DESPITE much talk of a £5 billion “black hole” in Scotland’s funding, identified by Scotland’s auditor general last year and the Scottish elections taking place today, there has been very little said by Scottish politicians on how such a deficit will affect local government.

Last year the Scottish Labour Party looked at the cumulative effect of budget reductions to Scottish local government since 2014/15.

Its findings were stark: Scottish councils have lost £7.8 billion from cuts to the general revenue grant and non-domestic rate income, the two main components of government funding for councils.

For Glasgow City Council, for example, that has meant a cut of £1.5bn. Many Glaswegians will tell you that the impact of that cut is visible in a walk through the city centre. The less visible impact on services and their users is, unfortunately, likely to be much more serious.

As Brian Robertson, local authorities member on Unite the Union’s executive committee said: “Local government is the bedrock of our public services, communities and society as a whole. However, the bedrock is crumbling through lack of proper funding and continuous budget squeezes. Local government workers are under intense pressure to deliver the vital services that we need. They do their best with less funding, fewer resources and a steadily reducing workforce.”

The Scottish government plans cash and real-terms (3 per cent) increase to all Scottish councils in revenue funding for 2026/27.

The opposite is true for capital allocations (money for buildings, equipment and infrastructure etc) they will decrease in both cash and real terms — a 14 per cent annual real-terms reduction from initial 2025/26 funding. This will undoubtedly drive borrowing for capital projects, an issue dealt with later in this article.

Taken together, revenue and capital, there will be 2 per cent overall funding increase. Good news, then?

The problem is that such a rise is nowhere near enough to plug the gap in local government finance. Audit Scotland, an independent public body for Scotland’s public organisations, puts it like this:
“The cost of delivering services continues to rise, and reserves and non-recurring savings are already being deployed, but significant budget gaps remain to be addressed. Budget gaps identified in recent years exceed this increase in funding.”

And worse, as Audit Scotland points out, the Scottish government plans to reduce funding to councils over the next three years.

According to the Institute for Public Policy Research (IPPR), if the Scottish government keeps its promises on teacher numbers and the NHS workforce, as many as 20,000 jobs could be cut from other areas by 2030.

And it isn’t just the loss of money: it’s the lack of control over what can be done with that money that afflicts Scottish councils. In May 2023, an accounts commission overview concluded: “An increasing proportion of funding is ringfenced or directed for national policy initiatives. While this is important to help deliver national priorities, it prevents councils from making decisions about how funds can be used at a local level, to meet local need. Councils have had to make significant savings to balance their budgets. Increasingly difficult choices about spending priorities and service provision are having to be made…”

The so-called Verity House Agreement of the same year, between the Scottish government and Convention of Scottish Local Authorities (Cosla) was supposed to address this, but it has not.

As early as March 2024 Cosla reported: “There have been other issues in relation to the budget that have caused concern, such as the conditions set by the Deputy First Minister for additional funding, with it being contingent on freezing council tax.”

As a consequence, councils find it more difficult to allocate resources where they are most needed. This is undemocratic. When communities elect councillors they rightly expect to hold them to account for the financial decisions that are made. But the councillors do not have control over how slices of the money meant for local areas are actually being allocated. This has been made worse by projects directly funded from Westminster like Pride in Place.

It has also been made worse by debt. Scottish councils have been racking up enormous debt on capital projects. Last August, BBC analysis showed that Scotland’s 32 councils owed a combined £19.2bn to lenders, up 11 per cent on the previous year. The vast majority of this money is spent on necessary infrastructure for communities like new roads, schools and libraries.

The money for this comes out of the capital budget, not the resource budget which funds wages and services. But importantly the interest on these loans does come out of the resource budget and not only that, but it has to be ring-fenced for possibly 25 years or longer.

On its own, no doubt councils could manage increased interest payments, but as part of an array of financial costs that will rise if the cost of borrowing increases, it contributes to breakdown of the local government funding system.

As Cosla put it: “Increased reliance on borrowing places pressure on council revenue budgets that are already under strain, particularly as the cost of construction and borrowing increases.”

And then there’s outsourcing. In contradiction to the great Tory lie that the private sector always does it better and cheaper, outsourcing has in fact increased costs to the public sector and attacked jobs and wages of public-sector workers in Scotland.

STUC research shows that in Scotland £16bn of public money is spent every year on outsourced services (out of a total public spend of £111bn). Close to £3bn per year goes to profit and other mechanisms that private companies use to extract money from the Scottish public sector.

And if you work for one of the private companies delivering outsourced public services, you are going to find, according to Commonweal, that “the terms and conditions in the private sector are almost always worse for staff, and particularly lower-paid front-line staff. There are often lower levels of training and, because the pay and conditions are low, staff often have little reason to be motivated in work.”

It is ironic then that, according to the STUC, council spending on outsourcing (up 40 per cent over four years) is outstripping spending on wages for direct employees.

Unite argues, surely without contradiction, that we have a systemic problem in local government funding in England and Wales and as we have seen, in Scotland.

In Scotland as in the rest of the UK, Unite is campaigning to address these issues through its Fair Funding Now for Local Government.

So, what would Unite in Scotland like to see the governments of Westminster and Holyrood do to transform local government funding?

They want Westminster to allocate more money in its block grant for local government funding. Then they want the Scottish government to spend that money on what local authorities need, and not necessarily what the Scottish government prioritises.

Union involvement here is absolutely essential to make sure money is spent where it’s needed. Multi-year settlements would help in effective long-term planning of this spend.

Despite the Verity House Agreement commitment to multi-year settlements the Local Government Finance Settlement in January 2026 was for one year only. They also want the issue of debt forgiveness to be explored. It was used in Scotland to facilitate the shift of ownership of council housing from Glasgow City Council to Wheatley Homes. It could be used again for more progressive purposes.

Unite believes the whole question of how councils raise money needs an overhaul, not only must the outdated, regressive council tax be replaced, other ways of raising revenue, like local shares of income tax and tourism and environmental levies should be further explored.

Finally, outsourcing must end by bringing services back in-house. As Graham McNab, regional officer for Unite in Scotland, said: “As we approach the formation of a new Scottish government, Unite would urge that all politicians from all parties get behind the Unite’s Fair Funding Campaign and give our communities the services that they desire and deserve.”