Accounts Commission’s Briefing Local Government Budgets 202526
North Ayrshire Council · 28 August 2025
Back to Audit and Scrutiny Committee — 28 August 2025 and its agenda
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NORTH AYRSHIRE COUNCIL 28 August 2025 Audit and Scrutiny Committee Title: Accounts Commission’s Briefing: Local Government Budgets 2025/26 Purpose: To inform the Audit and Scrutiny Committee of the key messages identified within the recently published briefing. Recommendation: That the Committee i) notes the key messages within the recent Accounts Commission briefing, and (ii) notes the current position of North Ayrshire Council in relation to the key messages. 1. Executive Summary 1.1 In May 2025 the Accounts Commission published a briefing on Local Government Budgets 2025/26. This briefing provides a high-level analysis of the 2025/26 budgets agreed by all 32 Councils highlighting the challenges faced in achieving a balanced budget and long-term financial sustainability. A link to the report is attached below: Local government budgets 2025/26 1.2 The report provides an analysis of the level of Scottish Government funding provided to Councils, the remaining budget gaps, the steps taken by Councils to bridge these and the ways in which Councils consulted with their communities. 1.3 Appendix 1 provides relevant North Ayrshire Council feedback on each of the key messages identified. 2. Background 2.1 The briefing provides a high-level independent analysis of the budgets set by local authorities for 2025/26, including the Councils’ Revenue, Capital and HRA budgets. This analysis examines the sources of funding, budget gaps and identified savings required to deliver balanced budget for 2025/26 and the projected budget gaps for 2026/27 and 2027/28. 2.2 In addition to the financial aspects of the budgets, the briefing examines the approaches taken to involving communities in the decision making process.
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2.3 The key messages within the briefing are summarised below: • Scottish Government revenue funding to councils increased by 6% to £15.2 billion; • Local government is experiencing spending pressures in excess of the funding uplifts, including additional pressures from changes to employers’ National Insurance contributions; • Councils have identified budget gaps for 2025/26 of £647 million with required actions including increased Council Tax, identification of savings, use of reserves and additional charges for services; • Further budget gaps have been identified for future years and action will be required to achieve financial sustainability; • Councils must improve the accessibility and transparency of budget information and include local communities in the choices required to address financial challenges. 3. Proposals 3.1 It is proposed that the Committee i) notes the key messages within the recent Accounts Commission briefing, and (ii) notes the current position of North Ayrshire Council in relation to the key messages. 4. Implications/Socio-economic Duty Financial 4.1 The Accounts Commission briefing highlights the reliance of local government on Scottish Government grant funding and the need for further action to bridge anticipated future funding gaps and achieve financial sustainability. North Ayrshire Council develops medium term financial plans on a three year rolling basis and agrees annual Revenue, Capital and HRA budgets. The financial sustainability of the Council is monitored regularly and reported to Cabinet throughout the year. Human Resources 4.2 As part of a sustainable financial strategy the Council continues to actively manage the size of its workforce. Legal 4.3 None. Equality/Socio-economic 4.4 Equality impact assessments are carried out for all options identified as part of the annual budget proposals.
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Climate Change and Carbon 4.5 None. Key Priorities 4.6 In addressing the financial challenges which it faces, the Council seeks to minimise the impact on delivering its key priorities. Community Wealth Building 4.7 None. Islands Communities Impact Assessment (ICIA) 4.8 None. United Nations Rights of the Child (UNCRC) 4.9 None. Consumer Duty 4.10 None. 5. Consultation 5.1 Executive Directors are consulted in the development of the Medium and Long term Financial plans. Extensive community engagement was undertaken as part of the development of the 2025/26 budget proposals. Mark Boyd Head of Service (Finance) For further information please contact David Forbes, Senior Manager (Strategic Business Partner), on 01294 324551 or DavidForbes@north-ayrshire.gov.uk. Background Papers None
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Appendix 1 Local Government Budgets 2025/26 Ref Key Message NAC Feedback K1 Scottish Government funding to local government in 2025/26 is increasing by 6% in real terms, to £15.2 billion. However, local government continues to face recurring pressures in excess of funding uplifts, such as inflation, annual pay deals and growing demand for services, and most of the increase will be used to deliver previously agreed national commitments. Alongside this, councils are facing additional costs related to the increase in employer’s National Insurance contribution rates, and investing in new buildings and assets is increasingly expensive. The 2025/26 local government finance settlement included additional Scottish government funding for north Ayrshire Council of £23.666m, 6.6%. However, this included increased funding to support a number of national pressures such as the 2024/25 council tax freeze, implementation of the Real Living Wage across Adult and Children’s social care, prior year pay deals for local government workers and teachers and a contribution towards the costs of the changes to employers’ NI contributions. The actual increase in core funding was £7.254m, an increase of 2.05%. Against this, North Ayrshire Council identified contractual and inflationary budget pressures of £14.930m. K2 At a time of constrained public finances and growing demand, not all cost increases can be met from central government funding and councils need to take local action to achieve budget balance over the short and medium term. At the time of setting their budgets, councils identified a difference of £647 million between anticipated expenditure and the funding and income they receive (the ‘budget gap’). Councils are required to set balanced budgets and have agreed a range of actions to achieve this and close this gap. This includes all councils raising council tax rates, by between six and 15.6 per cent, identifying savings, drawing on reserves and increasing or introducing charges for accessing some services. North Ayrshire Council identified a budget gap for 2025/26 of £14.930m. This was addressed through a range of measures including: 7% increase in Council Tax, £5.008m; Approved savings, £3.464m; Use of reserves, £4.000m; and Increased Fees & Charges, £2.276m. K3 Councils continue to make savings across a broad range of services to address financial challenges and have been successful in identifying recurring measures that will help to address underlying pressures. Despite this, councils are still forecasting that more will need to be done in future years to achieve financial sustainability given their projected increases in both costs and level of service demand. Based on current funding assumptions, including a flat cash settlement, 5% per annum increase in Council Tax and the programmed utilisation of reserves, the projected budget gap for 2026/27 and 2027/28 is £3.627m and £7.385m respectively, representing a cumulative budget gap to 2027/28 of £11.012m. Proposals to address these gaps will be developed as part of the 2026/27 and 2027/28 revenue budget estimates.
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Appendix 1 K4 Councils’ budget-setting processes vary, partly reflecting differences in organisational structures and local priorities, and this makes it difficult to compare information across Scotland. There remains an underlying issue with the transparency of how budget information is being presented. Within their report on the 2023/24 audit, audit Scotland reported that North Ayrshire Council demonstrated “openness and transparency within the council together with appropriate governance and decision-making arrangements”. It was further noted that the Council had implemented several measures to ensure that the decision-making processes are accessible to the public, including the live streaming of meetings and the publication of meeting agendas, papers, and video recordings on the council website. As part of the annual exercise to develop the Revenue Estimates, officers participate in regular engagement with elected members to provided them with information on the financial pressures and risks faced by the Council and the available options to reduce net expenditure within the context of the priorities set out in the Council Plan. K5 Most councils engaged communities in some way to make decisions on their budgets for 2025/26, but there were variations in the depth and level of this engagement. By improving the accessibility and transparency of how they are reporting budget information, councils can better inform and include their local communities in making the choices required to address ongoing financial challenges. An extensive programme of engagement took place between 10 October and 25 November 2024 including surveys across six main themes as well as in person and online focus groups. This approach was designed to support our residents to contribute their views, make the surveys more accessible and avoid digital exclusion. This resulted in 4,461 responses across six themes, more detailed feedback on proposals and considerable engagement with community groups across North Ayrshire. Full details of feedback across all areas were presented for elected member consideration in advance of setting the Council Budget.