Overview of council financial outlook

A report considered at today’s council meeting noted that the local authority is operating in an increasingly challenging financial environment.  Risks and current uncertainty surrounding future funding levels pose a significant threat to the council’s ability to meet its statutory duty to set a balanced budget over the coming years. 

As the gap between available resources and demand for services continues to widen, the report highlights an essential need for the council to refresh its budget development framework and approach to developing budget proposals.

The Scottish Government Resource Spending Review, published in May, indicated an intention to 'flat-line’ revenue (resource) funding for Local Government at current levels between 2023-24 and 2025-26, with commitment to a further additional £100 million by 2026-27. 

Whilst the exact funding settlement for local government and individual Councils will not become clearer until the Scottish budget expected in December, independent commentators (including SPICE and Fraser of Allander) have indicated that this essentially represents a 7% real terms decrease in funding for local government, with a 4.7% real terms increase in Scottish Government available resource funding.

This, the report says, will leave local government with some very significant challenges to deliver local and national policy priorities and essential local services, alongside managing an increasing range of external cost pressures including; inflation, interest rate rises, the cost of living crisis and the ongoing impacts of the Covid-19 pandemic, Russia’s invasion of Ukraine and EU Exit.

Details within the Resource Spending Review will provide a useful platform to inform medium term financial planning.

East Lothian Council’s approved budget for 2022/23 – 2024/25 incorporates the need to identify recurring annual savings totalling £15.5m over this three year period, when added to the recurring requirement to deliver £2m from enhanced staffing management amounts to £17.5m. 

Officers have revisited and updated some key assumptions used in budget projections, based on conclusions drawn from the resource spending review announcement, and other potential factors which may impact on available resources and demands on expenditure.  This suggests the council could face a potential funding gap of around £48 million in the next five years. 

Budget development process

To inform the process for budget development for 2023/24 onwards, Councillors have also agreed that a number of critical steps will be taken forward including an updated and refreshed charging policy, updated financial strategies and to develop a public budget consultation.

Elected members have agreed to progress establishing a cross party budget working group to oversee the development of detailed budget proposals and develop an approach aligned to the financial strategy which combines a range of options to close the gap between available funding and anticipated expenditure - including an enhanced programme of transformation, asset review, income generation, cost reduction and efficiency.

Councillors have agreed to extend the timeframe for future budget planning from three to five years. This brings the approach into line with the development of financial and capital strategies and it is anticipated that local government will receive a multi-year finance settlement for 2023/24 onwards and the scale of the challenge faced will require planning over a longer timeframe to identify areas for investment in transformation initiatives to unlock future budget savings.

Meanwhile, a separate report notes that the council delivered a £1.489 million surplus (0.6%) at the end of March 2022. This was largely delivered through a combination of additional non-recurring national funding much of which was received late in the financial year, and a number of non-recurring financial variances including an underspend on staffing budgets, largely caused by the challenging external recruitment market. These collectively are unlikely to continue into 2022/23.

Considerable challenges

Council Leader Norman Hampshire said:

“Like all councils, we have been dealing with a very difficult financial climate for many years – a situation which is highly unlikely to change any time soon.

“Considerable challenges in recent times have resulted from a combination of increased costs such as higher National Insurance payments, rise in prices for both raw materials and products mainly in construction and the uncertainty arising from the COVID pandemic.

“As we focus increasingly on recovery whilst providing services in one of the fastest growing areas of Scotland, we will require to maintain strong financial stewardship and innovation in order to protect vital public services and deliver on our priorities – including our climate change strategy, the economy, support for children, older and vulnerable people.”

A motion was agreed by a majority of Councillors for the Council Leader to write to the Cabinet Secretary of the Scottish Government expressing concern at the independent review of Capital Accounting, and to the write to the Chancellor of the Exchequer expressing concern at the funding available to the Scottish Government to deal with the cost of living crisis and ensure that local government are adequately funded to protect council services.

The full report is available on the council website.