The three-year funding agreement between local councils in Scotland and the SNP government at Holyrood appeared in severe danger of collapse last night after the 32 local authorities agreed to demand a renegotiation of the deal.

The unexpected move is a setback for Alex Salmond's administration because it will be seen as a big threat to the delivery of the council tax freeze in Scotland - implemented already for this financial year - beyond next April.

Council leaders at an emergency meeting in Edinburgh, held ostensibly to discuss the funding implications for their authorities of providing free school meals from 2010, agreed unanimously to seek a renegotiation of years two and three of the existing three-year overall funding agreement. It was notable that even SNP-led authorities came on board to back the renegotiation demand.

In a statement afterwards from the Convention of Scottish Local Authorities (Cosla), the councils' umbrella organisation said that it would be making use of the commitment in the concordat that allows for the three-year agreement to be reopened. Cosla said they had made this move because of the need to respond to “emerging and exceptional funding pressures”.

Sources among the council leaders said while individual issues such as funding free school meals and smaller class sizes for primaries one to three were the immediate trigger for the move, they were also increasingly worried about the impact on their future budgets of rising inflation, a still unresolved pay deal for council workers and the increasing cost of fuel bills.

They emphasised that while they accepted that a concordat signed between ministers and council leaders last year had committed the authorities to delivering individual policies such as free school meals after a successful pilot scheme, the Scottish government had not set aside sufficient cash for them in the original funding agreement. They believe, for example, that the original £20 million allocation for free school meals is far short of the £50 million needed.

The councils also say that the Scotland-wide concordat they agreed last year, which was aimed at delivering individual policies, is a voluntary and not a legally binding document. They add that single-outcome agreements signed between individual councils and the government that did not mention these individual policy commitments take precedence.

The decision to renegotiate council budgets exposed clear and growing tensions between the Cosla leadership and individual council chiefs. Councillor Pat Watters, the Cosla convener, who played a key part in hammering out the three-year deal with the government, played down talk of a renegotiation because, he said, the concordat allowed for the deal to be revisited.

Other senior local authority figures disputed this, pointing out that there would be no logic in having a three-year funding deal if it were open to renegotiation every year. That point was driven home by Councillor Steven Purcell, the leader of Glasgow City Council, Scotland's biggest authority, who said: “The free school meal pilot evaluation has highlighted a number of issues, such as capacity, capital costs and timetabling, which are not contained within the grant settlement.”

He added: “While I recognise that there's a financial allocation through the concordat to deliver the Scottish government's pledge on free school meals, at this stage, under the current economic climate, I am not prepared to bind Glasgow City Council to any further significant financial commitments for our budget in the year 2010-11. It would be foolish for any local authority to do so.”

That settlement contained an allocation to councils of £70 million to allow council tax to be frozen for this financial year. It was being made clear last night by councils that for the freeze to continue for the following two years, more cash would now be required.

Councils were given an additional £100 million for the period up to 2010-11, taking the total settlement for the authorities to £34.8 billion. Under the deal, no council received less than a 3.4 per cent funding increase for 2008-09, 3 per cent for 2009-10 and 2.5 per cent in 2010-11.

A Scottish government spokesman said: “Central government talking to local government is the concordat in action. The government received the worst funding settlement from Westminster since devolution last year but we passed on a larger share of the budget to local government.”

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