In its annual overview of councils’ challenges and performance, the Accounts Commission warned that funding for local services could be at risk if the Scottish Government’s budget contracted due to tax policy and the performance of the economy as a whole.
Along with Brexit, the impact of Scotland’s new financial and social security powers was one of the uncertainties which made planning for the future more challenging for councils, the report found.
The Scottish Government, in its five-year strategy, predicted its budget could vary by up to 6% by 2022-23.
“Scotland’s budget is influenced by Scottish ministers’ tax decisions and how well the Scottish economy performs compared to the rest of the UK,” the commission said.
“This means the Scottish budget is likely to become more variable than it has been through the block grant from the UK Government.”
“If the Scottish budget varies, funding to local government through the Scottish Government settlement will also be affected, in particular, services that are not financially protected as Scottish Government priorities.”
The commission also said that the efficiencies currently being pursued by councils were “unlikely to be sufficient” to meet the growing gap between demand and resources, and that more transformational change would be required.
Scottish Government revenue funding to councils had fallen by 6% in real terms between 2013-14 and 2019-20, it said, while national policy initiatives continued to make up an increasing proportion of council budgets. As a result, local authorities had less flexibility over their spending.
Councils had sought to generate savings through, for example, property rationalisation and improvements in back office functions, but these would not be enough to meet the financial challenges ahead.
The sharing of services across local authorities also appears to have failed to gather momentum, with the commission having come across “only a limited number” of such initiatives in its audit work.
So far, most local services were improving or being maintained despite budgetary pressures, it said, but some had started to show strain in the last year.
Lack of financial planning was also an issue, with fewer than half of councils having significant long-term plans, and of those, only five taking into account the impact of population and demand change on their services.
Graham Sharp, chair of the Accounts Commission, said councils had to be aware that the impact of reducing finances, combined with the volatility inherent in the fiscal framework, was potentially significant for unprotected services.
“There will always be volatility, but the bigger the amount of tax base that is devolved to Scotland, the bigger that potential adjustment is,” he told PF.
Gail Macgregor, resources spokesperson for the Convention of Scottish Local Authorities, said the report made clear the “harsh reality” faced by councils in providing frontline services.
“The current financial treatment of local government is not sustainable, nor in anyone’s interests - especially our communities who rely on vital services,” she said.
A Scottish Government spokesman said councils had been treated “very fairly”.
“We welcome the report’s findings that local authority performance is largely improving or being maintained,” he said.
“We expect all councils to consider and take any necessary action to implement the report’s recommendations to help meet future challenges and continue to improve outcomes.”
