One-year settlement no solution to £60m long-term budget gap

The budget settlement Shropshire Council has received from the Government does nothing to solve the council’s longer term budget issues, and leaves it facing a £60 million budget deficit by 2027.

The council had expected to receive a three-year budget settlement from the Government, but instead has been given only one year’s funding.

Next year the council’s day-to-day revenue budget will balance, but only because the Government funding assumes that Shropshire will raise council tax by 3.99% (of which 2% is a precept for adult social care), and it must raise charges, reduce spending and divert almost £12m of funds to balance its budget.

From 2023 to 2027 the council faces an annual budget deficit of almost £60 million, and is looking at ways that it can make more savings from its budget.

The longer-term financial position is made worse because Shropshire is one of England’s largest and most sparsely populated areas, and current Government funding formulas do nothing to address Shropshire’s rural nature, which makes running many council services cost much more.

It must, for example, maintain 5,200km of roads, one of the biggest networks in the country; while its population is ageing faster than the national average. Despite talk of ‘Fair Funding’ to replace the existing Government funding formula, this has been delayed year after year.

The council faces pressures due to ever-increasing demand for social care from its ageing population; inflation running at over 5% currently; and extra cost pressures, such as the higher national insurance costs to fund the soon-to-be-introduced Health and Social Care Levy – but no funding from the latter will come anywhere near local government for at least three years.

The one-year budget settlement also means the council cannot accurately conduct longer term financial planning while pushing an even greater cost burden onto local council tax payers. The Government-assumed increase would see an extra £1.11 a week added to the council’s average Band D council tax bill.

Despite this, the council will continue to spend the money it has on priorities to promote a healthy population, and to make Shropshire a place that is healthy, safe, great for business and living for all. It also has access to other funding that cannot be used to run services: its capital investment plan.

The council has secured funding for these one-off capital schemes from a range of different sources. This funding, however, cannot by law be used to meet the day-to-day costs of running services.

The £271 million capital investment programme to 2027 includes:-

• An extra £59 million to boost our drive to improve our roads, tackle potholes and problems caused by years of underfunding in the county’s roads. This is on top of an extra £48 million invested in our roads this year.
• £28 million to help fund the council’s proportion of Shrewsbury North West Relief Road’s costs, most of which is being met by funding from the Government and Marches Local Enterprise Partnership.
• An extra £16 million to support the council’s ‘Swimming in Shrewsbury’  programme, and put in a new swimming pool in Whitchurch.
• An extra £11.7 million to expand schools capacity.
• £11m for Oswestry Innovation Park.
• £4.5 million to improve the centre of Bridgnorth, including a possible multi-storey car park.
• £3.2 million to fund the rollout of the council’s optional mixed recycling purple top bin.

Councils cannot by law use capital funding to pay for day-to-day costs of running services (revenue costs). It is the day-to-day revenue budget which has the longer term £60 million structural gap.

Gwilym Butler, Shropshire Council’s Cabinet member for resources, said:-

“The settlement we have received from the Government is very disappointing, and does nothing to alter the difficulties we face of a £60 million budget gap over the next five years, and that from 2023 our funding falls off a cliff.

“While we can balance our budget for next year, through careful financial planning and use of one-off resources that are now almost exhausted, the picture beyond that looks extremely bleak, and we must continue to plan for this.

“Instead of the positive settlement promised by ministers, all the Government has done is ignore our Fair Funding arguments and kick the can down the road; while forcing our residents to support even more of the burden, because the Government’s funding calculations assume that we increase council tax by 3.99%.

“In 2015, 55% of our budget came from council tax: in 2022 it will be 83%.

“Instead of a longer-term settlement that addresses the issues of our structural deficit and the extra costs of providing services in a county like Shropshire, we must now apply our own one year sticking plaster to a very long and deep-rooted problem that must be addressed by the Government. This cannot continue.

“We are now working with our dedicated staff to identify how we can address this by 2026, and this inevitably will mean cuts, and increased fees and charges.

“Separately, we must – and will – continue to invest in our county’s infrastructure to help us deliver for Shropshire, but this will not solve the £60 million structural deficit in our day to day running costs.”

Cabinet will be asked to approve its budget plans for 2022/23 when it meets on Wednesday 5 January 2022 (agenda item 8), and the plans will then go out to consultation. The budget will then be set by the Full Council at its meeting on Thursday 24 February 2022.