Scottish councils finding financial pressures “difficult to manage'

Scottish Councils are finding pressures over their finances “increasingly difficult to manage'', a new report has said.

The Accounts Commission is also warning some local authorities could see their cash reserves run out in a matter of years.

Spending watchdogs said 2016-17 had been a “challenging'' year for local government, with the amount of funding councils received from the Scottish Government down by 7.6% in real terms on six years previous.

In 2016-17, a total of 19 councils dipped into their revenue reserves - up from eight in 2015-16.

Over the course of the year the overall amount held in council reserves - described as their “rainy day funds'' - fell by £32 million.

The Accounts Commission's financial overview of local government showed councils' net debt increased by £836 million in 2016-17, with authorities on average spending almost 10% of their budget for day-to-day running costs on servicing this.

Scottish Government funding for councils amounted to just over £9.7 billion in 2016-17, with ministers also providing £250 million from the health budget to support the integration of health and social care services.

But the Accounts Commission said that “even taking this into account, total revenue funding for councils fell in 2016-17''.

Authorities made savings of about £524 million last year, but the report told how “financial challenges continue to grow'' with cuts in funding to councils “compounded by increasing costs and demands on services''.

The report said: “Councils are showing signs of increasing financial stress. They are finding it increasingly difficult to identify and deliver savings and more have drawn on reserves than in previous years to fund change programmes and routine service delivery.

“Some councils risk running out of general fund reserves within two to three years if they continue to use them at levels planned for 2017-18.''

In this current year, councils are to make £317 million of savings and will also use £105 million from their reserve funds.

Following two years where councils had reduced their debt, borrowing increased in 2016-17, going from £13.7 billion to £14.5 billion, excluding Orkney and Shetland.

Levels of debt among councils are “not currently problematic'', the Accounts Commission said, but it added some authorities are “becoming concerned about affordability of costs associated with debt within future budgets''.

“Councils that have demonstrated effective leadership and robust planning will be in a better position to deal with the challenges that lie ahead.''

Scottish Conservative local government spokesman Alexander Stewart hit out, saying: “Under the SNP government, the financial health of Scotland's 32 councils has deteriorated rapidly.

“Debt levels are eye-watering, and millions upon millions of pounds in taxpayers' cash is now being used just to service it.

“We've even got to the stage where local authorities are dipping into the rainy day fund routinely just to stay afloat.

“And as auditors say, if that continues, there won't be any reserves left to call on.''

A Scottish Government spokesman said: “We have treated local government very fairly despite the cuts to the Scottish Budget from the UK Government.

“Including the extra £250 million to support the integration of health and social care the overall reduction in local government funding in 2016-17 equated to less than 1% of Local Government's total estimated expenditure.

“The 2017-18 local government finance settlement, including the increase in council tax and Health and Social Care Integration funding, means that local government have an extra £383 million, or 3.7%, in support for services compared to 2016-17.'