Scotland’s local authorities face bleak future, says spending watchdog

29 Nov 16

Scotland’s municipal spending watchdog has praised the financial management of the country’s local authorities over the past year, but warned them of a bleak future of shrinking budgets and rising demand for their services. 

In its annual financial overview, the Accounts Commission commended councils on their response to financial pressures over the past year, saying that they had generally remained within budget and, in many cases, increased their capital reserves.

But the commission warned that significant challenges lay ahead for local government finance. It stated: “Councils’ budgets are under increasing pressure from a long-term decline in funding, rising demand for services and increasing costs, such as pensions.

Councils need to change the way they work to deal with the financial challenges they face,” the report says. “All councils face future funding gaps that require further savings or a greater use of their reserves. Long-term financial strategies must be in place to ensure council spending is aligned with priorities, and supported by medium-term financial plans and budget forecasts.”

The report notes that Scottish Government funding for local authorities, which accounts for some 60% of their income, has fallen by 8.4% in real terms over the past six years. It anticipates further reductions ahead.

Scotland’s 32 unitary councils spent a total of £19.5bn in 2015-16. Spending on providing services remains lower than in 2011-12, the report acknowledges, but has been increasing for key services like social care, in response to rising demand from an ageing population.

“Many councils overspent their social care budgets and this poses a risk to their longer-term financial position,” the report says. “Councils need to ensure budgets reflect true spending patterns so that the impact of current spending on their financial position is clearly understood.”

Launching the report, commission deputy chair Ronnie Hinds said: “Councils are generally doing a good job with their finances in difficult circumstances. But pressures continue to increase on a number of fronts at the same time as they face the prospect of further reductions in their funding.

“It's vital that councillors and officers set medium and long-term financial plans based on clear priorities for the services they provide to their communities”.

The Convention of Scottish Local Authorities, representing most of Scotland’s councils, welcomed the report’s recognition of the “incredible” financial management achieved by councils, but attributed many of their difficulties to the policies of central government.

Kevin Kennan, who speaks for Cosla on financial issues, said: “While councils and councillors do their best to mitigate the damage to communities from political choices made at the centre, this is becoming harder and harder to do. Also it is virtually impossible to set medium and long-term financial plans based on short term funding and yearly budgets from Scottish Government.”

However, according to the accounts commission report: “Even where the Scottish Government only provides councils with one-year financial settlements, this does not diminish the importance of medium and longer-term financial planning.”

CIPFA’s Local Government Directors of Finance group, comprised of the 32 chief finance officers of Scottish councils said the report underestimated pressures currently faced by councils.

The group welcome the acknowledgement of future financial challenges and the recommendation that councils must move to medium and long-term financial planning to best manage this, and urged the Scottish Government to take a more strategic view of service delivery and funding levels.

Derek Yule, the chair of the group, said the report appreciates the tremendous cost pressures that Scottish local authorities will have to manage in the future and recognises the strong financial management currently in place.

“But, after years of real term reductions in funding coupled with a rise in demand for core services, councils are already facing significant funding gaps,” he stated. “But unfortunately by claiming that councils are in good financial health, this report does not take into account the current scale of uncertainty.

“Indeed, as Audit Scotland itself states, councils are already having to make tough decisions and employ strong financial management to balance the books.”

  • 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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