Shetland Islands Council warned not to rely on its £394m reserves

A public spending watchdog says Shetland Islands Council needs to take "urgent action" to tackle a £134.3m projected hole in its budget by 2029-30.

The Accounts Commission said the local authority had strong services and a clear vision, but warned that it continued to rely on its £394m reserves to balance its budget.

Auditors said the situation was unsustainable and could have an impact on future generations of islanders.

Shetland Islands Council said the gap between the funding it received and what services it was expected to deliver was "significant", and "difficult decisions" would need to be made.

The Accounts Commission said the local authority had improved its performance management arrangements over the last three years.

It also praised the council for its delivery of services, with satisfaction levels "among the highest in Scotland".

The watchdog said the local authority was in a "relatively strong financial position", but added that its continued use of reserves was unsustainable.

Shetland Islands Council's 2025-26 budget included a £43.9m deficit to be funded from reserves.

The Accounts Commission said this was £20.9m above the council's own sustainable level.

Oil and gas have historically been key income streams, allowing relatively low tax increases.

But the Accounts Commission said there was a risk the fund would be depleted even under the most "optimistic scenario".

It also raised concerns about the speed of change at the council, pointing out that its use of digital technology was still at "an early stage".

The commission said technology was critical to making the local authority's workforce and services sustainable.

Andrew Burns, deputy chairman of the Accounts Commission said: "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."

Shetland Islands Council leader Emma Macdonald welcomed the watchdog's recognition of the positive work the local authority was doing.

But she added: "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."