Revealed: Edinburgh engulfed by 'frightening' £1.7bn sea of debt
The Herald can reveal that the debt incurred by the City of Edinburgh Council has risen by over £300m since before the pandemic and now exceeds what was actually spent on city services in 2023/24 by nearly half a billion pounds.
Concerns about how the capital will run vital services have surfaced as the council admits in one recent analysis that "radical change" is needed "to achieve organisational financial sustainability".
Financial papers show that its overall debt, the vast bulk of which is short-term and long-term borrowing has soared by £309.7m (21.8%) since the pre-pandemic year of 2018/29 to stand at £1.732bn.
And internal council predictions indicate that end of year debt mountain could soar as high as £2.877bn in 2029/30.
The latest level of debt is £450m more than the £1.279bn that the city was spending in 2023/24 on services, which ranges from the provision of education, social work and waste management to the provision and maintenance of housing, roads, libraries and parks.
The escalating debt in Glasgow, Scotland's biggest city serving over 620,000 people to Edinburgh's 510,000, by contrast, was £242m lower than the £1.85bn it had to spend on services.
And the interest payments on borrowing and loans by the Edinburgh council over the six years since the pre-pandemic year of 2018/19 amount to £553m - enough to provide over 2600 settled affordable homes for the homeless who are left to live in temporary accommodation in the capital's housing emergency declared in November 2023.
Edinburgh is preparing to implement a tourist taxThat servicing of debt has shot up by £23.4m (30%) in recent years from £76.773m in 2021/22 to £100.212m in 2023/24.
The issues have arisen while the council has seen the grant it gets from the Scottish Government rise from £363.757m before the Covid pandemic in 2018/19 to £552.075m in 2023/24.
It comes as the minority Labour administration controversially plans to implement a 5% tourist tax on overnight accommodation, capped at seven nights from July, next year. The levy is expected to generate up to £50m annually.
Critics have raised concerns about its potential impact on affordability, visitor numbers, and the hospitality sector as the tax will affect hotels, bed and breakfasts, self-catering accommodation and properties listed on platforms like Airbnb.
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And the council has said it believes that tourist tax will help bankroll its world-famous Hogmanay celebrations.
It says it has already suffered a decade of "chronic underfunding" which has necessitated £400 million in savings over ten years - which amounts to around a third of what it was spending on services in 2023/24.
Edinburgh-born Alba Party leader and former Scottish justice secretary Kenny MacAskill said the state of Edinburgh's finances was "both staggering and frightening".
Kenny MacAskill"Scotland's capital city is in danger of drowning in a sea of debt. A visitor levy won't cover it and, in any event, requires to be used for tourist related purposes to justify it.
"Nor will it address the homelessness problem that's now endemic and hurting individuals, families and the city. The council administration needs to come clean on the extent of the problem and the Scottish Government needs to assist not stand idly by. Citizens are entitled to no less."
The council's own overview of its financial state states that it predicted a funding gap of over £94.2m by 2029/30.
And it said there was "therefore a risk that the council is unable to perform financial planning; deliver an annual balanced budget, manage cash flows; and confirm the ongoing adequacy of its reserves, meaning that it is unable to continue to deliver services and implement change in line with strategic objectives...and/or be at risk of an adverse external audit opinion".
And their auditors in preparing an analysis of the council's financial performance in 2024/25 in February said that financial sustainability "remains a risk" because of the huge funding gap by 2029/30 alone with associated "challenges" including "pressures for frontline services".
But a longer term council projection has revealed a darker picture which predicts an average funding black hole of over £22m each year till 2034/34. That is based on a conservative assumption that there would be a 3% annual increase in staffing and other costs and 'flat cash' levels of grant funding settlement from government.
And the study warns that this "reinforces the need for radical change, prioritisation and adoption of a prevention-led operating model".
Internal service risk assessments show that with the city in the midst of a homelessness emergency, the housing pressures are almost certainly critical with organisational financial sustainability and financial control seen as "likely to be critical".
But new end of year debt estimates show that it is expected to escalate to £2.4bn in 2026/27 and 2.877bn in 2029/30.
(Image: Damian Shields) Its annual Treasury Management Strategy approved in March 2024, noted that the council had reached the limit in resources for funding for major capital projects by dipping into short-term investments and "requires to undertake significant external borrowing".
The council has admitted to its auditors that the levels of borrowing "will bring significant financing risks".
Local government finance scrutineers, the Accounts Commission has told the council: "We do not underestimate the major infrastructure challenges facing Edinburgh, in particular around housing and the school estate, but such levels of borrowing bring risks that could impact future financial sustainability."
According to council sources, it has borrowed £290m during the 2024/25 financial year alone- with £170m going toward the management of its social housing stock.
That came before the council at the end of April suspended its housing policy amidst a homelessness emergency.
The unprecedented move saw all available council-owned housing stock immediately redirected toward people experiencing homelessness until at least June 13, 2025.
It was part of Edinburgh's plan to get its worsening housing crisis under control, and it comes after Shelter Scotland raised concerns in 2024 over the council 'not showing the desire' to tackle legal breaches in the right to have a roof over your head.
A council housing study showed that the council has failed to accommodate people on 3,263 occasions in the past year – a 115% rise from 2023/24.
And as of 31 March 2025 there were 970 homeless households in what it admits is unsuitable temporary accommodation. It had approved a programme to purchase up to 270 properties for use as suitable temporary accommodation.
The council is now planning to 'build, build, build', but it is at a price.
Future projects include the building of 847 new homes, including 387 affordable, energy efficient homes, as part of a Granton area regeneration project.
With capital investment of £220.797m planned for 2025/26, it has meant that the council needs to borrow £127.667m. That loan alone over a 30-year period will incur interest of £99.893m, The Herald has learnt.
The council's own auditors have already highlighted to them that the scale of the shorter-term budget gap to 2028/29 will mean the council would find it "increasingly difficult to achieve financial balance in future years".
"Members will need to make difficult decisions about spending priorities, service levels and income generation whilst ensuring the results of public consultation exercises are taken into account," they said.
Auditors highlighted a risk that "operating in a challenging financial context without medium-term financial planning can compromise financial resilience and sustainability."
Princes Street (Image: Colin Mearns) The council's latest financial planning says that while it has a "strong track record of balancing our budget, the funding and income we receive has increasingly been insufficient to meet the rising cost and demand for services, such as homelessness and social care costs".
The council's own risk assessments for the final quarter of 2025 shows that housing pressures are almost certainly critical with organisational financial sustainability and financial control "likely to be critical".
A February overview from Richard Lloyd-Bithell, a finance and procurement director said that the council does not have medium term financial plans "consistent with sustainable service plans".
He said: "This will result in sustainable aspirations including transformation being unobtainable."
Edinburgh set ambitious targets and strategies for sustainable development, including achieving net zero emissions by 2030 and a climate-ready future. The City Plan 2030 guides future development, emphasizing green spaces, climate action, and sustainable practices. This plan aims to create sustainable neighbourhoods, reduce carbon emissions, and protect and enhance the city's natural spaces.
Its transformation strategy has a vision of providing an "exceptional city centre that is for all, a place for people to live, work, visit and play".
"Finance must support services to create sustainable plans and proposals to deliver services within an affordable financial envelope," said Mr Lloyd-Bithell.
"Finance must provide reports and effective challenge to hold service managers to account to ensure services do not overspend their agreed budgets."
The Liberal Democrats' Edinburgh council group leader Ed Thornley said the state of the city finances "show there is a titanic gulf between what the SNP have provided and what councils say they actually need to maintain basic local functions".
Ed Thornley (Image: Lib Dems) He said: "Local authorities have had a raw deal from the SNP over many years and that has had a knock-on impact on the provision of vital local functions.
"The SNP have demanded councils do more with less. As a result, we have ended up with school cuts, bin strikes and shortages of elderly care packages.
"Local government deserves long-term central government funding deals which adequately meet its needs and provide locally delivered public services. That is what people rightly expect.'
The Scottish Government said individual local authorities are responsible for deciding the level of their affordable borrowing, having regard to the Chartered Institute of Public Finance and Accountancy's Prudential Code, which has been given legislative backing.
They said that it was for each local authority to have "effective arrangements" in place to ensure that capital expenditure and investment plans are "affordable and proportionate and that all external borrowing and other long-term liabilities are within prudent and sustainable levels".
A Scottish Government spokesman said: 'In 2025-26, City of Edinburgh Council will receive over £1 billion to support day to day services, which equates to an extra £60 million or an additional 5.9% compared to 2024-25.
"Local authorities are required by law to ensure borrowing is affordable, prudent and sustainable. Regulations require a local authority to set an authorised limit for external debt."
Edinburgh council's finance and resource convener Mandy Watt accepted that savings were needed and more revenues were required and said: "While Edinburgh has a long track record of strong financial management and delivering a balanced budget year after year, the challenges are increasing."
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