260316 ARS Board Audit Scotland LG Financial Bulletin 202425 + supplement FINAL
Renfrewshire Council · 16 March 2026
Back to Audit, Risk and Scrutiny Board — 16 March 2026 and its agenda
Text extracted from the council's PDF. Layout and reading order may differ from the original.
Page 1
PUBLIC ___________________________________________________________________ To: Audit, Risk and Scrutiny Board On: 16 March 2026 ___________________________________________________________________ Report by: Director of Finance and Resources ___________________________________________________________________ Heading: Audit Scotland: Local Government Financial Bulletin 2024/25 ________________________________________________________________ 1. Summary 1.1 Each year, Audit Scotland prepare a Local Government in Scotland Financial Bulletin on behalf of the Accounts Commission. These provide a high-level analysis of the financial position of Scottish councils. This paper provides an overview of the latest Bulletin, published in January 2026, which covers the financial year 2024/25. 1.2 As in previous years, the Bulletin sets out the Accounts Commission’s assessment of councils’ financial performance, including funding, income, and budget setting, as well as the financial outlook. 1.3 Key messages from this latest Bulletin include the Accounts Commission view that, despite increased funding in 2024/25, the financial outlook for Scotland’s councils presents significant challenges, raising concerns around medium-term financial sustainability. Challenges the Bulletin identifies for councils are the continued increase in costs of delivering services; increases in debt; falling reserve levels; and continued reliance on non-recurring measures to close budget gaps. 1.4 The Bulletin provides a number of recommendations for councils, including those from previous years around the transparency of financial reporting. A Supplement to the Bulletin analysing the draft
Page 2
PUBLIC 2026/27 Scottish Government Budget and levels of funding to councils, was published in February 2026. In spring 2026, the annual Audit Scotland briefing examining 2026/27 budgets set by councils will be published. Audit Scotland are also reintroducing checklists for elected members for regular annual financial reports, designed to support councillors in both decision-making and the scrutiny of decision- making. ___________________________________________________________________ 2. Recommendations 2.1 It is recommended that members of the Audit, Risk and Scrutiny Board: • Note the contents of this paper. _________________________________________________________ 3. Background 3.1 Audit Scotland bases its annual financial outlook bulletins on the annual accounts submitted by local authorities. For this year’s Bulletin, they have reviewed the accounts of 29 councils. 3.2 These annual bulletins are intended to provide a sense of broad trends within Scottish local government finance. 4. Key Findings from the Audit Scotland Report Council Funding and Financial Performance 4.1 The Bulletin notes that Scottish Government funding to councils increased by 1% in real terms compared with total year-end funding provided in 2023/24, with an initial £12.5billion revenue and capital funding allocated, as well as additional funding and internal transfers provided at autumn and spring budget revisions. The 2025/26 Budget saw a further increase in the local government budget, with the Accounts Commission calculating, following the autumn budget revision, a total 2025/26 funding increase of 5% in real terms from the same point in the prior year. 4.2 The Accounts Commission published a Supplement to the 2024/25 Financial Bulletin in February 2026, providing their analysis on the Scottish Government’s 2026/27 draft Budget, highlighting an estimated 2% real terms increase in the total funding provided to councils between 2025/26 and 2026/27. Within the Supplement, the Accounts
Page 3
PUBLIC Commission refer to the Scottish Government Spending Review 2026, and its indicative multi-year spending plans, and highlights that all elements of Scottish Government funding to local government are projected to fall over the spending review period, and both revenue and capital funding are expected to reduce between 2026/27 and 2028/29. The Supplement notes that this is projected spend rather than a final settlement, and that the spending review does not provide a council- level breakdown of funding. 4.3 The Accounts Commission calculate that ring-fenced and directed funding accounted for 24% of the total revenue funding in 2024/25, an increase from 21% in 2023/24. The Bulletin highlights the Verity House Agreement commitment to reduce the level of ring-fenced funding, with the aim of providing councils more flexibility in how to allocate resources, and notes that while this commitment has been fulfilled through the baselining of several ring-fenced grants in 2024/25, councils still need to direct spending towards specific national policies, limiting discretion over how to use elements of the General Revenue Grant (GRG). The Accounts Commission highlight the draft Fiscal Framework between Scottish Government and Local Government, published in October 2025, and its key principles including a simplified funding settlement; baselining of specific grants; exploration of greater revenue-raising powers; and multi-year funding settlements. 4.4 This Fiscal Framework will formally apply to the 2026/27 Scottish Government Budget, and the Accounts Commission Supplement provides its analysis of how these principles have been progressed. This includes the Accounts Commission assessment that, to date, the Scottish Government has baselined around £1.9billion of previously ring-fenced funding streams into the GRG, with over a third (almost £0.8billion) baselined in 2026/27. Exhibit 3 within the Supplement details funding areas that have been baselined into the GRG from 2024/25 to 2026/27, with the paper identifying that specific Revenue Grants that remain ring-fenced include Gaelic, Pupil Equity Funding, and Criminal Justice Social Work. The Supplement also notes progress towards exploring greater revenue-raising powers for local government, including the proposed allocation in the draft 2026/27 Budget to deliver a targeted council tax revaluation of homes worth over £1million, ahead of introducing two new high-value bands from April 2028, and the Visitor Levy (Amendment) (Scotland) Bill currently going through Parliament. The Supplement also highlights the Scottish Government publishing the Scottish Spending Review alongside the 2026/27 draft Budget, and setting out multi-year indicative portfolio spending plans for resource (to 2028/29) and capital (to 2029/30) funding, and its
Page 4
PUBLIC analysis that this should be seen as an iterative step towards re- establishing multi-year financial settlements. 4.5 The Accounts Commission looked at the budget gaps of 28 local authorities and found a collective gap of around £542million for 2024/25. Exhibit 4 within the Accounts Commission report shows the bridging actions identified by each council within their 2024/25 budgets, as a proportion of net cost of services, and notes that around three quarters of bridging actions identified included recurring/non-recurring savings, using reserves, and making use of financial flexibilities. The Accounts Commission highlight that despite increasing funding, and measures taken locally to generate additional income, councils continue to face increasing costs and continuing financial pressures. 4.6 The Bulletin notes that 11 councils reported an overspend against their total revenue budgets, and overall, councils reported a revenue budget overspend of £16.8million in 2024/25. The Accounts Commission highlight that, of the 30 councils where there was available data, 15 reported an overspend on the social care services they deliver on behalf of Integration Joint Boards (IJBs), totalling around £49million. The Bulletin also notes that several councils reported service level underspends across a range of service areas, with Exhibit 5 within the Bulletin showing councils’ overspends and underspends at a service level and the reasons for them, highlighting that almost all councils reported overspends in 2024/25. The Accounts Commission note that this is the first time in the last six years that an overall overspend for the sector has been reported. 4.7 The Accounts Commission Bulletin highlights that councils achieved significant savings, with 29 councils from the sample setting a combined savings target of £376.2million, and achieving £338.2million (89.9%) in 2024/25. Exhibit 6 within the Bulletin (and below) provides an overview of the percentage of revenue savings targets achieved in 2024/25, split by recurring and non-recurring savings, with the Accounts Commission noting that some councils relied heavily on non- recurring, one-off measures to make in-year savings in 2024/25.
Page 5
PUBLIC 4.8 Percentage of revenue savings targets achieved in 2024/25, split by recurring and non-recurring savings 4.9 In terms of assets, the Bulletin notes that the value of councils’ physical assets increased in 2024/25, with property, plant and equipment increasing by around £3.5billion (to £53.7billion), reflecting both ongoing investment, and changes to how councils account for leased assets. The Accounts Commission assert that councils remain reliant on borrowing to finance investment in new assets, as capital grants reduce, and note increased reliance being placed upon using internal funds and transfers from revenue budgets. From the Accounts Commission sample of 30 councils, overall capital expenditure was £3.4billion in 2024/25, a 7.9% annual increase, and that of this, £2.2billion was related to General Fund projects, and £1.2billion was spent on Housing Revenue Account (HRA) housing projects. The Bulletin also highlights that councils continue to rely on funding
Page 6
PUBLIC released from the use of financial flexibilities relating to Public Private Partnerships (PPPs), and the ability to extend repayment periods, reducing immediate debt costs and easing annual budget pressures. 4.10 The Accounts Commission highlight that despite the increased levels of capital investment, councils overall reported a budget underspend of £704.4million (17.2%) of the capital budget in 2024/25. This is less than the underspend reported in any of the three previous years, with underspends reported for both General Fund and HRA capital programmes. The Bulletin notes that the main reasons for these underspends were slippage in projects, due to capacity and supply chain issues, with capital spend reprofiled into future years; and time taken for procurement procedures. The Bulletin highlights that a large number of the capital projects that slipped were within HRA and housing programmes, but school and large infrastructure projects also showed underspends, largely due to delays. The main challenges identified by councils in delivering capital programmes over the next five years included affordability; risk of higher interest rates on borrowing; reliance on funding which can come with limitations and uncertainty for the future; and a lack of workforce capacity to manage and run several capital projects. Financial Position and Outlook 4.11 Section 2 of the Bulletin covers the financial position and outlook for local authorities. The Accounts Commission view is that councils face substantial challenges in maintaining their financial sustainability over the medium term, and that a decrease in usable reserves, most of which are committed for specific purposes, limits councils’ flexibility in dealing with emerging pressures, and increases overall financial risk. 4.12 In 2024/25, the Bulletin notes that usable reserves decreased from £4.1billion to £3.8billion, following a period where usable reserves have been increasing (from £2.7billion in 2019/20). The Bulletin attributes this largely to increased funding and use of financial flexibilities introduced in response to the Covid-19 pandemic. Data provided to the Accounts Commission showed that 25 of 30 councils made planned use of their reserves to balance their budgets, meet statutory obligations, and to fund one-off pressures. In addition, the Bulletin highlights that 16 councils made unplanned use of reserves, mainly to mitigate service overspends, or to address specific financial pressures. The Accounts Commission highlight that a number of councils are now in breach of their own reserves policies, and are taking action to address this.
Page 7
PUBLIC 4.13 The Accounts Commission highlight significant risks to councils’ financial sustainability, including demographic changes and rising demand for services (particularly social care); ongoing workforce challenges; and immediate pressures such as homelessness. The Accounts Commission also assert that, additionally, the implementation of new and existing Scottish Government policies without sufficient further funding can add to existing challenges. Councils reported a range of specific financial risks as possible challenges for their financial sustainability over the next five years, including future funding; future reductions in capital grants; inflationary pressures; pay settlements/awards; council tax; savings; and reserve levels. 4.14 The Accounts Commission note that in 2024/25, for 29 of the council accounts available, total debt increased to £23billion, an annual increase of £2.5billion. The Accounts Commission recognises in the report that this is partly driven by recent changes associated in how leases are accounted for (International Financial Reporting Standard 16 (IFRS 16): Leases), and also reflecting ongoing investment. The Bulletin highlights that councils’ external debt comprises borrowing from a variety of sources including the Public Works Loan Board (PWLB), Market loans, and lender options/borrower options (LOBOs). The amounts and sources of debt held by councils in 2024/25 is set out in Exhibit 10 of the Bulletin, with the Accounts Commission noting that most council debt relates to loans from the PWLB that will need to be repaid when they end, and that increased borrowing and interest rates mean that councils are now spending more to service their debt. 5. Accounts Commission Recommendations 5.1 The Accounts Commission Bulletin provides a number of recommendations to councils, and includes progress updates in its Appendix against the recommendations in the 2023/24 Local Government in Scotland Financial Bulletin. The Accounts Commission report limited progress on the below two recommendations from the previous year around the transparency of financial reporting, highlighting the view within the report that while some councils report on progress against savings targets, the level of detail provided can be limited. • Councils must continue to improve the clarity and comprehensiveness of their reporting on savings performance within their management commentaries, including the provision of comparisons to targets agreed during budget-setting, and whether savings made were recurring or non-recurring.
Page 8
PUBLIC • Councils should clearly explain within their management commentaries, and within reports to elected members, how future revenue budgets will be impacted by investment decisions and capital underspends. 5.2 For 2026, the Accounts Commission provide the below recommendations in addition to those above carried forward from the previous bulletin, stating that councils should: • ensure that their longer-term capital investment plan, and the impact that capital underspending, programme slippage and changes to overall indebtedness arising from accounting changes have had on their overall financial position, is reported clearly and in a timely manner to elected members. • ensure that reserves policies are current and remain fit for purpose, and that where agreed minimum reserves levels are breached, or forecast to be breached, there is a clear and time- bound plan for recovery. • continue to work with their appointed auditors to ensure that they produce annual financial statements in a timely manner, as the sector continues its recovery to meet statutory reporting deadlines. • ensure that long-term financial plans (over five years), that adequately consider risks to financial sustainability and include detailed scenario planning, are in place. • ensure that assessments of medium- and longer-term financial sustainability, including reference to specific indicators, are a central focus of reporting to elected members. ________________________________________________________ Implications of the Report 1. Financial – none, though the report references national trends in relation to local government finance and provides local context. 2. HR & Organisational Development - none 3. Community/Council Planning – none 4. Legal - none 5. Property/Assets – none
Page 9
PUBLIC 6. Information Technology – none 7. Equality & Human Rights - the recommendations within this report have not been assessed in relation to their impact on equalities and human rights as the report concerns a national bulletin on local government finance and is for noting only. 8. Health & Safety – none 9. Procurement – none 10. Risk – none 11. Privacy Impact – none 12. Climate Risk –not applicable 13. Children’s Rights –not applicable. 14. COSLA Policy Position –not applicable. _______________________________________________________ List of Background Papers ___________________________________________________________________