the mechanism used to distribute revenue grant among councils.
The methodology used to allocate Grant Aided Expenditure (GAE), worth almost £8bn, and the relative importance of each indicator, had not changed in ten years, it added.
Given Scotland’s demographic changes and the Scottish Government’s commitment to tackling social and economic inequality, there was a risk that the GAE weightings “no longer sufficiently represent need”.
“We recognise that a review of funding distribution is difficult in times of reducing budgets, as there will inevitably be some councils that end up with smaller allocations of funding, putting further strain on already tight budgets,” it said.
“But we continue to believe that it is important that the Scottish Government and the Convention of Scottish Local Authorities (COSLA) assure themselves that the funding formula remains fit for purpose.”
The commission found that although local government revenue funding from the Scottish Government had reduced by 2.3% in real terms in 2017-18, the reduction was largely offset by increases in council tax and councils’ fee income.
While education and social work had benefited from increased spending, unprotected areas such as environmental services, roads and planning had borne the brunt of cuts in local government budgets.
Further reductions in funding were expected in the medium term, it said, which meant councils were under pressure to make further savings and find ways to meet demand for services more efficiently.
This would require “difficult decisions and innovative thinking” by councillors and senior management.
Although reserves overall had continued to reduce, no council was now using reserves at a level that risked their financial stability, it said.
This contrasted sharply with last year, when the commission warned that three councils were at risk of depleting their cash reserves over the next three years.
Graham Sharp, chair of the Accounts Commission, said: "Councils did a good job last year in managing resources as budgets are tightened and demands on them rise.
“The position varies from council to council but there is clearly need for continuing change in the way services are provided. It's not been easy but the pressure on them - and the key services we all rely on - shows no signs of easing.”
Gail McGregor, resources spokesperson for COSLA, said the commission had been right to flag up the complex challenges councils faced, and called for local services to be properly funded in the forthcoming Scottish budget.
“There is no room left for manoeuvre, we really are at a cliff edge and our core budget is under real threat,” she said.
A Scottish Government spokesperson said: "Despite continued UK government real terms cuts to Scotland's resource budget, we have treated local government very fairly - and in the current financial year councils received a real terms boost in both revenue and capital funding."
