Scotland’s local authorities fear they will not be able to balance their budgets next year, even after they hike council tax and make swingeing cuts to core services.

Research by Local Government Information Unit (LGIU) Scotland found that 70% of councils expect to find themselves in a situation where their spending outstrips their income.

The country's local authorities have a statutory duty "to make arrangements for the proper administration of their financial affairs" which, according to Audit Scotland, implicitly means estimated expenses for a year should equal expected funding from grants, council tax, and other income. 

Failing to do so, could ultimately lead to a full spending freeze and auditors being brought in. 

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The dire warning from the LGIU comes ahead of next week's budget, with Finance Secretary Shona Robison already told MSPs she will need to make difficult decisions.

In their second annual State of Local Government Finance in Scotland, the LGIU found councils are “taking every measure available to balance their budgets including raising council tax, reducing expenditure and increasing fees and charges, sharing services and engaging in commercial activity.”

Even then, many authorities believe this will still “not be enough to prevent the risk of an unbalanced budget.”

Some 90% of the officials who took part in the research said they believed cuts to services “will have a negative impact on quality of life in their council” and “increase the risks to vulnerable people.”

The report also exposes the stark breakdown in trust between the country’s 32 local authorities and SNP ministers.

Not a single respondent said they were “happy with the Scottish Government’s performance on delivering a sustainable funding system or considering local government in wider policy decisions.”

According to LGIU, the country’s councils want “widespread reform, including multi-year financial settlements, ending ring-fencing, and reform of council tax.”

They have called for “an agreed national convention between Scottish Government and local government to cover procedures and actions that would then be needed to set a balanced budget.”

They also called for the principles of the Verity House Agreement, the “New Deal for Local Government” signed in June last year, to be enshrined in law.

Jonathan Carr-West, Chief Executive, LGIU Scotland, said: “This year’s results make for grim reading about the state of local government finances in Scotland. The message from our second annual State of Local Government Finance in Scotland builds on last year: we are nearing the point of no return.

“The report paints a picture of a system under continual and significant strain, with the scale of financial pressures increasing from 2023.

“Local government finances in Scotland are hanging by a thread. However, the thread has not yet broken.

“Today’s report delivers a stark warning that councils are in a precarious financial position and there is not much time until the sector starts to see potentially catastrophic consequences.

“Change is urgently needed. Councils will soon be unable to balance their budgets, meet their statutory duties, or provide for their communities. We need to change course now before it is too late.

“The challenge now is how do we move from the situation we are in now, to one where councils are able to deliver the transformative impact they are confident that they could deliver.

“Reform is necessary, empowerment will be essential, and trust between Scottish Government and local government – in a critically poor state – must be restored.”

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Responding, a Scottish Government spokesperson defended the settlement offered to local authorities in last year's budget.

They said: “The Scottish Government has made available record funding of over £14 billion to councils this year, a real-terms increase on last year, with almost £1bn included in councils’ general revenue grant as part of our commitment to the Verity House Agreement.

“This agreement is already helping to deliver on community priorities, with joint work between the Scottish Government and COSLA on local government pay, second homes and support for foster and kinship carers.

“Ministers are invested in delivering fairer, more inclusive, and fiscally sustainable forms of local taxation, and continue to work in partnership with COSLA to explore changes to Council Tax.”

In October's UK budget, Rachel Reeves announced an extra £1.5 billion of in-year funding for the Scottish Government and an additional £3.4bn for next year.

However, a recent briefing by the IFS warned the mid-term tax and spending plans outlined by the Chancellor, will see this dwindle over the coming years.

They said Ms Robison should “plan realistically" rather than use the new money “to offer some pre-Scottish election ‘goodies’.”