Councils are finding financial pressures “increasingly difficult to manage” and could see their cash reserves run out in two to three years, a report said.
Spending watchdogs at the Accounts Commission said 2016-17 had been a “challenging” year for local government, with the amount of cash councils receive from the Scottish Government down by 7.6 per cent in real terms from 2010-11.
In 2016-17, a total of 19 councils used cash from their revenue reserves – up from the eight authorities that did this in 2015-16.
And over the course of the year, the overall amount held in council revenue reserves, described as their “rainy day funds”, fell by £32 million.
The Accounts Commission’s financial overview of local government showed councils’ net debt increased by £836m in 2016-17, with authorities spending on average almost 10 per cent of their budget for day to day running costs on servicing this.
Scottish Government funding for councils amounted to just over £9.7 billion in 2016-17, with ministers also providing £250m from the health budget to support the integration of health and social care services.
But the Accounts Commission said that “even taking this into account, total revenue funding for councils fell in 2016-17”.
Authorities made savings of about £524m last year, but the report told how “financial challenges continue to grow” with cuts in funding to councils “compounded by increasing costs and demands on services”.
The report said: “Councils are showing signs of increasing financial stress. They are finding it increasingly difficult to identify and deliver savings and more have drawn on reserves than in previous years to fund change programmes and routine service delivery. Some councils risk running out of general fund reserves within two to three years if they continue to use them at levels planned for 2017-18.”
In 2017-18, councils are to make £317m of savings and will also use £105m from their reserve funds.
Following two years where councils had reduced their debt, borrowing increased in 2016-17, going from £13.7bn to £14.5bn, excluding Orkney and Shetland. Levels of debt among councils are “not currently problematic”, the Accounts Commission said, but it added that some authorities were “becoming concerned about affordability of costs associated with debt within future budgets”.
Councillor Gavin Corbett, finance spokesman for the Greens in Edinburgh, said: “With the lowest level of funding per head in Scotland, Edinburgh can see the truth of the report more than most. Over the next five years the city is looking at another £150m worth of cuts to services, which can’t be done without an impact on schools, transport, social care and other vital council services.
“So the Scottish Government needs to give the council a fair funding deal when it announces its draft budget in just over two weeks. But more than that – ministers need to take off the shackles of central control and allow councils greater flexibility with funds, from council tax levels to a tourist tax.”
Scottish Conservative local government spokesman Alexander Stewart hit out, saying: “Under the SNP government, the financial health of Scotland’s 32 councils has deteriorated rapidly. Debt levels are eye-watering, and millions upon millions of pounds in taxpayers’ cash is now being used just to service it.
“We’ve even got to the stage where local authorities are dipping into the rainy day fund routinely just to stay afloat.
“And as auditors say, if that continues, there won’t be any reserves left to call on.”
A Scottish Government spokesman said: “We have treated local government very fairly despite the cuts to the Scottish budget from the UK government.
“Including the extra £250m to support the integration of health and social care the overall reduction in local government funding in 2016-17 equated to less than 1 per cent of local government’s total estimated expenditure.
“The 2017-18 local government finance settlement, including the increase in council tax and health and social care integration funding, means that local government have an extra £383m, or 3.7 per cent, in support for services compared to 2016-17.”