The Accounts Commission has forecast the gap between the amount local government spends and its income could grow from £87m in 2016-17 to an estimated £367m in the next financial year, before rising again to £533m in 2018-19.
By then, analysis suggests more than a third of Scotland’s 32 local authorities will face a funding gap that is greater than the amount of cash they have in reserves.
The figures were contained in a new report from the Accounts Commission which warned councils will “need to make significant savings to address forecast funding gaps”.
Just over half of councils plan to use their reserves to balance their budget in 2016-17 – with Angus Council planning to use 23 per cent of its reserve fund, while Dumfries and Galloway said it will use less than 1 per cent.
The report into council finances said these were “generally good” in 2015-16, with authorities able to reduce overall debt levels and make a slight increase in their overall reserves. But it went on to state “significant challenges for local government finance lie ahead”. The Accounts Commission warned: “Councils’ budgets are under increasing pressure from a long-term decline in funding, rising demand for services and increasing costs such as pensions.
“There is variation in how these pressures are affecting individual councils, with some overspending their total budgets or budgets for individual services such as social care.
“Councils need to change the way they work to deal with the financial challenges they face. All councils face future funding gaps that require further savings or a greater use of their reserves.”
Council incomes amounted to £18.9 billion in 2015-16, with £10.9bn (57 per cent) of this cash coming from the Scottish Government – a drop of 1.7 per cent in real terms from 2010-11.
When the figures for 2016-17 were taken into account, authorities have seen a real-terms reduction in government funding of 8.4 per cent since 2010-11, with the Accounts Commission stating this is “approximately the same as the reduction in the Scottish Government’s total budget over the same period”.
The report said councils “have experienced a long-term decline in their grant funding from the Scottish Government”, adding this “is expected to continue to fall in future, putting greater pressure on budgets”.
Authorities spent £19.5bn in 2015-16, with spending increasing on “key services” such as social care “because of rising demand from an ageing population”.
Meanwhile, 22 councils “spend 10 per cent or more of their revenue income on servicing their debt” according to the report. Councils’ overall debt currently stands at £13.72bn, costing them about £1.5bn a year in interest and repayments. The Accounts Commission added that not all authorities have a financial strategy in place for the medium to long-term.
Kevin Keenan, finance spokesman for local government body Cosla, said: “We all know the direction of travel for public sector finances. Indeed, the report actually warns of further reductions in funding for councils from central government while demand on council services, particularly social care, continues to rise.
“Whilst 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.”
A Scottish Government spokesman said: “This report highlights the pressures that councils – like other parts of the public sector – face, but also highlights that they are continuing to improve services. We expect local authorities to continue to use resources as efficiently and effectively as possible to ensure taxpayers get the best possible services and value for money.
“We welcome the report and would expect all councillors to consider and take any necessary action to implement its recommendations.”