MORE than half of Scottish councils have failed to make long-term plans for the financial precipice ahead despite repeated warning signs, watchdogs claim.
A sobering new report on the climate facing local government has also raised concerns the scale of senior management redundancies has left councils short of the expertise to deal with mounting financial pressures.
Just 14 of the country's 32 councils have made preparations beyond the next few years, despite clear warnings UK expenditure will continue to be significantly cut up to and beyond 2020.
Already the amount they receive from the Scottish Government has reduced in real terms by around £800million since 2010, the equivalent of 8.5 per cent in real terms, while at the same time demand has grown for council services.
Further reductions in the Scottish budget are likely, particularly in 2016/17 and 2017/18, while at the same time they are required to deliver national policies on school class size targets, housing quality standards and freezing council tax levels.
With councils already making controversial cuts into social work and education budgets, the next few years are likely to see a major reduction in frontline services.
The Accounts Commission has also found that for the first time in recent years the reserves held by councils is depleting, with a further recent report showing many authorities do not even know the appropriate levels they should hold.
The report states: "There is limited evidence of longer-term financial planning, which is critical in providing that understanding.
"Almost all councils have reduced staff numbers to help make savings but this is not sustainable. They must implement planned changes quickly to achieve their required savings."
The Accounts Commission warns the bigger financial picture in the UK could have major implications for Scotland's councils, with the Office for Budget Responsibility indicating expenditure faces a cut of 6.4 per cent in 2016/17, 4.9 per cent in the following year, and 1.9 per cent in 2018/19 and 2019/20.
It said that if this was reflected in Westminster's budget allocation to Scotland, "the Scottish Government faces further difficult decisions about how much funding to allocate to councils alongside its other responsibilities and priorities".
Although it said a like for like comparison could not be made, councils in England had faced more severe cuts, with funding reduced by 37 per cent in real terms between 2010/11 and 2015/16.
The Accounts Commission found councils have paid out £352 million in voluntary severance payments since 2010/11, but said that increased the risk that reductions in staff numbers will lead to a loss of skills and experience within essential services such as HR and finance.
Over the next 25 years councils still have to pay off £13.4 billion for Private Finance Initiative (PFI) and Non-Profit Distributing (NPD) contracts, already around £500 million a year, while a further £108 million is set aside for future equal pay claims.
Douglas Sinclair, chair of the Accounts Commission, said: "Councils have coped well so far. But they will face pressures beyond next year of a scale not previously experienced, as budgets become even tighter and demands on services continue to increase.
"The challenge for councillors is to make best use of the money that is available and to take difficult decisions now to avoid storing up problems for the future."
Kevin Keenan, finance spokesman for council umbrella group Colsa, said: "As the report points out it is also fair to say it is going to get even tougher in the next few years and just like in previous years really, really difficult decisions will need to be taken by Scotland's councils.
"That is why Councils need to be freed up to raise more of their own finances as it is local politicians who are held accountable for the success or failure in relation to the achievement of local aspirations."
Labour's finance spokeswoman Jackie Baillie said: "The reality is starting to bite. Jobs are already being lost and now we face the prospect of real and very damaging cuts to services. The SNP have underfunded local government for years and problems are now coming home to roost."
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