Shetland Islands Council has acknowledged the scale of its financial challenge after a national audit highlighted a projected £134 million budget gap, while also noting that the authority’s services perform strongly compared with national benchmarks.
The response comes after a Best Value Audit report by the Accounts Commission examining how the council manages performance, governance and finances.
Council leader Emma Macdonald said the authority welcomed the report, which she said recognised both strong service delivery and high levels of public satisfaction.
“We welcome this report, which recognises that our services generally perform very well, compare favourably to national averages, and have some of the highest levels of public satisfaction in Scotland,” she said.
She added that the audit also acknowledged the council’s strategic direction and engagement with residents.
“The report also highlights that we have a clear vision and priorities, strong partnerships and good engagement with the public about our Corporate Plan and our budget.”
Significant financial pressures
Despite the positive findings on performance, the audit underlines the scale of financial pressures facing the island authority.
Macdonald said the difference between the funding the council receives and the services it is expected to deliver has created a gap that cannot continue indefinitely.
“The gap between the funding we receive and what services we are expected to deliver is significant – and it is an unsustainable situation,” she said.
Local authorities across Scotland have warned in recent years that rising costs, demographic pressures and constrained public funding are placing increasing strain on council budgets.
For Shetland, the challenge is particularly acute because of the area’s geography, population trends and the costs associated with delivering services across remote island communities.
Focus on reserves, innovation and collaboration
The council leader said the authority intends to tackle the issue by reducing reliance on reserves while seeking new ways to deliver services more efficiently.
“Despite the extremely challenging financial environment in which we operate, difficult decisions need to be made,” she said.
“We are determined to ensure the council addresses its unsustainable use of reserves, whilst innovating and collaborating to address our population challenges, reduce inequalities, and sustaining and growing our economy.”
Using financial reserves to support day-to-day spending can help councils manage short-term pressures but is widely viewed as unsustainable over the long term if underlying funding gaps persist.
Population change and digital transformation
The council also faces demographic pressures as its working-age population declines, a trend that can reduce the available workforce while increasing demand for certain public services.
Macdonald said technology will play a key role in adapting to those changes.
“As our working age population reduces, we know that digital transformation is essential to being increasingly efficient and sustaining service delivery,” she said.
“We’re ensuring there is a clear focus on this, and our Change Programme is moving ahead.”
Digital transformation programmes in local government typically involve expanding online services, modernising internal systems and using data to improve efficiency.
Recognition for council staff
The council leader also used the response to thank employees for maintaining services despite financial and staffing pressures.
“Finally, I would like to take this opportunity to thank all council employees for their hard work which these findings are testament to,” she said.
“We know that it is their commitment that means that we maintain high-quality services for the community we serve when facing staffing and financial pressures.”
Audit to be reviewed by councillors
The full audit report will now be considered by elected members at a forthcoming meeting of Shetland Islands Council.
The document was produced by the Accounts Commission with support from Audit Scotland, which carries out independent scrutiny of public spending.
Once reviewed, councillors will determine what further actions may be required to address the financial outlook outlined in the audit.
The Best Value Audit report is available publicly through the Audit Scotland website.
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