Urgent Financial Action Needed
A public spending watchdog has urged Shetland Islands Council to take "urgent action" to address a projected £134.3 million budget deficit by the 2029-30 financial year.
The Accounts Commission acknowledged that the local authority provides strong services and maintains a clear vision. However, it cautioned that the council continues to depend heavily on its £394 million reserves to balance its budget, a practice deemed unsustainable by auditors. This reliance could potentially affect future generations of island residents.
Shetland Islands Council acknowledged the significant gap between the funding it receives and the services it is expected to deliver, emphasizing that "difficult decisions" will be necessary to manage this challenge.
Performance and Financial Position
The Accounts Commission noted improvements in the council's performance management arrangements over the past three years. It also commended the council for delivering services with satisfaction levels "among the highest in Scotland." Despite this, the watchdog described the council's financial position as "relatively strong" but warned that the ongoing use of reserves to cover budget shortfalls is unsustainable.
Specifically, the council's 2025-26 budget includes a £43.9 million deficit to be funded from reserves, which the Accounts Commission highlighted as £20.9 million above the council's own sustainable level.
Challenging Economic Environment
Historically, income from oil and gas has been a key contributor to the council's finances, allowing for relatively low tax increases. However, the Accounts Commission expressed concern that even under the most optimistic scenarios, the reserves fund could be depleted.
The commission also raised issues regarding the pace of change within the council, noting that the adoption of digital technology remains at an "early stage." It emphasized that technological advancement is critical to ensuring the sustainability of the local authority's workforce and services.
Andrew Burns, deputy chairman of the Accounts Commission, stated: "We're calling on the council to urgently increase the pace of its change programme, and prioritise the actions that will help it achieve financial sustainability in the medium to long term."
Council Response
Shetland Islands Council leader Emma Macdonald welcomed the watchdog's recognition of the positive work being undertaken by the council. However, she acknowledged the financial challenges ahead.
She said: "The gap between the funding we receive and what services we are expected to deliver is significant – and it is an unsustainable situation.
Despite the extremely challenging financial environment in which we operate, difficult decisions need to be made.
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."
