Financial sustainability of Scots councils 'at risk' without funding rethink, warns audit body

Presently the Scottish Government provides funding on an annual basis to local authorities, which employs 206,000 people and has an annual spending budget of £12.6bn to provided services for the nation.

The concerns come as councils collectively lost an estimated £400m in income partly through the closure of sports, leisure and other facilities while having additional costs of £800m partly through delays in capital projects due to Covid-19.

As at February 2021, over £2 billion of Scottish Government Covid-19 support for councils had been either allocated or announced.

But local government public spending watchdog, the Accounts Commission says that with Covid-19 the councils face an "increasingly challenging financial outlook" and are facing difficult decisions about the services they deliver and how they will be delivered.

It has warned that prioritisation of services such as the NHS may have an adverse impact on local government funding levels in future.

"The Scottish Government will have to make difficult fiscal decisions in response to the pandemic and this may exacerbate the financial uncertainty challenge for councils," the commission warned.

It comes after research by the Scottish Labour party found that the Scottish Government had cut councils’ non-ringfenced revenue funding by £937.3 million in real teams between 2013-14 and 2021-22.

The union Unite has also raised concern that previously released figures through the COSLA National Benchmarking Overview showing sustained cuts in local government funding totalling £1bn - an 8.3% reduction in real terms - from £10.5 billion in 2010/11 to £9.6 billion in 2017/18.

Elma Murray, interim commission chairman said they have long stressed the importance for councils of "long-term financial planning" but she said: "They need the certainty of a multi-year financial settlement to do this.

"Without this Scotland is faced with a clear risk to the financial sustainability of our councils."

Ms Murray warned that there is "rarely financial certainty for councils beyond the current financial year".

She said during the last few years we have seen increasing amounts of funding provided by the Scottish Government being ring-fenced for specific purposes and that this "limit on local flexibility" has also emerged through the funding arrangements for Covid-19.

"Support for councils will be needed to allow them to take a comprehensive and holistic approach as they look to stimulate economic recovery, address inequalities and build back communities," she said.

The Accounts Commission in a new overview said the timing and nature of funding for local government was creating "pressure and uncertainty for councils beyond the current financial year".

"A lack of flexibility in future funding may lead to a differential impact on service delivery and exacerbate existing financial sustainability risks," it said.

"Funding of councils beyond 2021/22 remains uncertain. Currently, funding is being provided incrementally, and this presents challenges for councils in planning effectively. Significant levels of grant support have been provided by the Scottish Government in 2020/21, but it is not yet clear whether this will continue in future years as the impact of the pandemic develops.

Ring-fenced funding forced councils to make "difficult prioritisation decisions with potential negative impacts on other services.

"Funding is being provided incrementally and the lack of certainty regarding future budgets makes effective short and medium-term planning very difficult for councils," it said.

Services such as planning, cultural services, environmental health and roads have borne the brunt of service cuts in recent years, it said.

The trend has been one of larger reductions to relatively smaller service areas with no change in real terms to social care and education spending, the overview said.

"The increased financial constraints created by Covid-19 are likely to create a further risk to recovery should smaller services face further cuts," it warned. "This will adversely affect councils’ ability to provide important services that people and communities rely on."

The Convention of Scottish Local Authorities has warned that the impact on council finances will be felt for years to come.

Gail Macgregor, COSLA’s resources spokesman said welcomed the highlighting of the need for funding certainty beyond one year which "would allow for longer term financial planning for the benefit of communities".

The Scottish Government says that the total funding package the Scottish Government is providing to councils in 2021-22 is at almost £11.7 billion. That includes revenue funding of almost £11.1 billion and support for capital expenditure of more than £600 million. In addition, councils will receive a further £259 million of Covid-19 support.

“The funding settlement not only gives local authorities the resources but also additional fiscal flexibility within the powers available to the Scottish Government to respond to the challenges that the pandemic has created," said a spokesman.

“However, our powers to go further to support the recovery are limited and our calls to the UK Government for additional measures to be included in the Fiscal Framework have so far gone unheeded."

The Accounts Commission, who report to the public on the performance of local government, also make clear that councils reacted quickly, working alongside communities and partners, to address the "unprecedented challenges" created by Covid-19.

It made clear that councils, alongside their partners, quickly provided "innovative and sustained support" to vulnerable people. This included supporting those who were shielding or self-isolating, switching to delivering services digitally and managing significant funding to support local businesses.