Scotland’s local government watchdog says funding for councils is failing to keep pace with rising costs and demand, despite what it describes as ‘a small real terms increase’ in funding. In an analysis of local government budgets published today, the Accounts Commission says the increased cost of delivering social care services is playing a large part in an anticipated national budget gap of nearly £530 million in daily operating costs.

Scotland’s local authorities will this year (2026/27) allocate £4.3 billion of their total budgets to meet their contribution to Integration Joint Boards (IJBs), an increase of £220 million compared with last year and just under a quarter of their overall revenue spending.

The Accounts Commission in its bulletin on council spending, says social care makes up a high proportion of council spending and warns increasing demand for these services is putting major pressure on budgets.

The Scottish government says, while a record budget of £15.7 billion was provided to councils this year, it recognises the pressures facing local authorities in Scotland and the rest of the UK, and will continue to work with local authorities to ensure people get high quality public services.

Difficult decisions

Scotland’s 30 IJBs are funded to oversee the delivery by health and social care partnerships of care services and primary and community health services. Around one third of IJB budgets comes from councils and two thirds from NHS boards.

NHS Highland continues to operate a different ‘lead agency’ model becasue its integration of health and social care pre-dated the reforms that brought the IJBs into existence. However, NHS Highland and Highland Council are set to move to align with the rest of Scotland.

Earlier this year, the Accounts Commission in a report focused only on IJBs described their financial position as ‘critical’, saying there was a risk of them becoming ‘financially unsustainable’ and warning they had to take decisive action and make difficult decisions about the future of services.

IJBs have told the watchdog that they already intend to make some £180 million of IJB budget reductions – over £100 million of that in savings on social care.

Meanwhile, the watchdog says the financial reserves that the IJBs had managed to build up in the past have been eaten into and now are too small to cover the budget gap that is being forecast for this year.

The Accounts Commissions says their overspend projections would have been higher has it not been for the Scottish government’s injection of £20 million of additional funding for councils in February to support the Real Living Wage across adult and children’s social care and early learning and childcare.

Publishing today’s update, Derek Yule, a member of the Accounts Commission, said: 

“As things stand, councils will continue to face increasing financial pressures unless they stop, reduce, or significantly redesign services.

“Savings options are limited and will have to increasingly focus on changes to services people rely on. That makes it essential that councils talk to their communities about the difficult decisions they are facing.”

Councils meanwhile are forecasting further budget gaps over the next two years. The watchdog says, as a result, they are considering a wide range of measures to achieve balanced budgets in future years.

The Accounts Commission advises that, as remaining savings options will increasingly focus on changes that will impact service users, effective and consistent consultation with communities will be essential.

Perilous position

Earlier this year, as the Scottish government was finalising its budget, the local government organisation COSLA called for an urgent injection of £750 million to ‘protect and strengthen social care’.

COSLA’s Resources Spokesperson, Councillor Ricky Bell says today’s bulletin highlights councils’ “perilous” budget position:

“Of notable concern, the "critical financial pressures" facing our Health and Social Care Partnerships, and real terms reductions in the capital settlement justify and strengthen support for the resourcing COSLA called for through our budget lobbying this year.

"The report quite rightly expresses grave concern for local government finance over the medium term, spanning from the Scottish Spending Review. Whilst councils are being forced into damaging cuts, we are also expediting service transformation, which must be recognised as we begin to consider our role and expectations in Public Service Reform.

“We will continue to advocate for fair and flexible funding for our councils moving forward."

Case studies

The Audit Commission’s report includes case studies illustrating how two different IJBs have responded to their budgets for this year.

It says Perth and Kinross IJB approved a Financial Recovery Plan for 2025/26 to manage in-year pressures, mainly through the use of council reserves. While some measures continue, the Perth and Kinross 2026/27 plan focuses on ‘sustainable service redesign’, alongside ‘significant savings already delivered and ongoing financial pressures, with recognition that further measures may risk reduced access to care’.

The report meanwhile says that North Ayrshire Council has moved to a ‘critical only’ threshold for funded adult social care support, meaning only those at critical risk will receive support. The report says that the change follows ‘severe financial pressures, with rising demand and increasing care delivery costs not matched by available funding’.

 

Read more: Briefing: Social care in the manifestos; Scotland’s IJBs becoming "financially unsustainable"; Social workers call for disability funding rethink; Councils warn of social care cuts ahead

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