Finance chief warns Scottish councils at growing risk of bankruptcy

Increased funding from the Scottish Government has seen more money ring fenced and is a cut, in real terms, for local authorities which also lost out on receipts from planned council tax rises after the freeze was imposed.

While they have received more cash, Scotland’s finance directors are facing a collective £725 million budget gap because of increasing demands.

Despite those pressures, no Scots council has yet declared itself bankrupt – many in England have.

However, the pressures which led to those bankruptcies are as acute for Scottish councils with surging social care costs and spiralling numbers of homeless applicants.

Spending in both these areas has risen by around 30 per cent in the last ten years.

Chairing a meeting of the council’s Audit Committee, Conservative Councillor Angela Doran-Timson asked: “Is there a real risk to the financial sustainability of Scottish councils in the medium or long term?”

Finance director Patrick Welsh, who delivered his report on financial risks, responded: “We’ve seen the situation in England in terms of a number of local authorities entering into bankruptcy.

“This report does set out really significant challenges – funding levels, economic indicators, public spending indicators are all suggesting real term reductions to local government funding on an ongoing basis. So in that context, along with increasing demands and costs, it is becoming an increasing risk for councils in terms of ensuring financial sustainability.

“As we know ourselves, it is leading to councils having to make extremely challenging decisions around priorities. For the council, going forward, it is absolutely a growing risk.”

In his report to the committee, Patrick added: “A total budget gap of £725 million was identified for councils’ 2023/24 budgets from the sample of 30 councils, which represents a significant increase on the £476 million identified in 2022/23.

“All but three councils reported a higher budget gap in 2023/24 than 2022/23.”