Deputy First Minister Shona Robison will hand over an extra £62.7 million to local authorities after admitting the funding she offered for a council tax freeze was “not sufficient”.
The climbdown comes after crunch talks between Ms Robison and leaders of Cosla, the umbrella organisation for Scottish councils.
But a warning has been issued that without a better funding arrangement to cover pay disputes, Scotland could face “strikes and school closures again”.
The Scottish Government had offered councils who adhere to a council tax freeze in the next financial year a share of £147 million, the equivalent of a 5% hike to the charge.
But some local authorities were anticipating raising council tax above the 5% mark and were not set to receive enough funding to offset the forecast.
Read more: Analysis: Scottish council funding as usual won't cut it
A total of £45 million of extra funding has come from the UK Government as a consequence of more funding being made available for adult social care in England, while an extra £17.7 million will be added to councils’ general revenue grant.
Some Scottish councils have already set their budgets for the next financial year.
Ms Robison has also confirmed that the Islands Cost of Living fund will be increased by £4 million.
In a letter to council leaders, Ms Robison said she has “reflected” on the concerns raised by Cosla that the funding deal was not adequate and has described the extra money as a “significant offer of compromise”.
She said that the £147 million to offset a 5% council tax rise was “not sufficient”, pointing to “Cosla’s position that the general revenue grant is £62.7 million lower than last year”.
Ms Robison added that subject to the UK Budget next month, "the Scottish Government will not only pass through to local government the £45 million expected" from Westminster, but "will also increase the local government general revenue grant by a further £17.7 million.”
Read more: Cosla in row with Shona Robison over lack of respect in Budget
She said: “It will mean that the £147 million in funding allocated will be wholly additional funding.
“This compromise, in the spirit of honest and constructive discussions we have had in recent weeks, represents a significant protection and improvement in the funding position for local government, which no other portfolio is benefiting from.
"It is also a demonstration of our commitment to the Verity House Agreement.
“In return for this significant compromise, I reiterate the position that the funding is conditional upon the freezing on the council tax.
“It is also my intention that the funding for a council tax freeze will be baselined in future years into the general revenue grant for all councils which agree to freeze their council tax in 2024-25.”
One council leader said that Cosla will discuss the offer at a meeting tomorrow.
Read more: Councils treated 'reasonably fairly' ahead of SNP tax freeze talks
They added: “It still isn't enough but we are not going to get any more at this stage. The focus will now move to pay.
“The union pay demands of around 7% would cost £500m. Most councils are budgeting for 3%.
“If the Scottish Government doesn't come up with more money for pay we will likely face strikes and school closures again.”
Scottish Conservative shadow finance secretary, Liz Smith, said Ms Robison's letter to council leaders "proves, once and for all, that the claim made by Humza Yousaf that the council tax freeze was fully funded was completely untrue".
She added: “Shona Robison has finally acknowledged that the £147 million allocated to fund the council tax freeze was nowhere near enough and left local authorities in complete limbo about their own budgets.
“The additional £62.7m which will now be provided to local authorities will be welcome news but the full total still falls well short of what local authorities believe is necessary just to stand still.
"There will still be brutal cuts to public services and, yet again, it will be the public who suffer from the SNP’s mismanagement of the economy.”
Cosla has been contacted for comment.
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