Almost a quarter of councils in Scotland are facing bankruptcy, a new study has warned less than a week before the Scottish Government announces its budget plans for next year.

The report, published today by the Local Government Information Unit (LGIU) Scotland, reveals that nearly 25% of local authorities north of the border fear they will not be able to balance their budgets in 2024/25 despite planning major spending cuts including to education and leisure services.

In addition to cutbacks, the study also found that nearly all (97%) said that they would be increasing fees and charges, and nine in ten (89%) that they would be spending reserves. 

READ MORE: Scottish Budget: Cosla warns councils risk bankruptcy

The first annual LGIU State of Local Government Finance in Scotland survey found more than three-quarters of respondents (76%) believe the cuts will be evident to the local residents across the country.

The report comes amid warnings from councils about the Scottish Government's plans to freeze council tax which was made by First Minister Humza Yousaf at the SNP conference in October.

Council leaders were not told in advance of the announcement with the move contributing "to an increasingly poor relationship between Scottish Government and local government", the LGIU Scotland study found.

The First Minister has promised to compensate local authorities for any rises they were planning.
Councils have said they were intending to raise council tax significantly in a bid to pay for increasing staff and service delivery costs caused by high rates of inflation.

The study also found widespread agreement on the most pressing issues in council finances: in addition to inflation, ring-fencing, staff recruitment, cost of living crisis and pressures linked to demographic change were all considered to be problems by more than 90% of respondents. 

Adult social care and children’s services were considered the greatest shortest-term pressures on council finances, and adult social care by far the greatest long-term pressure. 

Jonathan Carr-West, chief executive, LGIU Scotland, said: “Councils in Scotland are raising a red flag that council finances are completely unsustainable. With nearly a quarter of councils warning they may be unable to fulfil their statutory duties, it is only a matter of time before we see the first council in Scotland declare effective bankruptcy. 

"Councils are pulling every lever available to them to balance their books. Every respondent said they were cutting spending on services, 97% that they would be increasing fees and charges, 89% that they would be spending reserves. But it is not enough. councils have little to no confidence in local government finance and the issues behind the crisis are not going away."

He added: "The Scottish Government must work productively with councils to restore trust, remove ring fencing, identify revenue streams and reform core funding for councils to ensure residents, and particularly the most vulnerable in communities, are able to access the services they need and pay for.”

Shadow Cabinet Secretary for Finance and Local Government Liz Smith MSP said: “We have now reached the point where council finances are completely unsustainable, and almost a quarter of them say that they are effectively bankrupt. Every single one is planning cuts and almost all intend to raise fees and charges.

“This is the predictable consequence of years of SNP mismanagement and underfunding, and of the sudden U-turn that introduced a council tax freeze – but without anyone having given any thought to where the money was to come from.

“SNP ministers have continually failed to address problems in the public sector, where reform is essential if services are to be maintained. They must now urgently redirect their attention to those vital services, and ditch huge vanity projects such as the National Care Service, which is diverting money and attention away from frontline provision.”

A Scottish Government spokesman said: "Scotland is facing the most challenging budget settlement since devolution as a result of sustained high inflation and a UK Government autumn statement that failed to deliver the investment needed in Scotland's public services.

"The Scottish Government has increased the resources available to local government in 2023-24 by more than £793 million, a real-terms increase of £376 million or 3%, compared to the 2022-23 Budget figures.

"Work is also ongoing with COSLA to establish a new fiscal framework for councils through the Verity House Agreement, a landmark agreement that is forging a stronger partnership between the Scottish Government and local councils through the spirit of collaboration and engagement.

"Decisions on local government budget allocations for future years are subject to the outcome of negotiations with COSLA, the results of which will be confirmed in future Scottish budgets. Any assumptions relating to possible future budget reductions are entirely speculative at this stage.”

The LGIU Scotland said it received responses from over 75% of councils in Scotland. 

Respondents were identified as 36% chief executives, 25% council leaders and 36% section 95 officers. For reasons of anonymity, it said it could not identify the responses for any individual council.