COUNCILS could face a “really challenging” year depending on how the Scottish Government funds its council tax freeze, an economist has suggested.

David Phillips of the Institute for Fiscal Studies (IFS) said the freeze, announced by First Minister Humza Yousaf in his speech to the SNP conference, would be of little benefit to those on the very lowest incomes.

The Scottish Government has said it will “fully fund” the freeze to ensure local services can continue.

However, Cosla has reacted with anger at the freeze, saying the decisions should have been left to councils.

It comes after the Scottish Government identified a £1 billion spending shortfall next year, which could almost double within three years.

Mr Phillips said local authorities were already feeling financial strain, even under the assumption they would be able to raise taxes by 5%.

He said: “Even with a 5% council tax rise, we thought that councils could need to make cuts to quite a range of services next year, given rising pressures for social care services.

“Even if the Scottish Government fully funded a 5% equivalent, next year would still be very tough for Scottish councils.

“Of course, if they only fund 2% or 3%, that makes it really challenging.”

While detailed figures around the council tax freeze are not yet available, he estimated that funding to compensate a 5% increase would be about £150 million.

However, councils may also have been expecting additional income from new tax bands on expensive properties, he said, potentially adding on as much as £100m.

In terms of who would benefit the most from the freeze, many of those on the lowest incomes receive council tax reduction schemes.

As a percentage of income, those on lower to middle incomes benefit the most while, in cash terms, the richest households gain the most as they tend to live in more expensive properties.

Mr Phillips said: “The poorest don’t really gain at all, lower middle incomes gain the most in percentage terms, highest-income households gain the most in cash terms.”