Council debt repayments to the private sector will peak at a time when they will face unprecedented demand for services from old people and schoolchildren, the public spending watchdog has warned.
Annual repayments to the Scottish Government’s non-profit distribution (NPD) public-private partnership debt and its private finance initiative (PFI) predecessor is predicted to rise from £488 million to £600 million by 2024/25, the Accounts Commission said.
By this time, demographic pressures caused by an ageing population and more children will be rising.
Councils are already facing increasingly difficult financial challenges, according to the Commission.
Scottish Government funding for councils has decreased by 8.5% in the last four years, and many councils are now reporting gaps between their income and the cost of providing services.
English councils have faced more severe cuts by the UK Government with a 37% reduction over five years.
Scottish councils face increasing demand to implement SNP priorities such as the council tax freeze, free personal care, housing standards, class sizes and other legislation and national policies.
Pressure also comes from future spending commitments such as financing NPD/PFI debt, other borrowing, rising pension and equal pay costs and other liabilities.
The Accounts Commission said: “Annual interest and debt repayments have increased from £946 million in 2009/10 to £1.5 billion in 2013/14, with repayments for PFI and NPD contracts totalling £488 million in 2013/14 and predicted to peak at around £600 million a year between 2024/25 and 2027/28.
“Population projections indicate that there will be increasing demand for council services at the same time as financing charges are anticipated to peak.”
Scotland’s population is rising by 0.2% a year, with over-65s expected to rise from 17% to 25% by 2037 putting pressure on social care and housing, and a 5.5% rise in children putting pressure on schools.
Midlothian Council alone, one of the smallest councils, thinks it will need 300 extra care home places at a cost of £6 million a year.
Some councils have increased or introduced new charges for services, but spending on services has decreased by 1%.
Council reserves fell by 2% in 2013/14 following several years accumulation.
It is not clear if councils’ planned savings will be enough to cover the reported gaps in funding or if they will need to make more savings, the Commission said.
Edinburgh Council is considering 1,200 staff cuts and working with voluntary groups to plug the gap.
Almost all councils’ auditors have indicated risks to the administrations’ financial positions in the medium to long term.
Specific risks include councils spending more money than planned, not making planned savings, unexpected compromises on the quality of services, an inability to meet demand for services and inadequate funds in their reserves.
Rent arrears increased by 24% between 2012/13 and 2013/14 despite £29.4 million of Government discretionary housing payments (DHPs) handed out last year.
“This may, in part, be a result of welfare reforms,” the Accounts Commission said.
“So far, councils are managing the impact of welfare reform and many are spending money on support for people affected.”