Warning sounded over spending of ‘rainy day’ cash by Scottish councils

● Accounts Commission report says council funds situation is ‘unsustainable’

Scotland’s councils are being forced to spend millions from cash reserves to make ends meet, after a funding fall of 7.6 per cent over the last five years, a damning report has revealed.

The Accounts Commission said the financial position of Scottish local authorities was “increasingly unsustainable” with Scottish Government funding to councils dropping “significantly”, and it recommends a “transformation” in how services are delivered in future.

Over the last three years, 23 of Scotland’s 32 local authorities have drawn from their reserves, with a net reduction in the amount held by councils of £45 million at the end of last year, the second year in a row when council savings have seen a net reduction.

The report, published today and compiled by Audit Scotland for the Commission, comes six months after the Scottish Government also found that local authorities last year were using savings to pay for day-to-day spending.

The Accounts Commission, the local government finance watchdog, said the financial pressures on councils were likely to get worse with demand for services growing and government funding reducing in real terms.

Graham Sharp, chair of the Accounts Commission, said: “The current position is increasingly unsustainable. There’s a need for councils to continue rethinking how they deliver services, as well as look at ways to increase their income. For some councils in Scotland, finding ways to do this is getting more and more difficult as their current income doesn’t match demand.”

The report states that councils “face the increasing challenge of meeting changing and growing demands on their services, but their income is straining to keep pace” and that while Scottish Government funding has been “relatively stable” this year, since 2013/14 it has fallen by 7.6 per cent in real terms.

It adds that the “ongoing use of reserves to manage funding gaps is not sustainable” and adds “after several years of tightening budgets, we recognise councils have already made savings through restructuring and efficiencies, but transformation in terms of service redesign is required to deal with the further reductions forecast.”

While the report says that reserves “play an important role in good financial management of councils”, they are there to be used to invest in major projects or respond to unexpected events, not for day-to-day services.

Overall,since2013/14,scottish Government funding to councils has reduced by 7.6 per cent in real terms, although funding in 2019/20 has increased by 2.9 per cent in cash terms, or 0.9 per cent in real terms.