3.1 Sources of funding

Council budgets are separated into two distinct areas:

• revenue funding for day-to-day services
• capital funding for infrastructure.

Although capital funding cannot be used to run day-to-day services, it will contribute to delivering those services by ensuring that the critical infrastructure that services require – such as land, buildings and equipment – are in place.

Revenue funding

The Scottish Government provides a block grant to councils that makes up around 85% of their net revenue expenditure (Scottish Government, n.d. 1). This block grant has three parts:

• The general revenue grant (GRG), provided to councils by the Scottish Government to support their core local services. Most of this money is not ring‑fenced, giving councils the flexibility to allocate it according to local priorities. However, some elements of the GRG are linked to national policy commitments. While this does not mean that the money is formally ring‑fenced, these amounts are given with the expectation that councils will use them for the intended services (Audit Scotland, 2025).
• Non‑domestic rates (NDR) are taxes on business properties, set and pooled nationally but raised locally. The total income is redistributed to councils using a formula agreed with the Convention of Scottish Local Authorities (COSLA). Each council receives a share based on its latest income returns, helping fund local services as part of overall revenue funding.
• Specific revenue grants are ring‑fenced funds that councils must spend on specific Scottish Government priorities. Allocations vary by council and are detailed in finance circulars. They support targeted policies such as:
  • Gaelic language initiatives
  • early learning and childcare expansion
  • the Pupil Equity Fund
  • criminal justice social work.

Councils also raise local funding to spend on the provision of services:

• Council tax, a local property tax paid by households that councils use to fund services. Councils can only set the Band D rate of council tax, with other band rates then calculated using nationally set multipliers based on 1991 property values (Local Government Finance Act 1992).
• Fees and charges such as parking charges, waste collection or leisure services. Councils can only charge for services where legislation allows it.

From July 2026 councils will also have the power to introduce a visitor levy – commonly known as a ‘tourist tax’ – on overnight accommodation. It will be up to individual councils whether they introduce a visitor levy in all or part of the council area. The funds generated from the levy must be used on services or facilities used by tourists (Scottish Government, n.d. 2).

While council tax, fees and charges are important levers for financing local services, national funding makes up the majority of a council’s budget.

If your council has housing stock, it is required to have a Housing Revenue Account (HRA). This is a ring‑fenced account that the council must maintain to record all income and expenditure related to its housing stock. HRAs must include rental income, income from selling or investing in HRA assets, and expenditure on managing, maintaining, repairing and improving council housing, as well as loan charges for housing‑related borrowing. HRAs are expected to be self‑financing (meaning that income must cover expenditure) and they cannot end the year in deficit (Scottish Government, 2026).

Capital funding

Capital funding supports Scottish councils’ investment in long‑term assets such as schools, roads, buildings, vehicles, and other infrastructure that lasts more than one financial year.

The Scottish Government provides two main types of capital grants:

• A general capital grant forms part of the annual Local Government Finance Settlement and can be used for a wide range of capital projects aligned with local and national priorities.
• Specific capital grants are also part of the annual Local Government Finance Settlement. They are ring‑fenced and must be used for particular projects.

In addition to government grants, councils finance capital spending through:

• borrowing
• capital receipts generated from selling council assets such as land or buildings – these can only be used for new capital investment or debt repayment
• revenue contributions from councils’ own revenue budgets or reserves.

There are strict rules on what a capital budget can be spent on. It cannot be moved over to the revenue budget (Falkirk Council, n.d.).