Public finance watchdogs highlight council funding challenges

Public finance watchdogs highlight council funding challenges

THE leader of Inverclyde Council has expressed concern about the future of local government after a new report by public finance watchdogs warned that councils are under threat.

The analysis by the Accounts Commission - the independent body that holds councils and other local government bodies in Scotland to account - says councils risk becoming financially unsustainable due to a lack of funding.

In a report issued today, Thursday 29 January 2026, the commission said that although Scottish Government funding to councils has been increasing, it has not kept pace with rising costs and demand meaning councils are overspending on delivering services and having to borrow more.

The report highlights that local government is still struggling financially despite councils having made huge savings over a number of years.

In Inverclyde alone, the council has made budget savings of £77 million since 2008 and still faces an estimated total funding gap of £8.6m for the next two years.

Councillor McCabe said:

"The findings of the report will come as no surprise to Scottish councils because we've been warning for a long number of years now about the consequences of continued underfunding of local government and the adverse impact that will have on communities across Scotland.

"What the report does do is validate those warnings and puts further pressure on the Scottish Government to properly fund local government or risk the collapse of councils and the vital, frontline services they deliver for people.

"The support from the government is simply not enough to help councils deal with increasing demand for services, rising costs and inflation, and ageing infrastructure.

"The report from the Accounts Commission should be a wake-up call to the government to properly fund councils or risk losing them."

In its latest update on council finances, the Accounts Commission reported that councils face a budget gap of nearly £1 billion by 2027.

That's despite councils meeting 90 per cent of their savings targets in 2024/25.

For the first time in six years, the commission reported a collective overspend on the costs of delivering services, that debt levels are increasing, and that many councils are relying on reserves.

The analysis also found that while councils are increasing the amount of money they raise through fees and charges, income generated is not keeping pace with rising costs and inflation.

The commission also highlighted that Scottish Government funding to deliver capital projects is falling and that councils are also taking on more debt to deliver local infrastructure projects, such as building schools and housing.

Derek Yule, member of the Accounts Commission, said:

"Despite increased funding and income, councils are struggling to cope with the financial pressures they face. A growing gap between costs to deliver services and funding available is risking the financial sustainability of councils.

"We're already seeing the impact on services - the pace of improvement is slowing, some services are being cut or are harder to access and there are growing levels of dissatisfaction from communities. Councils must fundamentally reconfigure how they operate and deliver services."

The report was also welcomed by council umbrella body COSLA, which represents Scotland's 32 local authorities.

Cllr Ricky Bell, COSLA Spokesperson for Resources, said:

"While we acknowledge increases in uncommitted funding in the local government settlement, today's report reinforces the message that local government finances are under severe and growing strain.

"Councils have worked hard to manage budgets responsibly, delivering significant savings year on year and meeting the vast majority of savings targets. However, there is a clear limit to what can be achieved without impacting the services communities rely on. Increasing reliance on reserves, borrowing and fees and charges is not a sustainable long-term solution.

"As we look ahead to 2026/27, the budget settlement falls far short of what is needed to sustain essential local services without difficult decisions being made locally.

"We are especially concerned by the continued underfunding of social care and the Real Living Wage across portfolios.

"The medium-term outlook for local government is deeply concerning, with continued de-prioritisation and the prospect of significant real-terms cuts. If councils are to remain financially sustainable and continue delivering for communities, there must be a more honest conversation about funding, priorities and local flexibility.

"Urgent action is needed to ensure councils have the resources and certainty required to support Scotland's people and places now and in the future."

The Accounts Commission report is available at Scotland's councils risk becoming financially unsustainable | Audit Scotland and the COSLA reaction and analysis can be found at COSLA Responds to Accounts Commission Report | COSLA.

Page last updated: 29 January 2026