Tonight, Cabinet received an urgent update on the council’s financial position and committed to take further immediate and significant action to address the budget gap. The budget is currently showing an overspend of £7.3m for this year, and £6.2m for 2024-25. This is due to a combination of historical decisions which have affected the council’s financial resilience, and wider financial challenges affecting councils across the country.
Achieving financial stability is the council’s top priority. Intensive work continues to reduce spending and increase income. However, the scale of the challenge and the limited financial reserves held means that the Royal Borough is at risk of having to issue a Section 114 notice unless further action is taken now to reduce non-essential spending.
The Royal Borough has specific circumstances which weaken the council’s in-year position and general financial resilience. These include low rates of council tax compared to other authorities – meaning that the council is not able to bring in as much income as other local authorities to fund local services.
Council debt is standing at £203m, which is high relative to the size of the council’s budget. Rising interest rates have increased the costs of servicing this debt, with interest payments forecast to reach £8m this year and £14m in 2024/25.
Low levels of General Fund reserves (£10.2m) limit the council’s ability to absorb unexpected budget pressures. A total of £5.8m of high-risk savings were included in the 2023-24 budget, of which £2m are at risk of proving undeliverable.
Councils across the country are experiencing serious financial difficulties. Inflation has continued to remain higher than expected, for longer. This increases the costs of goods, services, premises, transport and utilities and impacts all areas of council spend.
Demand for adults and children’s social care, as well as a range of statutory services including temporary accommodation, has outstripped budget forecasts. The cost of placements is also rising, leading to overspend on budgets in these areas.
The council therefore needs to take further action urgently, to limit all non-essential spend. From October, all non-essential spend will require approval via a Spending Control Panel before new goods and services can be purchased or procured, or new recruitment takes place. Spending linked to existing commitments such as salaries and pensions or legally agreed contracts will continue.
All service budgets are being scrutinised in order to identify opportunities to reduce the overspend, particularly in those areas which aren’t linked to the provision of statutory services to support the most vulnerable residents of the borough.
Alongside the urgent work to reduce the gap, the council is looking at how to transform the way services are delivered to make them more sustainable, including strengthening early intervention and improving digital services. We will need to increase income from fees and charges, from commercial opportunities and the management of assets, and to reprioritise and scale back our capital programme in order to reduce borrowing costs.
We are strengthening the way in which we procure and manage contracts, to improve value for money and identify areas of efficiency. Alongside these actions, we will also need to take some tough decisions about reducing and stopping some services.
Proposals are being developed through the current budget-setting process and will be brought to Cabinet and then to public consultation before Christmas. Intensive work will continue to achieve a balanced budget by February 2024.
Councillor Lynne Jones, deputy council leader and Cabinet member for finance, said: “Historic spending decisions on council tax and borrowing, weak financial management and low financial resilience over the past decade - coupled with macroeconomic pressures such as inflation - have made the council’s position vulnerable. Over the years, too high a proportion of forecast savings have not been realised, and one-off grants have been used to fill budget gaps. All of this has combined with rapidly increasing demand for social care, the high cost of providing that care, and continued high levels of inflation, to leave the council facing a very difficult financial future.
“The Cabinet is fully committed to sorting out the council’s finances and this will continue to be our top priority until we achieve a stable financial position. However, the situation is complex and challenging, and it will take time to pull this around.
“We need to do everything we can to avert the risk of having to issue a Section 114 notice – which would likely lead to Government intervention with serious consequences for residents and businesses. To do this, we are putting in emergency controls of non-essential spending alongside the wider work we are doing to get the council’s budget under control.
“Without a balanced budget we cannot take forward our wider priorities, and make the changes we want to see for the people and places of the borough. My colleagues and I are working hard to secure the changes needed to build financial resilience.”
Current available in-year contingency of £3.3m and forecast on non-service budgets can be used to reduce the net overspend to £3.6m this year. However, this would reduce the level of the General Fund to £6.6m, which is below the minimum requirement set by the s151 Officer.