Scottish Local Government External Debt Budgeted To Rise By £3.2 Billion

Scotland’s councils and other local-authority bodies have budgeted for combined external debt to reach almost £28.8 billion during 2026–27, as borrowing remains the principal source of capital finance for schools, housing, roads and other public infrastructure. The figure is a budget estimate rather than money already borrowed, but it represents a growing claim on future local budgets.

External debt across Scotland’s local-government system is budgeted to rise from a provisional £25.617 billion in 2025–26 to £28.793 billion in 2026–27.

The planned increase is £3.176 billion in one financial year, equivalent to approximately 12.4 per cent.

The figures come from the Scottish Government’s annual Provisional Outturn and Budget Estimates return, which compares provisional financial results for 2025–26 with the budgets approved or planned for 2026–27. The publication covers 50 local-authority bodies, including Scotland’s 32 councils, valuation joint boards, regional transport partnerships and the Tay Road Bridge authority.

External debt includes gross external borrowing, finance leases and other long-term liabilities. It does not mean councils have borrowed £28.8 billion to pay ordinary running costs.

Local authorities generally borrow to finance assets expected to remain useful for many years, including schools, care homes, council housing, roads, flood defences, vehicles, machinery and other public infrastructure.

Borrowing can allow the cost of a school, housing development or major road project to be spread across the generations expected to use it. It also commits future council budgets to interest and repayment costs, reducing the money available for services years after the original spending decision was made.

The £28.793 billion figure is a budget estimate rather than a final result. Councils may borrow less than planned, postpone projects or alter how investment is financed. It nevertheless shows the financial direction local authorities are preparing for during the current year.

Borrowing Remains The Main Source Of Capital Finance

Capital expenditure across Scottish local government was provisionally reported at £4.461 billion for 2025–26 and is budgeted to rise to £5.318 billion during 2026–27.

That represents an increase of £857 million, or approximately 19.2 per cent.

The amount of capital investment expected to be financed through in-year borrowing is rising more sharply. It is budgeted to increase from £2.228 billion in 2025–26 to £3.349 billion in 2026–27, a rise of £1.121 billion, or just over 50 per cent.

Borrowing was the primary source of capital finance in 2025–26 and is expected to remain so in 2026–27. Grants and other contributions provide another substantial part of the funding required.

Education is one source of increased capital spending. The Scottish Government says annual education investment during the five years from 2024–25 to 2028–29 is expected to average around £300 million more than during the preceding five-year period, partly reflecting the rollout of the Learning Estate Investment Programme.

Other borrowing may support housing, transport, social-care facilities, environmental projects and the replacement or repair of ageing council assets.

The national totals do not establish whether each investment is affordable or represents good value. Those questions can only be answered by examining individual councils’ capital programmes, treasury-management strategies, project costs and audited accounts.

External Debt Does Not Show The Full Underlying Borrowing Requirement

The figures also record a Capital Financing Requirement of £28.468 billion for 2025–26, rising to a budget estimate of £31.222 billion in 2026–27.

The Capital Financing Requirement measures the amount of capital expenditure an authority has decided should ultimately be supported by borrowing or another credit arrangement. Repayment must be met from future budgets.

It is therefore an indication of local government’s underlying need to borrow, rather than a record of external loans already taken out.

The requirement is higher than external debt because councils can temporarily use existing cash balances instead of borrowing the full amount from outside lenders. The Scottish Government describes local authorities collectively as “under-borrowed” because external debt remains below the underlying financing requirement.

That does not mean the borrowing requirement has disappeared. It means part of it is currently being financed internally.

Should councils later need those cash balances for other purposes, they may borrow externally to replace them. The £31.222 billion Capital Financing Requirement therefore provides a broader indication of capital spending that must ultimately be supported through future council finances.

Reserves Are Expected To Fall

The capital plans sit alongside continuing pressure on councils’ day-to-day finances.

General Fund and harbour reserves were provisionally reported at £2.775 billion at the end of March 2026 and are budgeted to fall to £2.617 billion by March 2027.

Councils collectively expect to use £274 million of reserves to support their 2026–27 revenue budgets.

Net revenue expenditure is budgeted at £17.254 billion, with education accounting for around half of General Fund service spending and social work accounting for approximately 31 per cent. Together, those services represent about 81 per cent of the total.

Revenue expenditure and capital borrowing serve different purposes. Councils cannot ordinarily borrow simply to fill gaps in the annual cost of services.

The figures nevertheless show financial pressure on both sides of local-government finances. Councils are drawing down reserves to support current services while planning greater borrowing to finance long-term assets.

The Accounts Commission reported in June that Scotland’s 32 councils faced a combined revenue budget gap of approximately £529 million in 2026–27, despite a small real-terms increase in Scottish Government funding.

It also found that capital funding had fallen by 15 per cent, requiring councils to borrow more for housing and other infrastructure and increasing their exposure to longer-term financial risk.

COSLA, which represents Scotland’s councils, said the local-government capital allocation in the Scottish Budget was £681.4 million, compared with the £844 million it had requested.

COSLA is an interested representative body rather than an independent auditor, but its figures help explain why councils may be relying more heavily on debt. Buildings, roads and other assets continue to require investment when direct capital funding fails to cover planned expenditure.

Debt Is Neither Automatically Wasteful Nor Automatically Safe

A rising debt total is not evidence by itself of financial mismanagement.

Failing to invest can create its own costs. Schools, roads, bridges, housing and care facilities can become more expensive to repair when essential work is postponed. Poor buildings may also increase energy bills, disruption and the need for temporary accommodation.

The relevant questions concern what has been built or purchased, how long it is expected to last, what the full financing cost will be and whether the public retains an asset worth the total amount paid.

The national figures do not show how the £28.793 billion is distributed among individual authorities, which councils are planning the steepest increases or how much of their future income will be committed to financing costs.

Nor do they establish whether major projects have stayed within their original budgets.

The Scottish Government has published the council-level source data in supporting capital and revenue workbooks. Any comparison between councils must account for population, asset ownership, council-housing responsibilities, service demands and the scale of local infrastructure. A major city will normally hold more debt than a small rural or island authority, without that difference alone demonstrating greater financial risk.

Every council publishes a capital programme and treasury-management strategy. Those documents should identify the projects being financed, expected borrowing, debt maturity, interest-rate exposure and the proportion of annual income committed to financing costs.

That committed share is often more revealing than the total debt figure. As interest, repayments and long-term contractual obligations take a larger portion of council income, elected members have less room to respond to new pressures without increasing charges, using reserves, postponing maintenance or reducing services.

Scotland’s rising local-government debt is therefore a transfer of costs across time. It may finance schools, homes and infrastructure that communities genuinely need. It also places a greater obligation on future residents and future councils.

Before further borrowing is approved, councillors should be able to explain what the public will own, how long it should remain useful, what the full expected financing cost will be and which services would carry the consequences if those assumptions prove wrong.

The statistics were first published on 30 June 2026. The Scottish Government updated the publication on 24 July after Stirling Council supplied previously missing Council Tax Reduction revenue data. The government said that revision affected the revenue workbook only and did not alter the reported national capital or external-debt totals.