Cosla warns Scottish councils could go ‘bankrupt’


LOCAL authorities have told the Scottish Government that they need over £14billion worth of funding just to stand still in the year ahead.

Cosla, the umbrella body for Scotland’s 32 councils, has warned that some areas could follow two English counterparts in becoming insolvent if funding is not dramatically improved.

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Both Birmingham and Nottingham have issued section 114 notices, which prevents spending on virtually everything but the bare bones.

In a briefing paper published ahead of the Scottish budget, which will be announced on December 19, Cosla says this could soon become a reality north of the border.

‘Tough choices’

Katie Hagmann, Cosla’s resources spokeswoman, also warns that without improvements in council funding, “tough choices” could mean essential services local authorities provide “will cease”.

“Sadly, our reality right now is an extremely challenging financial climate coupled with years of real-terms cuts to council budgets, while additional policy commitments are continually being introduced,” she said

“If this situation doesn’t start to improve soon, it will mean tough choices being made and the many essential services councils provide will cease – services that not only address problems on the ground, but actively prevent bigger issues occurring down the line.”

She said Cosla had been ‘clear that cutting staff isn’t the answer’ and without ‘adequate and sustainable funding’ councils will not be able to help tackle poverty, support efforts towards net zero or provide ‘sustainable public services’.

This all comes after First Minister Humza Yousaf announced a council tax freeze at the SNP party conference, surprising council leaders who had not been consulted before the decision was made.

Cosla says this council tax freeze, coupled with the impact of inflation, means local authorities need almost £14.4billion in their 2024/25 budgets to “stand still”.

No details have emerged yet on how much money local authorities will get to compensate for the council tax freeze, but the government insists the policy will be fully funded.

Can councils go bankrupt?

The technical term in Scotland is sequestration.

Councils cannot go bust in the same way individuals or companies can, and there is no legal avenue for them to be liquidated.

The legislation around this is also different in Scotland than it is in England, as local government is devolved to Holyrood.

In practice, however, councils in Scotland are obliged to balance their books and if they cannot deliver a plan for a balanced budget, a chain of call-ins via external auditors could ultimately see government civil servants taking over.

Scottish Government response

The Scottish Government said today that there has been a real-terms increase in funding to local government in the past financial year.

A spokesman added: “Scotland is facing the most challenging budget settlement since devolution as a result of sustained high inflation and a UK Government autumn statement that failed to deliver the investment needed in Scotland’s public services.

“The Scottish Government has increased the resources available to local government in 2023/24 by more than £793m, a real-terms increase of £376m or three per cent, compared to the 2022/23 budget figures.

“Work is also ongoing with Cosla to establish a new fiscal framework for councils through the Verity House Agreement, a landmark agreement that is forging a stronger partnership between the Scottish Government and local councils through the spirit of collaboration and engagement.

“Decisions on local government budget allocations for future years are subject to the outcome of negotiations with Cosla, the results of which will be confirmed in future Scottish budgets.”

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