Budget Setting for 2026/2027 - Explainer

Orkney Islands Council's Policy and Resources Committee met today to set the Council's budget for next year.  The decisions from today will come to a meeting of the Full Council next Tuesday (10 March).  Here are the key things you need to know. 

What’s been happening today?

The Council’s Policy and Resources Committee met today to discuss our budget for 2026/2027. 

They looked at how much we need to spend this year to provide services to the local community, how much funding we’re getting from the Scottish Government to do that and how to fund the gap, through for example increasing Council tax or taking money from our reserves.

Can I read the report or listen to the meeting?

You can access the papers for the meeting here Policy and Resources Committee and listen to a recording of the meeting here - OIC Policy and Resources Committee - 3 March 2026 by Orkney Islands Council

How much money does the Council spend on services each year?

Our budget for financial year 2026/27 has been set at £153,346,600

Are there any specific additional costs that the Council is facing this year?

Yes. We have unavoidable additional costs amounting to £2,510,000 this year.

Since 2024/25, £4.7M of spending pressures have been added to the budget in order that we can protect essential services for the most vulnerable in our community – particularly to deliver adult support and care services, children's services and to meet additional support needs.

How much funding are we getting from the Scottish Government?

Provisionally, as the budget is not fully set until next week, the Scottish Government is giving us £120,130,000, which is around 78% of our annual budget for 2026/27.

Where will the rest of money come from?

To meet the gap between how much money we need to provide services to our community and how much we get from the Scottish Government, we can charge Council Tax, charge for services and take money from our reserves.

What are you proposing to increase Council Tax by?

The recommendation from Policy and Resources today was to increase Council tax by 6%. This will take a Band D property from £1,574.60 a year to £1,669.07 - or an additional £1.82 a week.   This will generate an additional £605,000 a year to help protect Council services.

How does this compare to other areas in Scotland?

The average increase across Scotland is expected to be around 7.75% - with increases being proposed in other Council areas for this year between 4.0% and 10.0%. Our proposed increase of 6.0% would give an estimated rank of 18^th out of 32 in the table, moving us to just below the midpoint – and we’d be one of the lowest increases in Scotland. In Shetland Council Tax is increasing by 7.3%, in the Western Isles it’s 8.5%

In March 2024, in order to make services sustainable, we agreed a strategy to bring Council Tax up to the national average by 2027. Last year we took the difficult decision to increase Council Tax by 15% to help us reach that average position, to ensure services could be protected.  That increase took us to 12th.  

It’s worth noting that some Councils generate relatively high levels of income from Council Tax with the average across Scotland at 18-19%. In comparison, we get around 9% of our income from Council Tax. This is partly due to the impacts of the Council Tax freeze and partly because we have fewer high banded properties.

Why is it important that we stay at an average for Council Tax?

Our costs for running Council services are far from average – in fact they are amongst some of the highest in the country due to the fact that we’re an island authority, with additional demands on our services such as increased transport or energy costs. 

For a number of years, we were at or near the bottom of the table and that was unaffordable. The Council Tax level today represents the best balance between reliance on Council Tax receipts and reliance on use of the strategic reserve fund.

We don’t want to be close to the top of the table either as we don’t feel like that would be fair on our local community – therefore we’ve aimed for the middle. By seeking to set Council tax in Orkney at the average level for Scotland, we are not passing on that additional cost to deliver services onto Orkney residents. We also know that having an average level of Council Tax puts us in the optimum position to lobby the Scottish Government for more funding.

What is the floor and why are we paying more this year?

The Scottish Government’s floor mechanism is designed to protect Councils by ensuring a consistent minimum increase or maximum decrease in funding across all Councils.  Councils who have had a lower level of funding cuts have to pay into a pot that is then distributed to Councils who have had significant funding cuts.   

In 2025/26, we contributed £267,000 to the floor, this year we have to contribute £1.7m. It is possible this will reduce next year.

Are you going to be charging more for some services?

Yes, there will be a general increase in Council charges of 3.8%.

How much will you take from reserves?

The draw on the Strategic Reserve Fund for 2026/27 has been set at a maximum of £20,000,000.

Is that constant draw on reserves sustainable?

No, it isn’t, in the same way that constantly dipping in to your own savings to pay your own household bills wouldn’t be sustainable.

For this year we’ve set a maximum draw of £20m. While this is an increase in cash terms from last year it represents a proportional reduction in the reliance on reserves to fund our net budget from a high of 18% in 2024/25 to 13% of our budget in 2026/27.

In February 2024, the Policy and Resources Committee recommended a budget strategy to reduce the overall net draw on reserves over a 3-year period from £20,000,000 to £18,000,000 to £15,000,000.

For us to achieve that target for 2026/27 we needed to reduce the draw on reserves by £3,000,000 - but significant budget pressures are making it very difficult to achieve savings at this level – remember, since 2024/25, £4.7M of spending pressures have been added to the budget.

In future years, initiatives like the Quanterness Community Windfarm are expected to generate income for the Council to help us make our withdrawals from reserves more sustainable.

Instead of increasing Council tax and other charges and taking more from the reserves, can you not make savings elsewhere – cut staff costs for example?

Our annual budget surveys consistently highlight to us that the services we provide are important to the local community - you can read feedback on this year's budget survey at www.orkney.gov.uk/budget2026.

Our focus therefore is on providing these services in such a way that we maintain them to a level that local people expect, whilst also not stretching our resources – including our staff - to breaking point.

That said budget saving proposals of £247,000 were considered by Elected Members today including reducing our Economic Development budgets, reviewing some of the funding we provide to external organisations and the sale of property.

Is Orkney Islands Council alone in facing a budget challenge?

Absolutely not. All Councils across Scotland are having to make difficult decisions around service reductions, increased reliance on reserves and borrowing, and raising Council Tax to bridge unfunded pressures. Without increased funding from the Scottish Government, Councils will continue to face deep financial and operational challenges, with consequences for service delivery, investment capacity and longer‑term financial sustainability.

Councils are collectively forecasting a £528 million budget gap for 2026/27. This gap exists even before we consider pressures within Health and Social Care Partnerships, which alone face an ongoing shortfall of around £497 million from 2025/26 that is expected to rise due to increasing demand and complexity of care needs.