SCOTTISH councils are facing a near £1 billion budget gap over the next two years, with watchdogs warning local authorities will face “difficult decisions on what services can be delivered”.
The Accounts Commission said that for this year the budget gap for the country’s 32 local authorities stands at £647 million – up £52m from 2024-25.
This comes despite councils receiving £15.2bn from the Scottish Government in the Budget for 2025-26 – with the amount of cash rising by 6% in real-terms.
Looking ahead, the Accounts Commission said: “Councils are currently anticipating a cumulative revenue budget gap of £997m over the next two years.”
The commission added this means councils could either have to raise more cash – which they could do by increasing charges or council tax – make “further savings”, or seek to “transform” services.
Its latest report on local government budgets for 2025-26 highlights the “recurring pressures” authorities face, from inflation, annual staff pay deals and the growing demand for services.
The hike in employers’ National Insurance contributions is also impacting councils, with local government body Cosla saying this could cost £370m a year – more than double the £144m provided by the Scottish Government towards the rise.
Councils across Scotland increased council tax for 2025-26 to help with their finances – with rises ranging from 6% in South Lanarkshire to 15.6% in Falkirk.
However the Accounts Commission said higher bills for local people means “there is greater expectation on the performance of local services”.
Accounts Commission member Derek Yule warned of a “growing expectation gap” for authorities.
He said: “Councils don’t have enough money to meet current demand, at a time when local communities are being asked to contribute more through increases in council tax and charges for some services.”
As a result, Yule said “councils need to provide clearer budget information and work with communities to determine how services will be delivered in the future” – although he added “these conversations won’t be easy”.
Yule also warned: “With public finances tightening, however, not all cost increases faced by councils can be met by Government funding.
“Local action is needed now to find solutions to immediate and future financial challenges. This means difficult decisions on what services can be delivered and making major changes in how they are delivered.”
The report also told how councils are due to make “around £210m of approved savings” in 2025-26, with this including £68m of savings from corporate services and £58m from children’s services.
“The Scottish Government will continue to work in partnership with local government to address the challenges facing council budgets and ensure we are operating sustainable people centred public services that communities expect and deserve.”
Cosla resources spokesperson councillor Katie Hagmann said the report was “further evidence of the financial constraint under which councils are operating”.
Hagmann said: “Despite an improved settlement for 2025-26, the stark reality is that local authorities continue to face persistent financial pressures that far outstrip the resources available to them.
“Rising inflation, increased costs resulting from higher employer national insurance contributions and pay, and ever-growing demand on vital services like social care are pushing local budgets to the breaking point.
“Councils have worked tirelessly to protect the services that matter most – such as schools, roads, housing, and supports for vulnerable people, to name but a few – yet the gap between what is needed and what is available continues to widen.
“Years of these mounting pressures have left councils with no alternative but to make extremely difficult decisions to close this year’s budget gap of around £647m.”
She continued: “Looking ahead, the outlook remains deeply concerning.
“As the report highlights, councils are staring at a projected budget shortfall of up to £1bn over the next two years.
“This is not just a number. It represents a very real risk to the quality of life for people in every part of Scotland.
“Without urgent, fair and sustainable investment from the Scottish Government, councils will be forced into making even more tough choices in the immediate future, including severe cuts, with lasting consequences for our people and our communities.”
Scottish Labour’s local government spokesperson Mark Griffin criticised the SNP Government, saying: “This stark report shows people right across Scotland are paying more and getting less as a result of SNP incompetence and cuts.
“Councils have faced years of budget cuts under the SNP, leaving services threadbare and making long-term reform more difficult.”
