A review of the 2022/23 financial year was presented to today’s full meeting of East Lothian Council.
The council continues to face a wide range of external pressures including high inflation and contractual costs; funding for public sector pay awards; high interest rates; and significant increased demand for services aligned to cost of living pressures and a growing population.
The council is reporting budget pressures in excess of £16 million in 2022/23. Action to mitigate these pressures, including use of earmarked reserves, applying mainly non-recurring additional savings and additional national funding for specific purposes reduced the in year overspend to £5.986m. Although this represents an improvement to the in year position, there remains a significant underlying budget pressure.
For general services capital expenditure – such as investment in infrastructure – there was spend of £84.341m against a budget of £111.310m, and much of this is aligned and needed to support a growing population. A significant proportion of this underspend has already been re-profiled as part of the work on the 2023/24 capital plan and will be utilised in future years.
The report notes that the current capital programme remains aligned to the Local Development Plan requirements and remains ambitious. There remains significant external challenges due to market conditions and wider inflationary pressures. These are placing significant and increased financial risk to the deliverability and affordability of the capital plan.
Budget development
A separate report on budget development for 2024/25 onwards highlights that the council faces financial challenges on an unprecedented scale, resulting in the largest funding gap and highest risk level which the council has previously documented.
Between 2001 and 2021, the population of East Lothian increased by 21.15% - the highest in Scotland.
The population is expected to continue increasing at a rate which is significantly higher than the average projected for Scotland as a whole. The Scottish Government requires local authorities to identify sites for new housing development and sets the number of houses that need to be built over a given period, and the impact of growth in East Lothian will result in further significant and uncontrollable cost pressures to the council.
As a consequence of growth, and the methodology for distributing funding to councils, in 2023/24, East Lothian Council received one of the lowest levels of funding per capita in Scotland.
Increases in recurring grant funding from the Scottish Government, which accounts for approximately 76% of the council’s budget, have not kept pace with rising costs. Despite its successful track record of delivering savings to offset growing budget pressures, this presents a significant risk to the council’s capacity to maintain services and deliver on policy commitments.
If no additional funding is received through future finance settlements, it is likely that reductions in service provision will be unavoidable. The Council Leader has written to the Deputy First Minister who has agreed to meet Councillors to discuss the unmanageable challenges which the council faces as a consequence of growth.
The report highlights that the planned use of reserves cannot be sustained but could be used to enable investment in measures that will deliver a sustainable benefit to the council’s revenue budget:
- Investing in digital transformation
- Resourcing and enabling the asset review
- Support for service reviews & wider transformation
- Cost reduction through energy efficiency
- Investment in early intervention and prevention
- Developing and growing income streams
The Cross Party Budget Working group will continue to oversee the implementation of budget proposals in 2023/24 and to support development of proposals beyond.
‘Unprecedented level’
Council Leader Norman Hampshire said:
“The report highlights that East Lothian Council continues to operate in an extremely challenging, complex and ever changing financial environment.
“Worryingly, many of these pressures will be recurring, and the collective scale of financial risks and challenges remains at an unprecedented level.
“Population growth continues to increase our cost base. In one of Scotland’s fastest growing areas, the gap between the increasing costs and available funding to support growth is widening.
“Most of our revenue budget comes from national government with council tax income representing less than a quarter of funding. In East Lothian, our grant from central government is the third lowest in Scotland per head of population. There is no recognition within the grant of East Lothian’s increasing population and the rising costs that arise. About three quarters of our general revenue support grant is aligned to support statutory or policy obligations, while the new funding which has been forthcoming is used to support policy commitments.
“While it is true that people living in new housing pay council tax that previously wouldn’t have been available as income, this doesn’t cover the cost of providing services provided to them.
“It is highly likely that pressures will build in the years ahead. This means the council will need to continue reducing costs.
“We are continuing to look at new ways of bringing in income to help pay for services, looking at efficiencies and changing the way some services are delivered - for example using digital technology and looking at our use of assets and buildings.
“It is essential that we harness all opportunities arising in the face of a difficult environment if we are to sustain the delivery of vital services to the community.”
The papers for the meeting are available online.