Scotland’s councils need to ‘innovate at pace’ and make ‘difficult decisions about cuts to services’ to remain financially sustainable, a report by spending watchdogs has warned.

A study by the independent Accounts Commission in Scotland reveals that while no councils north of the border were at financial risk in 2022-23, ‘there is no certainty this will continue’.

With many councils in England and Wales having warned they face severe financial challenges that led some to declare effective bankruptcy, authorities in Scotland were largely praised for their financial management throughout 2022-23.

But the Accounts Commission study, published on 16 January, warns that could change due to continued high inflation, soaring costs and limited cash earmarked for local services rather than ring-fenced national priorities for 2023-24.

The report states: ‘Despite more core funding from the Scottish Government for 2023/24, there was a significant increase in councils’ total funding gap, due to pressures including increased demand for services, inflation and the cost-of-living.