Highland Council has the biggest budget gap in Scotland as an economist warns the local authority is ‘overspending’ and has a ‘bad reputation for mismanaging projects’
Scotland has entered its budget setting season with tough negotiations at Holyrood underway long before the Autumn statement by Chancellor Rachel Reeves in late November.
So with Highland Council currently labouring under the biggest budget gap in Scotland - is there any light at the end of the tunnel as the country’s financial watchdog warns it is ‘getting harder for councils to do more with less’.
Why should you care given this has been reported for years? The simple reason is that it places an enormous financial squeeze on any part of the council’s operations that serve the local community across the region.
So if you care about potholes there will be less money for roads, if it is housing that will get less investment, if it is school building or repairs then they are less likely because of that.
What is the problem?
Audit Scotland prepared a briefing on behalf of the Accounts Commission that looked at the revenue budgets of Scotland’s councils. It confirmed Highland Council has the largest budget gap in Scotland and that makes it increasingly likely that services will be squeezed while charges are likely to rise.
Why? The budget gap is the difference in cash between what a council has to run services and how much they actually cost and this is paid from the revenue budget.
The revenue budget pays for staff, maintenance, supplies and services – as contrasted to the capital budget that pays for building and infrastructure construction.
For Highland Council, balancing the revenue budget has been for years a problem and there are two basic ways to deal with that – cuts and hiking taxes or charges.
The local authority’s hopes of increasing revenue through the motorhome pass scheme have so far been an abject failure, that operators say is hurting the private sector.
Other revenue streams like the tourist tax are too far off to help with this year’s budget.
Can the Scottish or UK governments do anything?
The short answer is – even if they could, they will not. Scotland has entered the budget-setting season with news that finance secretary Shona Robison would be cutting £500 million from this year's tax and spending measures.
While the haggling continues in Holyrood, in Westminster Labour proposals to slash £22 billion, including restricting winter fuel payments that will be particularly keenly felt in the north, are expected to pass easily.
What that means is things are unlikely to improve at the government level when it comes to funding and in short to get what once was taken for granted means paying more for it – and that will hurt locals in the pocket.
Shortfall between cost of delivery and available funding to rise by 33 per cent
Considering the revenue budgets for all 32 local authorities for 2024/25, Audit Scotland found that the total shortfall this financial year amounts to around £585 million, but within two years it will rise £195 million to £780 million.
Glasgow City Council had a budget gap of £3.1 million or 0.2 per cent of its revenue budget – on the other hand Highland Council has a budget gap of £65.6 million equating to 8.5 per cent of its revenue budget.
The commission stated: ”Scotland’s councils faced a collective gap of up to £585 million between the money needed to deliver services and the money available when setting their budgets this year. This is estimated to increase to £780 million by 2026/27. Ever tougher decisions must be made to ensure councils are financially sustainable”.
What it said about the Highlands?
The commission said: “Highland has the largest budget gap both in terms of value and as a percentage of their revenue budget. Their gap is largely due to pay increase assumptions (£16.9 million), service pressures (£15 million) as well as the need to address the use of £23 million of reserves in 2023/24 in a sustainable way.”
That means the Highlands must operate between much tighter margins than other local authorities while the size of the council area offers greater risks for budgets to get out of control making it more difficult to pay its way out of it. A simple example of that would be if there was a very cold and snowy winter that could seriously impact road budgets.
Is “over-spending”, “a fall in revenue” and “mismanaging projects” to blame?
Highland economist Tony Mackay said the shortfall was down to “over-spending” and “a fall in revenue” which is a situation made worse by the council’s “bad reputation for mismanaging projects”.
“The forecast Highland Council budget deficit for 2024/25 is by far the biggest of the 32 local authorities in Scotland,” he said. “And much bigger than those in the cities such as Glasgow, Edinburgh and Aberdeen.
“The Audit Scotland report forecasts that this year’s deficit will be a massive £65 million, which is many times more than the £3 million in Glasgow, £21 million in Edinburgh and £25 million in Aberdeen.
“The report estimates that the Highland Council’s budget deficit will be about eight per cent of the annual revenue budget, compared with just 0.2 per cent in Glasgow and 1.5 per cent in Edinburgh.
“There is no doubt that the council is overspending and urgently needs to take real action to reduce this deficit. I believe that there are two main problems: overspending; and falls in expected revenue.
“Regarding overspending, the council has developed a bad reputation for mismanaging projects. Regarding falls in expected revenue, it has seriously overestimated its annual council tax revenues. The region’s population is declining and also ageing, so the council needs to be much more realistic in its forecasts of annual revenue.”
