West Lothian Council’s finance chief has warned of a growing risk to the financial sustainability of all Scottish councils.
Increased funding from the Scottish Government has seen more money ring fenced and is a cut in real terms across the board for all local authorities. West Lothian along with all others lost out on expected receipts from planned council tax rises after the freeze was imposed.
While they have received more cash Scotland’s finance directors are facing a collective £725m budget gap because of increasing demands.
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Despite those pressures grow no Scots council has yet declared itself bankrupt, as many in England have.
However the pressures which have led to those bankruptcies are as acute for Scottish councils, including West Lothian – surging social care costs and spiralling numbers of homeless applicants needing to be housed.
Increased spending in both these areas has risen by around 30% in the last ten years. The spending on looked after children has also risen by more than 10% in the last decade.
Chairing a meeting of the council’s Audit Committee, Conservative councillor Angela Doran-Timson asked: “Is there a real risk to the financial sustainability of Scottish councils in the medium or long term?”
Finance director Patrick Welsh, who delivered his report on financial risks responded: “We’ve seen the situation down in England in terms of a number of local authorities entering into bankruptcy.
“This report does set out really significant challenges and as we know the position is continuing to remain extremely challenging – funding levels, economic indicators, public spending indicators going forward are all suggesting real term reductions to local government funding on an ongoing basis. So in that context, along with increasing demands and costs, it is becoming an increasing risk for councils going forward in terms of ensuring financial sustainability.
“As we know ourselves, along with all other councils, it is leading to councils having to make extremely challenging decisions around priorities.
“For the council, going forward, it is absolutely a growing risk.”
In his report to the committee Mr Welsh said: “A total budget gap of £725 million was identified for councils’ 2023/24 budgets from the sample of 30 councils, which represents a significant increase on the £476 million identified in 2022/23.
“All but three councils reported a higher budget gap in 2023/24 than 2022/23. The most common bridging actions taken to set balanced budgets in 2023/24 were recurring savings (33%), the use of reserves (27%) and increases to council tax (18%).
“The report notes that councils have taken decisions to address savings gaps through the implementation of recurring savings options but in the face of public opposition have ended up reversing those decisions.
“This illustrates the increasing challenges that councils are facing in delivering balanced budgets and highlights the need for proper and timely consultation over budget proposals.”
More than half of Scottish councils used financial flexibilities in 2022/23. Out of the sample of 30 councils 18 reported that they used some of the financial flexibilities permitted by the Scottish Government in 2022/23. Using flexibilities to meet immediate spending pressures may help to balance their budgets, but it defers costs to later years and does not tackle the underlying challenges to financial sustainability.
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