Meeting of the Parliament 26 February 2026 [Draft]
I am going to stick to facts and figures today rather than some of the politics of local government funding, and I say that as a member of the Public Audit Committee. Last month, the Accounts Commission produced a report on wider local government financing that identified a £500 million budget gap in 2024. Essentially, that is the gap between what councils are spending and the funding settlement—[Interruption.] I am sorry—there is quite a lot of noise in the chamber; I wonder whether members would mind.
By 2025, that gap had risen to £640 million, and by 2027, it is expected to reach more than £1 billion. I suspect that the prospect looks even worse further down the road. The reduction in capital funding has led to many councils filling the gap through borrowing. It costs money to keep things running and to repair roads and buildings, and if the cash is not there, things will fall apart. Councils have therefore been using the powers that are available to them, which has led to an increase in debt of more than £2.5 billion in a single year alone. The current debt is more than £25 billion.
The problem is that councils are spending more than £1 billion a year simply to service the debt, when we would surely all agree that that money could be better spent on delivering front-line services. I mention that because Audit Scotland is clear in warning that councils risk becoming financially unsustainable, and we, in Parliament, should take that warning seriously, because that problem cannot be fixed in a single-year budget cycle.
Four things are true: councils’ debts are increasing, their reserves are dwindling, costs are spiralling and demand is also rising. There are only three logical ways out of that mess. One is for central Government to rise to the challenge. We heard from the front bench that the Government is adamant that it is doing that, to the tune of more than £15 billion in the new financial year. That is claimed to be a 2 per cent real-terms increase, but COSLA has argued otherwise. I would like to see more information, but I am not in charge of the country’s finances.
The second way to deal with the situation is that demand might fall, but that seems impossible. Some councils that are seeing depopulation have reasonably healthy working families and have businesses that pay business rates, but many councils are seeing soaring rises in complex care needs and growing demand from elderly populations, and that is particularly true of rural and island communities, where the cost of maintaining services is far higher
The third way to solve the problem is the unholy of holies, which is to increase council tax. I will mention something that is an important part of the wider context: the £144 million that was given to councils in the 2024 budget to meet the council tax freeze was a one-off, but that followed 10 years of council tax freezes. That was a central Government policy. There was, in effect, a political decision to have a giveaway—members can call it whatever they like. The Government sold it as a huge tax break and something that many families would benefit from, as I am sure many did, but COSLA and others sold it as a massive funding cut. Councils are still paying the price for that lengthy freeze, which is why huge council tax hikes that none of us wanted have occurred in recent years.
In the short time that I have, I will address the bigger problem that we must grapple with. We must be honest in saying that the council tax system is broken. Everybody knows it, but no one has had the guts to fix it, because there will be winners and losers if we move on from the 1991 valuations. Reform was promised two decades ago, not two years ago, but which Government in its right mind would tax people out of voting for it? Margaret Thatcher learned that the hard way in Scotland.
Funding for local government is not nice to have—it is a must have. When councils cut things, people feel that in their communities. Such cuts lead to a feeling of decline and to failure, because cuts equal anger and anger leads to apathy. Most folk that we meet on the doorstep do not really care about the budget macroeconomics that we debate, and they do not care who funds which service. They just want things to work, and, when things do not work, they turn towards angry politics.
The antidote to that is the proper funding of local services. If we do not support the motion, councils will be forced to manage their budgets based on last year’s settlement, which I think would be irresponsible of us, but there is a long-term problem that needs to be fixed and that will need a grown-up conversation in the next session of Parliament. The question is whether the next Parliament will be up to that challenge. Only time will tell.