Local Government 2025-26 Provisional Outturn and 2026-27 Budget Estimates

Revenue Expenditure

Revenue expenditure is the cost of delivering services each year and includes both service operating costs and overheads. These costs might include salaries, rent, building maintenance, supplies and services. The benefits from revenue expenditure are mainly received within the financial year.

Net revenue expenditure (NRE) is the element of revenue expenditure funded by general funding or reserves. It is calculated as gross service expenditure minus gross service income. Gross service income is any income received directly relating to services, such as service-specific grants or fees / charges received for the provision of services. Net revenue expenditure is therefore directly influenced by the amount of service income received, i.e. an increase in service income will reduce net revenue expenditure, and a decrease in service income will increase net revenue expenditure. Where service income is greater than service expenditure, a service would have a negative net revenue expenditure, i.e. net income. Individual local authority level figures can also be affected by large, one-off payments in any year, for example Equal Pay back-pay settlement expenditure.

The Revenue POBE collects net revenue expenditure for all General Fund services only. Revenue figures exclude amounts relating to a local authority’s direct provision of housing which is recorded in the Housing Revenue Account (HRA). However 2025-26 budget estimates for local authority’s HRA were published in the Housing Revenue Accounts Statistics in March 2026. It should also be noted that for the purposes of the Revenue POBE return and this publication, Trading Services includes amounts relating to Harbour Accounts. These are separate accounts and reserve funds specifically for harbour undertakings held by Orkney Islands and Shetland Islands councils only.

Local authorities have reported, for the general fund, provisional outturn net revenue expenditure of £16,479 million in 2025-26, and have budgeted net revenue expenditure of £17,254 million for 2026-27. This is an increase on the £15,422 million seen in 2024-25, and higher than all the three preceding years (Figure 1).

This is an increase of 6.9% (£1,057 million) in 2025-26, compared to the net revenue expenditure figure of £15,422 million seen in 2024-25. Around half of this increase can be attributed to the baselining of £524.9 million into the General Revenue Grant (GRG)[1]. The main funding lines included in this baselining exercise are: the Living Wage (£355 million); Teachers’ Pensions (£86.2 million); Teachers’ Pay (£43 million); Free Personnel Nursing Care (£21.5 million), and; Mental Health (£15 million). This funding was previously classed as gross income in the net revenue expenditure calculation (NRE = Gross Expenditure minus Gross Income). However, baselining it into the GRG leads to a corresponding increase in NRE. NRE is estimated to increase by a further 4.7% (£775 million) in 2026-27.

Figure 1: General Fund Net Revenue Expenditure for 2022-23 to 2026-27, £ millions

Source: POBE 2026 Return, LFR 00

Figure 2 provides a summary of the 2025-26 provisional outturn and 2026-27 budget estimate for net revenue expenditure against the SLGFS net revenue expenditure from 2024-25 by service. Education and Social Work continue to be the services with highest net revenue expenditure in both years. These services account for around 80% of general fund net revenue expenditure in all years since 2022-23.

Education has the highest net revenue expenditure, with provisional outturn of £8,229 million in 2025-26, and a budget estimate for 2026-27 of £8,500 million. Education accounts for around 50% of general fund net revenue expenditure in all years since 2022-23.

Social Work has the second highest net revenue expenditure, with local authorities reporting provisional outturn of £5,171 million in 2025-26 and budgeting expenditure of £5,429 million for 2026-27. Social work accounts for around 31% of general fund net revenue expenditure in all years since 2022-23.

Figure 2: Net Revenue Expenditure for 2024-25 to 2026-27 by Service, £ millions

Source: POBE 2026 Return, LFR 00

Local authorities also incur some revenue expenditure and income that is not attributable to specific services, such as interest paid or received, or statutory repayment of debts. As shown in Table 1, local authorities’ provisional outturn (2025-26) and budget estimates (2026-27) figures for “Other Income and Expenditure” are expenditures of £1,175 million and £1,325 million respectively.

General funding principally consists of the General Revenue Grant (GRG) and local taxation, specifically Non-Domestic Rates (NDR) and Council Tax. Local authorities have reported provisional general funding of £17,581 million in 2025-26, and have budgeted for general funding of £18,305 million in 2026-27. The 2026-27 figure includes £20.5 million anticipated to be raised from the Visitor Levy by the City of Edinburgh Council.

Further information on funding of net revenue expenditure between 2022-23 and 2026-27 is available in Figure 3.

Figure 3: General Funding for 2022-23 to 2026-27, £ millions

Please note the following:

• The 2022-23 GRG figures differ from the Finance Circular allocation due to the exclusion of amounts for agency grants paid to local authorities via GRG.
• ‘Other Funding’ includes government grants paid to joint boards and income received through NDR Tax Incremental Financing (TIF) and Business Rates Incentivisation Scheme (BRIS). As this category amounts to less than 1% of the total shown in each year, this category is not visible in the chart, however figures are provided in the ‘POBE 2026 – Tables’ supporting Excel file.

Source: POBE 2026 Return, LFR A0

GRG is paid to local authorities by the SG. The SG guarantees the combined sum of GRG and NDR funding for local authorities in each financial year.

In 2022-23, GRG and NDR funding accounted for around 61 and 19 per cent of General Funding respectively[2]. In 2025-26, GRG funding makes up around 63% of General Funding and NDR makes up around 18%.

More information on the process to determine local government funding from the SG is available in the Local Government Funding: Process Overview publication. Detailed funding figures per local authority are available in the latest Local Government Finance Circulars.

A surplus occurs when a local authority’s revenue expenditure is less than the amount of general funding received. A surplus is added to a local authority’s reserves and carried forward to the next year. A deficit occurs when a local authority’s revenue expenditure is more than the amount of general funding received. Any deficit must be met from a local authority’s reserves. Table 1 shows the surplus / deficit, in addition to the total movement in general fund reserves.

Table 1: Movement in General Fund and Harbour Account Reserves from 2024-25 to 2026-27, £ millions

Please note that the level of reserves held at 1 April and 31 March excludes amounts relating to unrealised gains that are included in revenue reserves in statutory Annual Accounts applying IFRS 9: Financial Instruments. This table also contains Harbour Account reserves and transactions for Orkney and Shetland, which total around £277 million at the end of each year. Further notes are contained in the accompanying Excel tables.

Source: POBE 2026 Return, LFR A0, LFR 23

Across all local authorities, the provisional outturn figures give a deficit of £73 million for 2025-26, less than the deficit of £312 million seen in 2024-25. The deficit figures of £274 million for 2026-27 reflect local authorities continuing to use some of their reserves to fund day-to-day services.

The General Fund balance (including Harbour Accounts) across local authorities at 31 March 2026 was £2,775 million, a decrease from the balance of £2,890 million at 31 March 2025. Local authorities’ budgets give a further decrease in the General Fund and Harbour Account balances to £2,617 million at 31 March 2027.

For context, General Fund reserve balances (including the Harbour Account) were £1,584 million on 31 March 2020 (see LFR 23, row 73 in Scottish local government finance statistics (SLGFS) 2019-20: workbooks)). Therefore, whilst reserve balances remain above pre-pandemic levels for Scotland, they are being brought down.