Budget Update

Council will today consider a potential budget gap of £33.5 million in the next financial year in 2018-19.

It will take several days to achieve clarification of the precise settlement to The Highland Council following the Scottish Government’s draft budget announcement.

At present only a one year settlement is anticipated and as yet no indication has been given as to what any funding change will be. However, it is anticipated that there will be a reduction in the level of grant funding and there are a number of known factors putting additional pressure on the budget, including anticipated cost increases in our pay, pension and other inflationary costs and loans charges.

The budget gap has consequently been estimated to be in the range of £129.7 million  to £186.9 million between 2018 and 2023. Based on the scenario of a 3.5% reduction in Scottish Government funding, a budget gap of £159.2 million is forecast, split over the next 5 years, with a budget gap in the region of £33.5 million in 2018-19.

The Council considered the anticipated budget gap at its meeting in September and agreed a financial approach to attempt to bridge that gap with work across five key areas. The five workstreams are focusing on Prioritisation, Efficiency, Redesign, Commercialisation and Income generation.

The Council has continuously been working to become more efficient in finding ways to deliver the same outputs and outcomes, but at a reduced cost and these measures have helped to reduce the budget gap in previous years.

A restructure this autumn has reduced the Senior Management costs of the Council by £235,000 per annum. This reduction is in addition to 83 senior management posts removed in the past 9 years.

The programme of Redesign is fundamentally reviewing the way services are provided to increase income or reduce costs. A number of services have been reviewed, successfully improving and streamlining processes and releasing £0.5m of savings this year. Further services have been identified for review.

The Council has established a Commercial Board and this is identifying new services and ways in which the Council could generate a profit that can support core Council services.

The budget approach will also examine where income can be generated or increased through fees, charges and taxes or through charging for some non-core services we are providing.

The work of Prioritisation is looking at all the services and functions the Council provides and completely stopping or reducing low priority services.

To put the gap in context, £160m is roughly equal to our total annual spend on primary, secondary and special education; or more than 2.5 times our total annual spend on roads, transport, environmental and amenity services.

In light of this financial forecast, the Council can no longer continue to provide the same services, at the same level, in the same way as before. By law, the Council is required to set a balanced budget for every financial year. The Council must identify proposals to reduce expenditure or raise additional income to deliver a balanced budget over the period 2018 -2023.

Leader of the Highland Council, Margaret Davidson said: “We have to deliver a balanced budget and this is, without a doubt, going to be the most difficult financial period that local government has ever experienced.

“As with last year, it will take some time to sort through the multitude of complicated directives by the Scottish Government to establish an accurate picture of our actual net budget settlement. However, we would be extremely surprised at anything other than a net cut in our grant settlement.”

She added:  “The Scottish Government has committed to an end to pay restraint in the public sector, but it is not expected that any Government funding be made available to fund new pay settlements and any agreement in excess of 1.5% would widen the forecast budget gap. 

“Also, as previous years have shown us, it is likely that the Council will be expected to deliver new policy commitments made by the Scottish Government, the most significant of which is around the delivery of increased early years provision. It is absolutely essential that any new initiatives are fully funded by new monies from the Government, or else the requirement on the Council to co-fund these initiatives would further widen the budget gap for providing core services.”

 Chair of Corporate Resources, Cllr Alister Mackinnon said: “We are committed to becoming as efficient an organisation as possible and have already made significant savings over the past few years, but such a huge gap cannot be addressed without making very substantial changes which will have some impact on all our residents and service users. 

“We will continue to look for efficiencies, aiming to improve processes and procedures to get the same outputs and outcomes at a reduced cost. However, efficiency on its own will not be enough and redesign is only part of the solution. We have already agreed we will focus on commercialisation of the Council, with the aim of taking a business-like approach and generating income to support core Council services. 

“We must also look at removing or reducing some services and may need to raise income by introducing new, or increasing existing charges for some services the Council provides. I know this will be painful and it will not be popular, but we simply do not have the money to carry on doing everything we have been doing before.”

 

Note to editors:

 1. The Highland Council is faced with the need to find around £150 million of savings over the next five years to deliver a balanced budget. This will need to see a substantial cut in the planned capital programme over the next decade (currently forecast at £1.2 billion) and changes in service provision.

 2. Scottish Government decisions, made in Holyrood, are forcing councillors to consider unprecedented cuts never seen in the Highlands. All options are being considered by those senior councillors working on the draft budget. Changes to education, service points, roads maintenance and bin collections are all options that need to be considered and will remain likely unless the Scottish Government provides fair funding to councils.

 3. The Highland Council is limiting the damage that could be inflicted on front-line services by undertaking a council-wide review of all operations, ensuring that the council is lean and efficient. We are also designing new commercial projects that will raise funds that can be spent on services.

 4. The Scottish Government's budget today will need to deliver fair funding to Highland Council if we are to protect services. Simply removing the council tax freeze for a second year is not enough as it will only cover a small proportion of council spending. We are looking for a substantial increase in central government funding, without all the strings attached that limit local decisions, which is the normal practice in recent years.

 

 

	Total cumulative Savings £m	Average per Year £m
Last 5 years	90.373	18.075
Last 7 years	131.752	18.822
Last 10 years	169.459	16.946
Last 12 years	196.768	16.397
Last 15 years	213.046	14.203

 

• The Council is anticipating that the outcome of the Scottish Government’s budget will result in the Council needing to make around £33m of savings next year
• This is because we are seeing our core funding from the Scottish Government for running everyday services reducing substantially (by an estimated £15.3m next year), increasing demand for certain services, and significant inflationary and other cost increases.
• Each 1% reduction in grant funding from Government reduces our budget by around £4.4m
• Each 1% increase in Council tax would raise an estimated £1.15m
• Our annual net budget is £561m so that £33m savings requirement means an effective 6% reduction in our spending power.
• Cumulative savings have been made over a number of years and to make further savings is becoming increasingly difficult. It is anticipated that the majority of savings will result in reductions in the level or quality of frontline services or in increased charges to service users. The period with the highest average savings is 7 years and £132m total cumulative savings
• The Scottish Government is expecting us to deliver new national policy commitments- most significantly around early years and education. It is essential that government provides new funding for the substantial additional costs we will have to incur to deliver these commitments.
• We hope that this year the Scottish Government does not try to influence public perception of the overall funding position for local authorities by making reference to ‘total resources available to local authorities’ without referring to the new costs they expect us to incur or any additional Council tax income we may be able to raise locally.

 

COSLA has requested

•             Proper investment in the local government workforce;

•             Additional investment in Health and Social Care in recognition of the rising demand;

•             Increased capital funding to invest in and attract growth;

•             Removal of the 3% cap on Council Tax;

•             Power to introduce discretionary taxation;

•             Multi-year budgets and the removal of ring-fencing and central direction through input targets;

•             Full and transparent funding for new central government initiatives.