SCOTTISH councils face “difficult decisions on what services can be delivered” as they face a near £1 billion budget black hole over the next two years, a watchdog has warned.

In its latest report on the state of local government finances, the Accounts Commission says councils face a budget gap of £647 million this year alone — up £52m on 2024-25 — despite their settlement from the Scottish government growing by 6 per cent.

The commission notes that “recurring pressures” such as inflation, pay settlements, growing demand for services such as adult health and social care, as well as the £370m-a-year impact of the hike in employers’ National Insurance — only partially offset by the Scottish government’s £144m contribution — mean “councils are currently anticipating a cumulative revenue budget gap of £997m over the next two years.”

Councils have already approved £210 m in cuts this year — including £58m from children’s services — but many are considering further council tax increases.

“Difficult conversations” are required, warned Accounts Commission member Derek Yule, saying: “Councils don’t have enough money to meet current demand, at a time when local communities are being asked to contribute more through increases in council tax and charges.”

Cosla resources spokeswoman Councillor Katie Hagmann said the “the outlook remains deeply concerning.”

She said: “Councils are staring at a projected budget shortfall of up to £1bn over the next two years.

“This is not just a number. It represents a very real risk to the quality of life for people in every part of Scotland.”

Echoing that sentiment, Unison Scotland’s regional manager Kay Sillars said: “Council workers in Scotland have been hit with a double whammy. 

“After hearing inflation has risen again to 3.5 per cent, they learn the local government budget has a £647m shortfall.

“Unison is currently balloting council staff for strike action over their 3 per cent pay offer, so these latest price-rise figures show this clearly amounts to another pay cut.

“Councils must have fair funding from the Scottish government so they can pay staff properly and deliver what’s needed to their local communities.”

The Scottish government said it will “continue to work in partnership with local government to address the challenges facing council budgets and ensure we are operating sustainable, people-centred public services that communities expect and deserve.”