Introductory Report and Recommendations for Budget Papers
Argyll and Bute Council · 19 February 2026
Back to Budget Pack — 19 February 2026 and its agenda
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ARGYLL AND BUTE COUNCIL COUNCIL FINANCIAL SERVICES 25 FEBRUARY 2026 INTRODUCTORY REPORT AND RECOMMENDATIONS FOR BUDGET PAPERS 1. EXECUTIVE SUMMARY 1.1 This report introduces the full package of papers included in the budget packs in relation to the revenue and capital budgets REVENUE PACK Revenue Budget Overview 1.2 This report summarises the overall revenue budget position covering funding, expenditure and savings. It also sets out the assumptions and proposals around non-pay inflation and the cost and demand pressures for inclusion in the revenue budget. 1.3 The Scottish Budget was announced by the Cabinet Secretary for Finance and Local Government on 13 January 2026 and on the same day Scottish Government Local Government Finance Circular 1/2026 was published and provides detail of the provisional total revenue and capital funding allocations for 2026-27. The Council’s provisional General Revenue Grant is £271.004m in addition to Revenue Specific Grant of £2.932m. 1.4 Following the publication of Finance Circular 01/2026 there has been some changes to distributions in addition to previously non-distributed funding now having an agreed distribution methodology. These changes will not be confirmed until the Finance Order is approved at the end of February 2026, but I have reflected what I consider to be a reasonable estimate of the changes that are expected. In addition, there are two elements of funding still to have distribution agreed; Scottish Disability Assistance, our share is assumed to be £0.035m as per previous year and Personal Nursing Care, our share is assumed to be £0.153m based on assumed GAE allocation. This increases the General Revenue Grant for 2026-27 to £273.050m. The specific grants have changed to £2.946m. 1.5 The Council Tax budget for 2025-26 was set at £70.204m. Growth has reverted back to 0.5% in 2026-27 after a temporary increase to 0.75% in 2025-26 to rebase the position following a review undertaken by the Assessor at Dunbartonshire and Argyll and Bute Valuation Joint Board. The 0.5% increase in 2026-27 amounts to £0.353m. 1.6 The budget for 2025-26 has been rolled forward into 2026-27 and the main changes to the 2026-27 base budget are summarised below:
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Funding for ferries now recurring within the General Revenue Grant as opposed to a Specific Grant £2.810m. Increase to the Loans Fund debt charges of £0.095m. Removal of one-off Policy savings in 2025-26 of £0.020m. Settlement Commitments (Council Services) of £0.310m. 1.7 Other increases to the budget are summarised below: Employee cost changes of £16.833m. This relates to estimated pay inflation, increments, employee base changes, increase to standby rates and the re-instatement of employer’s super annuation rate. Unavoidable/inescapable inflation of £2.489m. This includes utilities, residential schools, contract inflation and insurances. A number of cost and demand pressures amounting to £4.496m. The most significant being compliance with BMW Ban £1.568m, Residential Schools £0.600m, Bus Transport Contract £0.400m, Harbours Repairs and Maintenance £0.260m, Valuation Joint Board £0.255m and ASN Support £0.208m. 1.8 Included within the cost and demand pressures and inflation are amounts relating to School clothing grants of £0.056m and £0.009m respectively. The Scottish Government has shown a commitment to supporting families with school clothing grants, particularly those on qualifying benefits. Originally the amount of the grant was set at £120 for primary school children and £150 for secondary school pupils payable once per academic year. Within the 2026-27 budget settlement the Scottish Government provided £0.700m additional funding Scotland wide towards the School Clothing Grants of which Argyll and Bute Council’s share was £0.004m. This was provided as part of the Scottish Governments commitment to provide funding to allow the grants to rise in line with inflation albeit Local Authorities retained the flexibility as to whether to apply any increase as long as the minimum grant levels of £120 and £150 were paid. The additional funding included within the cost pressures and inflation, if approved by Members, would allow the grant awards to increase by 6% to £127.20 for primary school children and £159 for secondary school pupils which would reflect the fact that no inflation has been applied since implementation in 2021-22. 1.9 The revised payment to the Health and Social Care Partnership, reflects 2025-26 in year adjustments and the net changes to the settlement in respect of Social Work that we have been directed to pass over to the Health and Social Care Partnership. Due to the significant financial pressure that the Health and Social Care Partnership is facing as a result of demand for services, workforce shortages and the increasing complexity of care are pushing costs upward at a pace that exceeds available funding it is recommended that Council consider passing over a further increase to the HSCP. The most recent budget outlook for 2026-27 for Social Work forecasts a £6.6m gap between the expected cost of delivering the current level of service and the resources available to support Social Work and Social Care services. Savings and Reserves of £3.714m have been identified leaving a budget gap of £2.872m which Members may wish to consider funding. The revised payment amounts to £91.827m.
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1.10 There are a number of measures to balance the budget that have been agreed at previous Council budget meetings which have a net effect of reducing the 2026-27 budget gap by £1.107m. 1.11 There are a number of other measures to balance the budget as follows: General inflationary increase of 6% to fees and charges resulting in £0.440m of additional income. New management/operational savings amounting to £3.091m, endorsed by Council on 26 November 2025. New policy options savings amounting to £2.999m. Underspend in the 2025-26 Loans Fund of £1.500m. 1.12 The budget gap after the measures to balance the budget is a deficit of £0.703m in 2026-27. 1.13 The setting of Council Tax should happen on the same day as the Council sets its revenue budget as once all proposals are considered, Council Tax is the balancing figure. The gap outlined in paragraph 1.11 above is based on a 5% Council Tax increase (this is the assumption that has been in the budget outlook during the year). In order to get to a balanced budget, Council will need to increase Council Tax to 6%. The alternative to increasing Council Tax further is that Council would need to fund the gap using reserves or other funds held, which would be a one-off fix, however, Members need to be mindful of the significant gap in future years as well as the pressures facing the capital plan. 1.14 The budget gap over the period 2027-28 to 2030-31 across each scenario is summarised in the table below. Budget Gap 2027-28 £000 2028-29 £000 2029-30 £000 2030-31 £000 Total £000 Best Case (3,384) (507) (846) (979) (5,714) Mid-Range (11,044) (5,775) (6,361) (6,731) (29,911) Worst Case (21,747) (11,783) (12,653) (13,326) (59,509) 1.15 It is proposed to establish a Programme Management Office (PMO) responsible for co-ordination and delivery of both capital and transformation projects, to address issues including: Insufficient capacity to progress transformational change and maintain business as usual. Scale and complexity of organisational change that requires a more consistent, corporate and disciplined approach to programme and project management. Ensuring the Council can deliver its strategic priorities, respond effectively to external audit scrutiny and build the foundations for sustainable multi-year transformation. Addressing recent external audit findings and best practice evidence identified by the Accounts Commission.
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1.16 Two options have been presented for consideration by Council and it is estimated that either option will require a drawdown of up to £0.600m over a two-year period, to be funded from the Strathclyde Pension Fund gain monies that were set aside to support transformation and spend-to-save initiatives by Council at the February 2024 budget meeting. 1.17 A number of funding requests have been received and Members are asked to give consideration to these requests and how they would be funded. Fees and Charges 1.18 This report sets out proposals for increases in fees and charges and the resulting impact on income included in the revenue budget. 1.19 The general increase to fees and charges is proposed at 6% for 2026-27 and is expected to generate additional income of £0.440m. 1.20 The changes proposed to the Social Work fees and charges are noted within the report and have been the subject of a report to the Integrated Joint Board on 28 January 2026. 1.21 The increase to Harbour Fees is proposed at 8%. This 8% increase is ring fenced to fund asset improvement and sustainability within the piers and harbours. This is estimated to generate additional income of £0.748m. No general inflationary increase has been proposed for piers and harbours dues to ensure that the service is cost neutral. 1.22 New fees and charges which are being introduced for 2026-27 are summarised below: Early Years Charges – non-statutory provision o under 2 years old o 2 to 3 years old Kerbstone full inscription flat rate o Previously was charged per letter Cremation Services introduction of music, slideshows, tributes etc o Detailed line by line in section 4.1 of the Fees and Charges report Charges for staff transporting cycles and e-cycles on/off Lismore Ferry o Includes safely securing them onboard Financial Risks Analysis 2026-27 1.23 This report set out the risks identified as part of preparing the revenue budget and makes an assessment of the potential financial impact of these. The financial risks are monitored routinely throughout the year and actions put in place to mitigate risks. 1.24 There are currently 6 council wide revenue risks identified for 2026-27, with a potential annual value totalling £7.1m, and with varying degrees of likelihood.
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Description Likelihood Assessed Financial Impact £m Unbudgeted Severe Weather costs 4 3.0 Energy costs increase by 5% greater than budgeted 3 0.4 IJB refer to Council for additional funding to deliver social work services 3 2.0 1% variation in Council Tax Income 2 0.8 10% shortfall on Savings delivery 2 0.6 10% variation on General Inflation 3 0.3 Total 7.1 1.25 There are currently 30 departmental risks, with a potential annual value totalling £4.557m, of which 5 are categorised as ‘Likely’. Reserves and Balances 1.26 This report summarises the reserves and balances, sets out an analysis of risk around the adequacy of reserves and balances and proposes a level of contingency to be held in the General Fund Reserve. 1.27 At 31 March 2025 the Council had a total of £121.235m usable reserves. Of this: £3.608m related to the Repairs and Renewals Fund; £3.358m related to Capital Funds; £1.564m Capital Grants Unapplied; and £112.705m was held in the General Fund with £105.162m of this balance earmarked for specific purposes. 1.28 The Council’s General Fund contingency remains at 2% of net expenditure. This monetary level has been adjusted to take account of the revised net revenue expenditure proposed for 2026-27. The revised contingency of 2% of net expenditure amounts to £7.174m. 1.29 The estimated unallocated General Fund at the end of the financial year is a surplus over contingency of £0.481m, however, this is an estimated position and subject to change. CAPITAL PACK Review of Capital Arrangements - Update 1.30 As part of the 2025-26 budget process, the Capital Plan 2025-28 Summary Report set out opportunities for improvements to current capital arrangements. As such, it was agreed that a review of existing capital arrangements would be progressed
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during 2025-26. This report provides a progress update, with recommendations brought forward based on the outcomes of review elements completed to date; and to outline the interim approach to capital for the 2026-27 budget process, pending the outcome of the wider review. 1.31 This report concludes that: An interim approach to capital planning is required for the 2026-27 budget process, pending the outcome of the wider review of capital arrangements; There are opportunities to take a more corporate and strategic approach to property maintenance, repairs and renewals from 2026-27, supporting long- term service and financial sustainability; Work has been undertaken to develop integrated financial modelling and to improve governance reporting. This has helped inform the capacity within existing resources for new capital investment; The Section 95 Officer requires to take a strategic approach and exercise flexibility within the capital funding framework, including the use of earmarked reserves, in order to manage the impact of investment decisions on the annual revenue budget and in the context of safeguarding the council’s longer term financial sustainability; Preliminary high level financial modelling has been undertaken to inform the capacity within the existing debt charges budget and available reserve balances for future capital investment. Whilst this is a complex picture with several variables, there is considered capacity within available resources to fund additional capital investment over the short to medium term. This position will require to be monitored and kept under review on an ongoing basis; and It has not been possible to progress all aspects of the review during 2025-26, with a number of the original requirements not yet delivered. It is anticipated that these outstanding opportunities for improvement will be progressed during 2026-27, subject to available resources. Capital Plan Update 2026-28 1.32 A separate Review of Capital Arrangements Update report has been provided, as part of the 2026-27 Budget Pack, setting out the interim approach to capital planning for the 2026-27 budget process, pending the outcome of the wider review. This report outlines proposals for the required update for the remaining 2 years of the current Capital Plan, 2026-28. 1.33 The Local Government Finance Settlement Circular 1/2026 provided 2026-27 General Capital Grant of £9.975m, excluding effectively ring-fenced or directed funding of £6.099m. This represents £0.309m more than previous planning assumptions for each of the years 2026-27 and 2027-28. In addition, the 2025-26 final General Capital Grant settlement was £0.007m higher than assumed within the approved Capital Plan. 1.34 The ring-fenced or directed funding of £6.099m, included within the 2026-27 General Capital Grant, comprises £0.379m for Flooding, £0.270m for Nature Restoration and £5.450m for Island Connectivity. The Scottish Government has
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confirmed additional capital funding of £19.700m in total over the next 2 years (£5.450m 2026-27 and £14.250m 2027-28) to support investment in a new Jura Ferry (£12.000m) and Ferry Slips (£7.700m). This brings the total of notified ring- fenced or directed funding being made available through the General Capital Grant to £20.349m over 2026-28. In addition, as agreed in February 2025, an allocation from the General Capital Grant to Private Sector Housing Grant (PSHG) is provided for at £0.820m in 2026-27 and £0.819m in 2027-28 1.35 The settlement also provides for additional capital grant funding of £20m across Scotland in 2026-27 for Climate Emergency, to be included within the General Capital Grant, assumed to be non-recurring. Given that project planning across the programme will already take cognisance of climate change, as a key consideration, it has not been necessary to augment planned project expenditure in this respect. As such, the authority’s share of this funding, estimated at £0.482m, represents additional available resources for 2026-27. This gives an overall net increase of £1.107m in available General Capital Grant funding over the remaining 2 years of the current Capital Plan, 2026-28. 1.36 The current approved Capital Plan 2025-28 includes an updated asset sales target totalling £2.025m over these 3 years. A total of £1.500m is currently estimated to be achieved in 2025-26, with a remaining balance of £0.525m to be achieved over 2026-28. However, based on an updated assessment undertaken by Commercial Services on potential sales opportunities that may reasonably be achieved over the 2 years 2026-28, this target has been updated to £2.000m, representing an overall increase of £1.475m in available funding over the 2 years 2026-28. 1.37 As at 31 December 2025, there was a forecast overspend of £0.166m on the current 2025-28 Capital Plan, however, this is expected to be managed within existing available resources. No additional spend approvals are being sought in this respect, at this stage. However, there are spending requirements totalling £3.385m, deemed to be essential, either critical to maintain service delivery, or to comply with legislation or regulation (Red RAG status risks), that cannot be managed within existing available resources. 1.38 In addition to the new commitments associated with the ring-fenced or directed funding provided through the General Capital Grant, new capital commitments in respect of proposed recharges to capital, totalling £0.604m, require to be provided for within the Capital Plan, subject to member approval. 1.39 After taking account of the additional capital resources available from General Capital Grant and Asset Sales, there is a shortfall of £1.407m in the funding available to meet new capital commitments. However, work has been undertaken, as part of the Review of Capital Arrangements, to establish the capacity within existing available revenue resources (annual debt charges budget and reserves earmarked for capital purposes) to support new capital investment. There is also an opportunity for this to be further augmented by additional borrowing, with the revenue consequences, in terms of debt charges, accounted for as part of the annual revenue budget for 2026-27 and future years.
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1.40 Additional investment priorities across council services have been identified, including in respect of the Roads programme for 2026-28, with an estimated shortfall of £9m each year to maintain the current standard. Council officers have brought forward investment proposals for members’ consideration, in line with the overall capacity to support additional capital expenditure, with no forecast impact on the revenue budget over the short to medium term. 2. RECOMMENDATIONS 2.1 It is recommended that the Council: a) Approve the revenue estimates for 2026-27 and that consequently the local tax requirement estimated at £75.103m is funded from Council Tax. Approve the following rates and charges for the year, 2026-27: 1. Council Tax to be paid in respect of a chargeable dwelling in Band “D” of £1,723.18 representing a 6% increase. 2. Council Tax to be paid in respect of a chargeable dwelling in each of the other valuation bands in accordance with Section 74(1) of the Local Government Finance Act 1992 as amended. 3. Business Rates as determined by Scottish Ministers. b) Approve the revenue budget for 2026-27 as set out in the revenue budget overview report. c) Approve an increase to School Clothing Grants of 6% from 1 April 2026 resulting in a payment of £127.20 for primary school children and £159 for secondary school pupils. d) Approve a base allocation to the Health and Social Care Partnership of £91.827m for 2026-27. Approve indicative base allocations for 2027-28 and 2028-29 of £91.723m. The level of future years funding is subject to the level of Scottish Government funding and the Council’s overall financial position in future years. e) Approve that an adjustment will be made to the HSCP payment in relation to undistributed funding for Scottish Disability Assistance and Free Personal Nursing Care if the funding received is materially different to the estimate included within the base allocation. f) Approve the policy savings options for 2026-27 as outlined in Appendix 4 of the revenue budget overview report and agree that any policy savings relating to 2027-28 onwards will be considered as part of next year’s budget process, unless it is a full year effect of the 2026-27 saving. g) Consider the funding requests received as set out within Appendix 6 of the Revenue Budget Overview Report.
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h) Agree that officers will undertake an exercise to review the Service Level Agreements of Community Pools to ensure parity between agreements. This will be reported back to Members during 2026-27. i) Note the proposal to establish a Programme Management Office (PMO) responsible for co-ordination and delivery of both capital and transformation projects and note the drawdown of up to £0.600m over a two-year period under the current delegation which set aside funding in the General Fund for transformation/spend to save projects and required that officers provide reports on the drawdowns from the General Fund balance to be submitted to the Policy and Resources Committee as part of the monitoring pack. j) In agreeing to PMO proposal Option 1, agree to establish an Appointments Panel for the recruitment to the new post of Head of Transformation; and nominate 3 elected members and substitutes to the Appointments Panel: two from the Administration and one from the opposition. k) Approve the following in relation to fees and charges with effect from 1 April 2026 unless otherwise noted: 1. Approve the proposals for the fees and charges inflationary increase of 6% and approve the charges that are over and above inflation. Note that this would generate additional income of £0.440m in total. 2. Approve all other charges as noted within the Fees and Charges Schedule. 3. Note that formal Council approval may be required at a later date for further changes to the Social Work Fees and Charges. l) Note the financial risks analysis. m) Approve the contingency level for the General Fund balance at a level of 2% of net expenditure, equivalent to £7.091m and note the report on reserves and balances. n) Approve the capital plan as set out in Appendix 3 to the Capital Plan report, noting that this incorporates the red risks (£3.385m) and proposed recharges to capital (£0.604m). o) Note the capacity within available resources to meet new capital investment, after providing for the funding shortfall of £1.407m on the current Capital Plan and agree how these available resources are directed. p) Endorse the approach to capital for the 2026-27 budget process, pending the outcome of the wider review of capital arrangements. q) Endorse the revised corporate approach to the management of property repairs, maintenance and renewals, and approve the redirection of £8m reserves earmarked for capital purposes to a new Repairs and Renewals Fund.
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r) Agree that the Section 95 Officer will continue to exercise flexibility within the capital funding framework, including the use of the Strategic Capital Finance Reserve, in order to manage the impact of capital investment on the annual revenue budget and support long-term financial sustainability. s) Note the Capital Review progress to date and note that further recommendations arising from the future workplan will be brought back to members in due course. 3. IMPLICATIONS 3.1 Policy – There are policy implications associated with proposals to balance the revenue budget as well as the policy options that have been subject to employee consultation. 3.2 Financial – The report outlines the revenue budget position over 2026-27 to 2030- 31 and the funding and commitments for the capital plan 2026-28. 3.3 Legal – Any legal implications have been considered when developing the savings options required for the revenue budget. 3.4 HR – Any HR implications have been considered when developing savings options required for the revenue budget. Statutory Trade Union consultation has been carried out. 3.5 Customer Service – There may be some customer service implications arising from previously agreed savings options and the new policy options – information is contained in the savings templates. 3.6 Risk – There is a separate report assessing financial risks and there is also an overall assessment of risk included within the separate report on Reserves and Balances. In respect of the capital programme, there are risks around the level of capital receipts, ongoing cost increases, grant funding, future pressures and there are a number of other risks highlighted in the Capital Plan Update report. 3.7 Climate Change – The Council is committed to addressing climate change and reviews of how Services are delivered is ongoing within the available budget resources. 3.8 Fairer Scotland Duty – Integrated Impact Assessments have been completed as required and are available on the Council website. 3.9 Equalities (protected characteristics) - Integrated Impact Assessments have been completed as required and are available on the Council website. 3.10 Consumer Duty - Integrated Impact Assessments have been completed as required and are available on the Council website.
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3.11 Island Communities – Integrated Impact Assessments have been completed as required and are available on the Council website. 3.12 Children’s Rights and Wellbeing - Integrated Impact Assessments have been completed as required and are available on the Council website. Kirsty Flanagan Executive Director/Section 95 Officer 11 February 2026 Councillor Ross Moreland, Policy Lead for Finance and Commercial Services For further information please contact Anne Blue, Head of Financial Services anne.blue@argyll-bute.gov.uk