A new report highlights that the Council faces a financial challenge on an unprecedented scale unless there is a dramatic change in government funding to cover the response to the COVID-19 crisis.

Whilst the Scottish Government has channelled an extensive package of financial support through local government to support the local partnership response to the pandemic including the provision of support grants and rate reliefs to businesses, the financial costs and pressures incurred to date along with those deemed necessary in future are significantly in excess of the additional funding being made available and are not containable within approved budget levels.

As a result East Lothian Council faces funding gap in 2020-21 of around £15 million. There is a high risk of the funding gap increasing further as the Council progresses down the long road to recovery. The Council:

  • Has seen Council Tax revenue fall by around £850,000 as of the end of May relative to the same period last year
  • Faces a loss of income, relating to closure of facilities and anticipated fees and charges, of around £4.5 million
  • Faces significant expenditure to facilitate the safe return of staff and pupils to schools which could be in excess of £10 million – IF the contingency of ‘blended learning’ is required from August*

The council also faces challenges in delivering the £3.2 million of planned savings in 2020/21, due to work effectively placed on hold to enable the workforce to focus on supporting the COVI19 response.

A separate report – published last month – regarding the council’s overall financial position for the year ending 31 March 2020 highlighted an overspend relative to approved budgets of just under £3.2m (1.4%). Without a number of mitigation measures, there would have been an overspend of more than £6 million. This resulted in the use of £2.741 million of general reserves relative to the planned use of £3 million reserves highlighting existing underlying pressures in addition to those brought on through COVID-19.

Depute Council Leader Norman Hampshire said:

“The COVID-19 outbreak is the biggest crisis the country has faced in generations. It has had a tragic impact on individuals and families.

“And the pandemic has massively compounded the mounting financial challenges faced by councils who are both supporting the crisis response on the frontline and delivering essential public services.

“At the same time as our staff and partners have carried out amazing work in supporting communities and vulnerable people, the response to the COVID-19 outbreak has resulted in significantly increased costs and much reduced income.

“While additional government funding has been welcome, it is only funding a small proportion of the many activities which are part of the operational response to COVID-19. The cost projections in relation to Education are especially striking particularly in the event of blended learning being required. However, even when taking Education expenditure out of the equation, there remain huge cost pressures and a big funding gap.

“The Chief Finance Officer has described serious financial implications which are emerging and highlighted that the costs incurred to date are significantly in excess of the additional funding being made available and not containable within approved budgets. This is a very serious situation – and not one that is sustainable.”

Councils have a statutory requirement to balance their budgets and unless further funding is secured through national governments, the situation requires a range of significant interventions designed to reduce net operating costs. A more detailed and robust review of the financial implications facing the Council will be carried out as part of normal quarterly financial reviews and is expected to be reported in August. This will set the context for any decisions required to manage the financial commitments for the Council in both the short and medium term, including where appropriate any modification to the Council’s approved financial strategy.

Councillor Hampshire added:

“East Lothian Council is a high-performing council and one which, in recent years, has had its strong financial management commended by the Accounts Commission.

“But like other councils we have, for some considerable time, been warning of major financial challenges building up facing this and other councils across the country. This was the case even before the start of the Covid-19 outbreak. A number of mitigation measures were deployed to minimise budgetary overspending in 2019/20.

“But while we have taken significant steps to be innovative, reduce costs and generate new income streams – with more of this planned - maintaining current service provision within reducing levels of government grant support has become an increasingly hard task.

“Although we again raised council tax by the maximum permitted this year, the vast majority of the funding we need to run the council and deliver services comes in the form of government grants. But this hasn’t kept pace with rising costs, meaning we’ve had to deal with mounting service demands and related financial pressures.

“The stark reality is that, if we are to continue focusing on our priorities – delivering high-quality frontline services, reducing inequalities, helping children achieve their potential and supporting vulnerable people – it is absolutely critical that further national funding is made available to fully fund our efforts made in support of what is a national public health crisis. Without this, further difficult decisions that will impact adversely on local services are going to be needed.”

*Following a recent Scottish Government announcement, the Council’s planning assumption is that all pupils will return to school full-time in August. Plans for blended learning are now being treated as a contingency.

Published: Tuesday, 7th July 2020