Could financial pressures cause a Scottish council to go bust, and what would happen?

There are better safeguards north of the border, but no local authority is immune from disaster

When Birmingham City Council became the latest local authority to effectively declare itself bankrupt, it laid bare the ongoing financial crisis at the heart of local government. It is the biggest council to fail so far, but amid deep and systemic funding issues, there are fears it will not be the last.

Is it just a matter of time before a Scottish council suffers the same fate? If, and it is a big if, one of the nation’s 32 unitary authorities was unable to agree on a balanced budget, it would find itself in uncharted territory. There have been concerns around several councils in the past, but so far, all have avoided the worst-case scenario.

A minor, though not unimportant, point is that there is no such thing as bankruptcy in Scotland, where the technical term is sequestration. More significantly, councils cannot go bust in the same way that individuals or companies can. There is no legal avenue for them to be liquidated and, in any case, the legislation is different in Scotland, where local government finance is devolved. In practice, however, councils in Scotland are obliged to balance their books. If they cannot deliver a plan for a balanced budget, a chain of call-ins via external auditors could ultimately see Scottish Government civil servants taking over.

The notorious section 114 notice issued by Birmingham City Council and other English local authorities, which essentially ceases all new spending commitments, does not apply in Scotland. But again, in practice, a council’s chief finance officer could take a near identical approach; a meeting of the council would be called to try to pass an amended budget and, if all avenues – such as spending freezes and redundancies – are deemed exhausted, the panic button would be hit.

But how likely is it that a Scottish council will suffer the same fate as Birmingham, Croydon, Thurrock, Slough, and Woking? Any cross-border comparison is notoriously problematic due to longstanding structural differences – all direct funding for health in Scotland, for example, is rout