Exclusive:Two thirds of Scottish councils mulling council tax rise to plug £400m budget gap

Two thirds of Scottish local authorities are considering hiking council tax in the next financial year - some by as much as 10 or 11 per cent - to help plug a funding black hole of around £400 million, analysis by The Scotsman can reveal.

The stark forecast for the 2025/26 financial year comes amid trust lost between SNP ministers and local authority chiefs over the freeze on council tax, while the Scottish Government’s long-promised reforms to the charge have ground to a halt.

Ministers scrapped a proposal to hike council tax for larger properties after a consultation that received more than 15,000 responses found only 4 per cent of the public were supportive.

How much you pay in council tax depends on where you live in Scotland. | Canva/Getty Images

READ MORE: Council tax to be 'effectively' frozen across Scotland after breakthrough in stand-off with Argyle and Bute and Inverclyde

Despite Humza Yousaf, while announcing his controversial freeze on the charge at last year’s SNP conference, vowing to “re-energise our work” to reform council tax, no progress has been made.

Inverclyde Council almost scuppered Mr Yousaf’s freeze by pledging to increase council tax by 8.2 per cent this year, but all local authorities in Scotland eventually agreed to the policy, despite it not being fully funded by Holyrood.

But analysis has revealed 22 out of Scotland’s 32 local authorities plan to hike council tax in the 2025/26 financial year as they attempt to resolve multi-million-pound funding gaps for day-to-day services.

Council tax funds around 20 per cent of the day-to-day running costs of local authorities, with the majority of funding coming from Holyrood.

Some councils are even forecasting pushing up the charge by around 10 per cent, which would get finances back to estimates of hiking it by 5 per cent this year and next year, as if the freeze had not happened.

Many authorities predicted putting the charge up in 2025/26 when they set their budgets for this financial year, while medium-term financial plans have revealed future council tax plans in some parts of Scotland.

An indicative forecast by Falkirk Council envisages hiking council tax by 11 per cent next year, while 10 per cent rises could be on the cards in East Lothian and Angus.

Council bosses in Edinburgh, Aberdeen, Clackmannanshire, Moray, Inverclyde, West Lothian and the Scottish Borders are all examining raising the charge by more than 5 per cent while several others including Glasgow, Perth and Kinross and Highland Council are planning their finances around raising council tax by 5 per cent next year.

Edinburgh City Council has forecast having to raise council tax by 7.8 per cent next year. Council leader Cammy Day told The Scotsman that he believed there was “no intentions” from SNP ministers to cap council tax next year.

He said: “The block grant we get has continued to erode year on year despite need for services in areas like health and social care and housing rocketing and the demand for that is the highest it’s ever been in generations.

Edinburgh council leader Cammy Day (Picture: Dan Barker)

“Council tax is the only tax that councils have to bring income to the city to provide basic and frontline services and we’re desperate to ask the Government not to cut our block grant, but to increase it, but also allow councils to set their own council tax, which is why it was set up.

“The SNP Scottish Government is the only government, I understand, who has intervened to freeze that - the impact of that has been felt across Scotland.”

Inverclyde Council moved to defy the Scottish Government’s freeze by threatening to hike council tax by 8.2 per cent for this financial year, before a rethink after pressure from SNP finance secretary Shona Robison. The authority now plans to raise council tax by 7 per cent next year.

Stephen McCabe, leader of Inverclyde Council, said: "Events in recent weeks have shown how irresponsible the Scottish Government's latest council tax freeze was. It has led to ministers desperately raiding lots of other budgets to fund pay rises because they used the money available for pay for a regressive council tax rise.

“They must rule out any further council tax freezes now and not keep councils waiting until December or even later before we know.”

He added: “We need certainty now so we can plan ahead for our own budgets. Without significant council tax rises next year, councils will be faced with making more devastating cuts to vital services our communities rely on."

Despite setting balanced budgets for this 2024/25 financial year, almost all of Scotland’s local councils are facing gaping holes in their budgets next year.

According to figures when this year’s budget was set, Glasgow City Council needs to close a £35.5m budget deficit next year. The gap in Edinburgh is £29.8m and Aberdeen needs to save £28.4m.

But the financial strain is not limited to Scotland’s cities, with Aberdeenshire forecasting a £29.8m gap, Highland Council facing a £25.8m deficit, South Lanarkshire at £21.9m and Fife looking at £16.2m of savings.

Although the deficits are likely to change before next year’s budgets are agreed, local authorities have been complaining about a raw deal from Holyrood for years - with around £400m needed to be found across local authorities ahead of next year.

When councils set their budgets for this year, a total budget gap of around £585m was identified.

This year’s settlement for local authorities from Holyrood saw revenue increase in real terms by 5.7 per cent, but most of the increase is directed funding to deliver Scottish Government priorities and agreed pay deals, much to the frustration of the umbrella organisation for Scottish councils, Cosla.

Cosla resources spokesperson Katie Hagmann said: “Councils continue to face significant financial challenges and it is vital to plan for the forthcoming Scottish budget. Councils have a responsibility to set a balanced budget, and a key part of this is to consider options for council tax. 

“As we have stated, council tax should be a decision for local authorities and there should be no freeze or national cap applied in 2025/26 and beyond.”

Reforming council tax has been a long-standing commitment from the SNP, having promised the idea back in 2007. Cllr Hagmann said Cosla “remains fully committed” to an ambition to modernise council tax and a  “commitment to look at further reforms at pace to make council tax a fairer tax”. 

She said: “While progress has stalled due to the recent changes in the Scottish Government, we expect to hear from ministers soon on how we can work jointly to explore reforms.”

The SNP kicked plans to reform council tax into the long grass before announcing freezes to the charge and making a renewed pledge in 2016 to reform “the unfair council tax system”.

The SNP also mulled over assigning “a portion of devolved income tax raised in Scotland” to councils in a bid to “reduce the reliance on grant funding”, but the funding model never shifted.

Instead, plans were agreed to hike the multiplier, the formula that establishes each rate from the central Band D, meaning those living in bigger properties would pay more.

The plans meant that bands E,F,G and H increased by 7.5 per cent, 12.5 per cent, 17.5 per cent and 22.5 per cent respectively - impacting around one quarter of homes in Scotland.

Nicola Sturgeon’s Bute House Agreement with the Scottish Greens pledged to look at council tax reform once again, with a consultation launched to effectively replicate the 2017 increase to those in larger properties. But the consultation response was a disaster for Mr Yousaf’s government. 

Only 4 per cent of the 15,628 responses supported the proposals. Analysis commissioned by the Scottish Government found people wanted a “broader review of the council tax system or suggested changes to the system, including switching to a local income tax, revaluing properties, or setting the amount of council tax paid based on services used or current income”.

Since Mr Yousaf announced the controversial return of the council tax freeze, plans to reform the charge have been put on ice.

Joanne Walker, a technical officer for the low incomes tax reform group at the Chartered Institute of Taxation, said: “The fact that council tax remains based on property valuations from over 30 years ago means there are lots of inconsistencies. For example, research has shown that it is likely that around half of all properties in Scotland would change band if there was a revaluation.

“For council tax to be seen to be fair, the tax base, that is domestic property, must be accurately valued. 

“While we agreed that the shelved 2023 proposal to increase the amount of council tax paid by homes in bands E to H would help to address the regressive nature of the council tax system, we stressed that an essential precursor to this would be a full revaluation of all domestic property.

“Otherwise, the change to the band multipliers would not affect the properties that it should. There would also need to be regular revaluations, say every three or five years, so that there is never such an issue with out-of-date valuations again.”

Ms Walker added: “Aside from this, perhaps one of the most important practical changes that could be made to council tax is to improve the take-up of discounts and exemptions.

 “However, policy makers must acknowledge that any changes to the council tax system will inevitably create winners and losers, so there needs to be wide consultation, and clear explanations as to what changes mean for those affected.”

The Welsh Government, which revalued properties in 2003, has also pushed forward legislation that would lead to regular revaluations every five years from 2028. 

In Wales, three proposals for reforming council tax have been tabled, ranging from a simple revaluation to reducing the tax rates applied to low-value properties and increasing them on high-value properties to make the tax less regressive.

Scottish Conservative shadow finance and local government secretary, Liz Smith, said: “It is no surprise that so many of Scotland’s local authorities are considering huge council tax hikes, given systematic underfunding by the SNP has left them all cash strapped.

“SNP ministers cannot keep passing the buck and repeatedly asking councils to deliver services with fewer and fewer resources. After a one-year freeze that was imposed on councils but not funded by the SNP, hard-pressed Scots are going to be asked to pay more for less.”

A Scottish Government spokesperson said: “We recognise the important contribution of local taxation to fund the public services on which we all rely. The Scottish Government is committed to a fairer, more inclusive and fiscally sustainable form of local taxation, and we are exploring council tax reform jointly with local government.”