Balancing Local Government Budgets in Scotland

In our Scottish local government finance survey at the end of 2023, one respondent said that it was “just a matter of time before the first Scottish council goes bankrupt.”

But what exactly would this mean?

LGIU, together with CIPFA (The Chartered Institute of Public Finance and Accountancy), have sought to answer this question by interviewing Chief Finance Officers in Scotland. This report looks into the challenges they face balancing their budgets, the actions they might take if they were faced with an unbalanced budget, and the powers and support they need to undertake their legal duties.

Read the full report.

Conclusions

• CFOs are united in their diagnosis of the funding challenges facing local government across Scotland, pointing to funding settlements that have not increased to meet spending pressures, directed spending and limited revenue-raising options.
• CFOs were not in favour of introducing an equivalent to the ‘Section 114’ legislation in England that would provide a statutory process for CFOs to follow in the event that their council were not able to pass a balanced budget.
• Instead, CFOs were in favour of implementing policies to avoid the risks of unbalanced budgets happening by increasing councils’ financial sustainability.

Recommendations

• Scottish Government, local authorities and other key public sector stakeholders, including COSLA and Solace, work together to progress a long-term solution to the financial sustainability of councils in an open and transparent way following a clear framework.
• The leadership of councils, including all senior officers and councillors, need to clearly understand the challenging fiscal position councils are in and make decisions accordingly, including supporting the CFO in fulfilling their statutory duty to ensure the sound financial management of their council.
• There should be a clear agreed, nationally-driven convention between Scottish Government and local government to cover procedures and actions that would take place should a council be unable to agree a balanced budget.
• Specific policy decisions, for example pupil-teacher ratios and Integrated Joint Boards, should be revisited in light of the additional pressures these place on local government both in cost and the approach to grant allocation.