The collective scale of financial risks and challenges at East Lothian is “at an unprecedented level”, council leader Norman Hampshire has said.
The council reported an overspend of £16.154m before applying use of reserves and other mitigations for financial year 2022/23, including one-off costs to be funded from earmarked reserves of £3.496m.
This means that there was a recurring in-year pressure of £12,537m. The application of mainly non-recurring additional savings and additional national funding for specific purposes, in addition to the use of earmarked reserves, reduced the in-year overspend to £5.986m.
The overspend included unfunded pay of £1.882m; general inflation amounting to £500,000; utility inflation of £1.218m; and a one-off use of reserves to fund recurring budget pressures of £8.690m.
East Lothian said there was a “significant underlying budget pressure” and that its planned use of reserves “cannot be sustained”. A report authored by Ellie Dunnet, head of finance; David Henderson, service manager – service accounting; and Ann-Marie Glancy, service manager – corporate accounting; cited an array of external factors. These include 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.
The council also noted that funding was not keeping pace with East Lothian’s growing population – where an increase of 21.15% between 2001 and 2021 was the highest in Scotland.
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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”, the council said. 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 noted that the current capital programme is still aligned to the council’s Local Development Plan requirements and “remains ambitious”. But the external challenges cited place “significant and increased financial risk to the deliverability and affordability of the capital plan”.
If no additional funding is received through future finance settlements, it is likely that reductions in service provision will be “unavoidable”, the council has concluded. Hampshire has written to Scotland’s deputy first minister, who has agreed to meet councillors to discuss the “unmanageable challenges which the council faces as a consequence of growth”.
Hampshire commented: “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.”
He noted that population growth was increasing the council’s cost base. “In one of Scotland’s fastest growing areas, the gap between the increasing costs and available funding to support growth is widening,” he said.
“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.”
Hampshire said the council would continue to look at new ways of bringing in income to help pay for services, while looking at efficiencies and changing the way some services are delivered. This might include the use of digital technology and a review of the council’s 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,” he said.
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