Council leaders in Scotland have warned there is a risk of bankruptcy for local authorities if funding provided by the Scottish Government is not improved.

Local government body Cosla made the comment after Birmingham and Nottingham city councils effectively declared themselves bankrupt.

Both authorities have issued Section 114 notices, which prevent spending on virtually everything apart from statutory services.

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In a briefing paper published ahead of the Scottish Budget on December 19, Cosla said: "There is a risk this becomes the reality for Scottish councils if the funding by Scottish Government does not match growing cost pressures."

Cosla resources spokeswoman Katie Hagmann warned without improvements in council funding, "tough choices" could mean essential services they provide "will cease".

To deal with the impact of inflation and the council tax freeze - announced by First Minister Humza Yousaf without first informing local authority leaders - Cosla said councils need almost £14.4 billion in the 2024-25 budget to "stand still".

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No details have emerged on how much money local authorities will get to compensate for the council tax freeze, but the Scottish Government has insisted the policy will be fully funded.

Cosla said: "Last year, councils faced a £1 billion funding gap just to keep services going.

"This year there have been increased costs and greater demand on services, meaning councils have had to prioritise spend, away from libraries, community and leisure centres."

Ms Hagmann added: "Sadly, our reality right now is an extremely challenging financial climate coupled with years of real-terms cuts to council budgets, while additional policy commitments are continually being introduced.

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"If this situation doesn't start to improve soon, it will mean tough choices being made and the many essential services councils currently provide will cease - services that not only address problems on the ground, but actively prevent bigger issues occurring down the line."

She said Cosla has been "clear that cutting frontline staff isn't the answer" and without "adequate and sustainable funding" councils will not be able to help tackle poverty, support efforts towards net zero or provide "sustainable public services".

Cosla insisted that every pound invested in local government "has the potential to generate savings elsewhere across the public sector, for example in health and criminal justice".

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Its president Shona Morrison said: "Councils really are the key to unlocking the best for our communities - from safe, quality housing, to clean streets, to supporting the most vulnerable people to thrive, to education and social care.

"The importance of these services cannot be emphasised enough, but they need to be funded properly."

With councils having "no choice but to protect core statutory services", Ms Morrison said the "unprecedented financial challenges we are all experiencing" mean there are "risks to many other local services our communities rely on, such as programmes supporting children and young people, sports and leisure facilities and public transport".

She added: "The campaign we are launching today clearly illustrates not only the challenges our councils are facing, but the great potential they have if funded properly.
"We will continue to work closely with Scottish Government and other partners to get the best deal for our councils and our local communities."

Scottish Conservative shadow secretary for finance and local government, Liz Smith MSP said: “The fact that councils are even having to make this eleventh hour plea is a damning indictment on years of brutal SNP cuts. 

"Scotland's local authorities have been struggling to provide core services for years now and it appears they may finally be nearing breaking point. 

"Unless the SNP finally give local councils the fair funding deal they deserve, bankruptcy will become a looming prospect for councils right across the country.”

A Scottish Government spokesperson said: "Scotland is facing the most challenging budget settlement since devolution as a result of sustained high inflation and a UK Government autumn statement that failed to deliver the investment needed in Scotland's public services.

"The Scottish Government has increased the resources available to local government in 2023-24 by more than £793 million, a real-terms increase of £376 million or 3%, compared to the 2022-23 Budget figures.

"Work is also ongoing with Cosla to establish a new fiscal framework for councils through the Verity House Agreement, a landmark agreement that is forging a stronger partnership between the Scottish Government and local councils through the spirit of collaboration and engagement.

"Decisions on local government budget allocations for future years are subject to the outcome of negotiations with Cosla, the results of which will be confirmed in future Scottish budgets."