The Scottish Government is giving local authorities a “record” £14 billion, after a survey suggested a quarter of councils fear they will not be able to balance their budgets in 2024.
A Local Government Information Unit (LGIU) study gathered responses from 42 council leaders, chief executives and finance directors across three quarters of Scotland’s 32 local authorities.
It said it was “only a matter of time” before one effectively went bankrupt.
All respondents said they were planning spending cuts on services and 97 per cent said they would be hiking fees and charges.
LGIU chief executive Jonathan Carr-Watson warned councils in Scotland “are raising a red flag” that 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,” he said.
The warnings came after Birmingham and Nottingham city councils effectively declared themselves bankrupt via section 114 notices, which prevent spending on virtually everything apart from statutory services.
Scotland does not have the same mechanism but councils are legally obliged to produce a balanced budget each year and can use reserves to do so. However, a few councils have already emptied their reserves.
In October, The Highland Council forecast a significant financial gap of £60-70 million for next year (2024/25), while Argyll and Bute Council said it was facing a £12+ million gap in its budget.
The Convention of Scottish Local Authorities warned that local authorities needed nearly £14.4bn in the budget just to “stand still”.
Every respondent said they had planned to raise council tax. Almost three in four – 73 per cent – said they planned to raise it by between five and 10 per cent, while just over one in 10 – 11 per cent – reported they wanted to see a tax hike of more than 10 per cent.
However, a council tax freeze was announced by First Minister Humza Yousaf in October, but without details on how much money councils will receive to compensate for this. The Scottish government insisted the policy would be fully funded.
Just before Christmas, the Scottish Government announced councils will receive a “record £14 billion funding settlement”.
Local authorities have each been allocated a share of £13.9 billion to fund their day-to-day activities, it said, including £6 million to support the expansion of free school meals, £242 million for teacher pay rises and more than £266 million for local government pay deals.
Ministers have also made available a further £144 million to enable local authorities to freeze council tax rates at their current levels, equivalent to an above-inflation five per cent rise in council tax nationally.
Deputy First Minister and Cabinet Secretary for Finance Shona Robison said: “In the face of a profoundly challenging financial situation, we are making available record funding of over £14 billion to councils – a real-terms increase of 4.3 per cent on the previous year – should they agree to freeze council tax.
“We recognise the crucial role councils play in their communities, which is why we have increased their overall share of the Scottish budget.
“We have made no secret of the tough choices that have been required to balance our Budget, after an Autumn Statement that failed to provide the funding Scotland needs for its public services. While I know councils had sought more funding, the settlement confirmed today represents a fair and sustainable offer.”