Councils must urgently increase the pace of reform if they are to stave off “unprecedented” financial pressures, Scotland’s public finance watchdog has said.

The Accounts Commission has said local government is facing a funding gap of £585 million next year, rising to £780 million by 2026-27.

In a new report released on Tuesday, the watchdog has urged councils and the Scottish Government to increase the pace of change to save public services.

“The unprecedented financial and service demand pressures mean there is an urgent need for the local government sector to transform how it operates if it is to sustainably maintain services,” the report said.

Jennifer Henderson, a member of the Accounts Commission, said: “Local government has been transforming how they deliver services for years.

Read More:

“But given growing demand and ongoing financial pressures, councils must now move with an ambition and pace we’ve not yet seen if they’re going to successfully address the financial sustainability, workforce and service challenges they’re facing.

“To protect vital services, to pivot to prevention and increase the pace of collaboration, councils must commit to and sustain their own transformation programmes, whilst collaborating with sector-led work.”

“Successful delivery of transformation programmes is essential to achieve financial sustainability and improve the lives of individuals and communities.

“Collaborating with others, both within and outwith local government, will be a key part of the solution.”

In the next year, the Commission said, councils and Government must make “significant progress in agreeing a future operating model for councils and how council services can be sustainably delivered according to local circumstances”.

The Commission said local authority body Cosla and the Scottish Government must work to progress the commitment of the Verity House Agreement, including the creation of a fiscal framework – similar to the deal between the Scottish and UK Governments – to secure future funding for councils.

Mark Griffin, Scottish Labour’s local government spokesman, urged the Scottish Government to “stop inflicting brutal cuts” on councils.

“This stark report lays bare the huge pressure councils across Scotland are under,” he said.

“For years the SNP has hollowed out council budgets and lifeline services across the country have been cut to the bone as a result.

“We need real leadership from the Scottish Government to help councils deliver the reforms needed to make sure local services are fit for the future.”

Scottish Tory finance spokeswoman Liz Smith said: “This report shows just how much strain councils are under, thanks to years of SNP underfunding.

“Change will be essential to provide the basic services people rely on, but that will only be possible if the SNP Government finally starts to deliver support and funding.”

Cabinet Secretary for Finance and Local Government, Shona Robison said: “The report from the Accounts Commission recognises collaboration and transformation is vital to protect public services.

“This aligns with this Government’s core priorities of ensuring the delivery of effective public services, eradicating child poverty, growing the economy, and prioritising net zero.

“Despite the decision of the previous UK Government leaving the country in a challenging financial situation, the Scottish Government has made available record funding of over £14 billion to local councils this year – a real-terms increase of 2.5% compared with the previous year. We will also continue to work with Cosla to empower councils through a new fiscal framework.”