Scottish councils face a reduction in funding of 4.2% in real terms since 2014, as an increasing amount of money is ring-fenced to meet government priorities.
A new report from Audit Scotland found that Scottish local authorities face a “financially uncertain” future.
It noted that councils have increased reserves over the last year, but still need to address the impacts of overall reductions in funding and the challenges raised by the pandemic.
An overview of local government finances in Scotland during 2020/21, published today by the Accounts Commission, reveals the full-year impact of the coronavirus crisis.
Total council funding and income increased by £1.8bn by around 10% in 2020/21 - mainly the result of additional Scottish Government funding of £1.5bn.
But excluding this additional funding, councils have seen money reduce, in real terms, by 4.2% since 2013/14, with increasing amounts of funding ring-fenced to meet government priorities.
The underlying increase in Scottish Government funding of £358m in 2020/21 was 1.1% in real terms, but more than half of this increase was due to specific grants. Ring-fenced funding helped support the delivery of key Scottish Government policies, but constrained a proportion of the total funding and resources, removing any local discretion over how councils can use these funds.
Councils’ income from customers and clients was also affected by pandemic restrictions and fell by £500m.
In 2020/21, all councils reported surpluses and increased their usable reserves. The total increase in reserves was £1.2m, or by 46%, mainly due to late Covid-19 funding, which was unspent on 31 March 2021.
Councils administered a further £1.4bn of Covid-19 grants on behalf of the Scottish Government in 2020/21, putting additional pressure on finance staff across councils.
The report noted that there were significant challenges ahead, as councils continued to respond to the impacts of the pandemic on services, finances and communities. It also pointed out that councils had to address cost and demand pressures pre-dating the pandemic, as well as developing long-term plans with partners to address complex issues - including addressing child poverty, improving economic growth and delivering Scotland’s net zero ambitions.
The Accounts Commission found that the in-year collection rate for 2020/21 charges in council tax fell from an average of 95.8% to 94.8%. While only a 1% drop, it contributed to a reduction in income of £30m. The total amount of council tax billed, taking account of council tax reductions, was £2.7bn.
The local government capital settlement in 2021 and 2022 decreased from £800m in 2020 and 2021 to £600m. Total capital funding has fallen to a level below that in 2013/14 in real terms and is expected to fall again.
William Moyes, chair of the Accounts Commission, said: “Councils face serious challenges, driven by financial constraints, increasing demands on service and resource.
“Alongside these longer-term issues are the financial uncertainties caused by the impacts of Covid-19, including loss of income and additional costs.
“Now, as we look ahead and beyond council elections in May, councillors must determine how to restart services, deliver differently, save money and empower communities.”
Scottish Labour’s local government spokesperson Mark Griffin said: “This sobering report lays bare the scale of the damage the SNP have inflicted on local government over the years.
“Years of neglect under the SNP have left bins overflowing, roads in disrepair and libraries closing, and, with an uncertain financial future, things are set to get worse.”
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