Key Points
- Higher Scottish Government revenue grants meant to cover the inter-island ferry deficit did not build up local reserves or leave the council with extra cash.
- Money freed up from ferry funding went straight into paying for rising costs and higher demand in adult social care and children’s services.
- Shetland Islands Council’s general fund spending rose by £33.217 million between the 2021/22 and 2025/26 financial years, a 27 per cent increase.
- General expenditure grew by an average of £8.304 million each year over that four-year period.
- Council officers wrote the financial briefing note to explain why reserve drawdowns stayed high despite the extra government funding.
Shetland (Edinburgh Daily) October 16, 2026 — Additional funding allocated to Shetland Islands Council (SIC) to offset the deficit of running inter-island ferries has failed to create spare capital, as rising operational costs across municipal services have absorbed the released money.
A detailed financial briefing note prepared for elected members has clarified the reasons behind the local authority’s continued financial pressures.
The formal clarification was drafted following persistent inquiries regarding why the council’s overall financial health had not improved despite securing tens of millions of pounds in government grants.
As reported by Chris Dyer of Shetnews, finance manager Paul Fraser stated in a official briefing note that “The key point is that increased ferry grant has not accumulated within reserves or provided a direct financial windfall.”
Fraser further explained that “The funding released from ferry operations has been absorbed by increasing demand and cost pressures across council services.”
How Has the Ferry Grant Allocation Evolved Over Recent Financial Years?
The local authority traditionally allocated millions of pounds from its internal budget to cover the structural deficit generated by running inter-island ferry services across the archipelago.
Following extended political campaigning, the Scottish Government initially announced a grant allocation of nearly £10.8 million in 2021 to assist with inter-island transport costs.
According to figures published in the briefing, the council received £10.784 million from government sources in the 2021/22 financial year for ferry services.
To maintain the service, the council topped up that government grant with nearly £6 million from its own core funds during the same period.
During that financial year, the local authority was required to draw down nearly £30 million from its general reserves to maintain full service provision.
The financial briefing note outlined that the council’s historical core budget “always contained an element of contribution to ferry costs” rather than moving from zero to modern levels overnight.
By the 2023/24 financial year, total running costs for the ferry network grew to approximately £23 million, which was matched by an equivalent government revenue grant.
Despite receiving full grant matching for ferries in 2023/24, overall council operational expenditure rose by an additional £9 million across all departments.
Although the council’s broader funding settlement increased by £4.3 million that year, the net use of local reserves grew by a further £4.76 million.
In recent budget cycles, total ferry support funding from external sources has exceeded £20 million per year to match inflation and operational fuel costs.
Why Are Expenditure Pressures Rising Across Broader Municipal Services?
The internal report emphasizes that significant cost drivers outside of maritime transport have placed unprecedented pressure on the council’s general fund.
Primary areas driving expenditure growth include statutory adult social care provision, residential placements, and children’s services across the island chain.
Between the 2021/22 and 2025/26 financial periods, the council’s overall general fund expenditure expanded by £33.217 million.
This increase represents an overall budget expansion of 27 per cent over four years.
The data demonstrates that general expenditure grew at an average annual rate of £8.304 million.
As reported by Chris Dyer of Shetnews, Paul Fraser highlighted that “between 2021/22 and 2025/26 overall general fund expenditure increased by £33.217m (27 per cent), equivalent to average annual growth of £8.304 million per year.”
The continuous growth in statutory service delivery costs has counteracted the financial relief achieved through full ferry funding.
Consequently, capital released from internal transport budgets was reallocated to sustain essential social care and education commitments.
What Is the Background of This Financial Development?
For decades, Shetland Islands Council bore a substantial proportion of the financial burden of operating its inter-island ferry fleet, which acts as the primary transport infrastructure linking island communities.
Unlike the Western Isles, where coastal ferry routes receive direct subsidies from the Scottish Government via CalMac, Shetland’s internal ferries were historically owned and operated directly by the local authority.
Years of lobbying by local politicians and community leaders led to national commitments to cover the revenue deficit associated with inter-island routes.
The Scottish Government began providing dedicated, ring-fenced ferry grant funding in 2021 to ensure fair funding parity with other island regions.
While the revenue grants successfully removed the deficit specifically associated with maritime transit, simultaneous macroeconomic pressures—including post-pandemic inflation, rising energy tariffs, and increased demographic demand for social services—rapidly increased local authority running costs across the council’s remaining departments.
How Will This Financial Realignment Impact Island Residents and Council Taxpayers?
This financial reality indicates that Shetland Islands Council remains under severe budget constraints despite national government interventions in transport funding.
Because elevated ferry grants have been fully absorbed by rising demand in statutory services, local taxpayers are unlikely to experience council tax reductions or significant expansions in discretionary public services.
Elected members will face ongoing pressure when balancing annual budgets, as reliance on financial reserves to cover operational deficits remains high.
For the local population, public funding will increasingly be prioritized toward essential social care and statutory obligations, leaving limited capital for non-statutory community projects or capital enhancements.
Furthermore, council departments outside of social care may face continued budget scrutinization and efficiency drives as leadership seeks to stabilize annual expenditure growth across the local authority.
