A recent report by the Local Government Information Unit (LGIU) has highlighted the stark financial difficulties being faced by local government in Scotland.

The report is based on a survey of senior local authority figures in Scotland on the issue of council finances, following similar surveys being conducted in previous years in England, with the 2023 English survey revealing similarly difficult financial circumstances being faced by local authorities south of the border. The pressures on local authority finances in England have led to an influx of section 114 notices in recent months. While there is no direct equivalent of section 114 (of the Local Government Finance Act 1988) in Scotland, CIPFA guidance recommends that section 95 officers follow the same principles in order to discharge their overall responsibility for sound financial management.

Below, we take a look at the issues highlighted by the report, the first of its kind in a Scottish context, and the implications for local government.

What are the issues?

The general trend observed in the report is a lack of confidence among senior council officials in council finances. Respondents from 8 local authorities considered that their authority was in danger of effective "bankruptcy" – i.e. that financial pressures may prevent them from fulfilling their statutory duties and balancing their budgets.

A key factor highlighted in the report as contributing to this is the decision taken by the Scottish Government earlier in the year to announce a freeze on council tax, without prior warning being given to local authorities. With council tax being the most significant revenue raising mechanism available to local authorities, this decision has had a significant impact on council budgets.

Of all senior council figures surveyed, every one indicated that they had intended to raise council tax before the freeze was announced to deal with the financial pressures facing them, with the overwhelming majority having intended a raise of over 5%.

Other issues cited by the report as impacting council finances were inflation, the cost-of-living crisis, recruitment challenges and demographic change. Many respondents to the survey expressed concern about the impact of the situation on service quality, with every respondent indicating they were reducing spend on services to manage these pressures. The services most at risk are councils' own services (back office/corporate), followed by education, parks and leisure and business support. An overwhelming majority of council figures also stated that they intended to increase fees and charges, and to spend reserves, to deal with the issues.

What are the proposals for action?

The report highlights the serious concerns that senior local authority figures have about the Scottish Government's approach and calls for change to improve financial sustainability in local government in Scotland. Some of the proposals supported by council figures are greater freedom for local government to increase council tax and, in terms of revenue-spending, the removal of ring-fencing. Both of these proposals were supported by a majority of respondents to the survey.

The CEO of LGIU also calls for a review of local government funding under the framework of the Verity House Agreement, agreed by the Scottish Government and COSLA in June 2023.

In summary, the report makes for interesting reading and highlights the real financial difficulties many local authorities are grappling with. As the issuing of section 114 notices continues to draw attention to the precarity of local government finances in England and Wales, it is clear that these are difficulties being faced by councils across the UK.

If you would like to discuss anything raised in this blog, please contact Niall McLean, Jamie Dunne or your usual Brodies contact.

Contributors

Niall McLean

Partner & Solicitor Advocate

Jamie Dunne

Senior Associate

Emily Tarbet

Solicitor