A new report highlights a range of financial pressures facing East Lothian Council.

The financial update presented to elected members at today’s council meeting explains that the financial outlook across local government remains extremely challenging, noting external factors such as high inflation, economic instability, the rising cost of living and constrained funding through the local government finance settlement from central government – which provides most of the budget required by the council to run services. 

‘Substantial risk’

These factors, says the report, present a substantial risk to balancing the council’s budget over the coming years. The council will continue to consider all potential options to support a sustainable financial plan.

The report explains that, while additional Scottish Government funding will be provided in relation to the national pay award for employees, current estimates suggest East Lothian Council currently has a £2.4 million unfunded element of the pay award.

Forecasts continue to show electricity cost at 25% and gas costs at 160% higher than in 2021/22, while general inflation remains at over 9%.

In-year Council Tax income is forecast to be £313,000 less than expected at Quarter 1, due to a reduction in the number of new build completions and lower than expected banding rates of new properties.

Additional Scottish Government funding has been received for specific policy commitments in relation to Whole Family Wellbeing, Local Heat and Energy Efficient Strategy and the balance of the 2021/22 teachers pay award. These, however, cannot be used to help alleviate wider pressures on the council’s financial position. 

The report also notes that, in relation to capital funding, there is a continuing overarching risk of delays in supply chain delivery of projects.  The wider economic environment and the combined impact of rising interest rates and inflationary pressure present a substantial risk to the overall affordability of the longer term capital programme.

Additional demands

The rising cost of living continues to place additional demands on services.  There was a 60% increase in applications to the Scottish Welfare Fund in September 2022, compared to the same month in 2021.  There is also considerable demand for cost of living assistance payments, with an increase in the number of new claimants who are experiencing significant difficulties with fuel and food poverty.

The council has continued to deploy the Local Authority COVID Recovery (LACER) funding, through the allocation of £758,500 to support low income households.  Previously unallocated funding totalling £113,500 will be distributed to support the East Lothian Foodbank, pantry and community kitchens providing hot meals, the Fareshare Hub and additional welfare support including increased crisis grants, leaving £45,000 which is still to be allocated to support low income households.

Increased demand and limited availability for temporary accommodation, compounded by the impact of the Ukraine crisis, continues to place pressure on budgets. 

Developing future budgets

A Cross Party Budget Group has been established to consider the current financial outlook and areas for future focus including transformation priorities.

Council Leader Norman Hampshire said:

“Like all councils, we continue to operate within an extremely challenging and complex financial environment with a wide range of uncertainties and demand pressures, while income is not keeping pace with the rising cost of delivering services. East Lothian are also dealing with the delivery of substantial growth allocated by the Scottish Government. The council are currently delivering this growth without the necessary increase in our revenue and capital grants. This is also adding to the pressure all council services are facing.

“This report underlines the substantial pressures across budgets including utility inflation, general inflation, pay and supply chain difficulties. The scale of the financial risks we face may be difficult to manage during 2022/23 and beyond.

“The council made use of reserves to set a balanced budget but the level of reserves will not be available going forward, and it needs to be recognised that the bulk of our budget is from central government, with council tax revenue only contributing around 24%.

“Our approved budget for 2022/23 – 2024/25 identifies the need for recurring annual savings totalling £15.5m over three years, and when added to the recurring requirement to deliver £2m from staffing management amounts to £17.5m.

“But as previously highlighted after officers revisited budget projections, the council could face a potential funding gap of around £48 million in the next five years.

“A report presented to the council earlier this year highlighted the need to take steps to focus on financial sustainability in an extremely challenging environment ahead. A number of mitigation measures are being taken while work is ongoing within services to identify options for reducing costs.”

Published: Tuesday, 25th October 2022