Ever since the financial crash of 2008, many have been under the financial cosh, with councils in Scotland being among the worst affected. For over a decade, their ability to regulate their own finances was curtailed by the then-new SNP government’s freeze of Council Tax.
While this was supposedly to be compensated for by additional grants to supplement the Revenue Support Grants that provided 80% of council funding, it effectively gave central government full control at local level, as well as national. Over the last seventeen years, the fiscal screw has tightened relentlessly.
Add in economic body blows from Brexit to Covid to Fuel Shock to Inflation, councils that had once balanced their budgets have recently resorted to including shortfalls as acceptable practice. Down at the Town House, the days of bankerly probity are apparently over.
East Lothian Council is no exception. On February 28th2023 they set a budget of £320.4m for 23/24. To cover services, this was an increase of £15m over 22/23, but included a funding shortfall of £18m. This means 5.6% of ELC’s budget was unfunded—equivalent to the entire budget of Children’s Services.
Alarm bells had been ringing for six months before the full council meeting at the end of August was told it faced some tough choices. Underused and understaffed public buildings, including libraries and public toilets, are expected to close while community funding grants are suspended and a recruitment freeze introduced across the local authority.
“The immediate measure proposed to tackle this year’s budget deficit were temporary warning they would not be sustainable over the long term. The current debt did not include major additional projects which had come into focus this year after the presence of unsafe concrete materials in Preston Lodge High School, Prestonpans, the Brunton Theatre in Musselburgh and Loch Centre, Tranent, had led to closures of parts of the buildings.”
—Sarah Fortune, Head of Finance, ELC
As if this were not salutary enough, subsequent report to successive council meetings up to December 12thhammered home the same stark need for economy, as the shortfall remained over £14m.
While focus was slowly being brought to bear on the revenue shortfall, capital expenditure is being funded by a “drunken sailor” approach to borrowing. ELC has blown what reserves it had available to counter its revenue shortfall.
The council’s capital expenditure (see: Treasury Management Strategy 2023-24 to 2027-28 report to the ELC, meeting of February 28th 2023) had been £95,5m last year (£64.7m on General Services and £30.8m on Housing). This is normal. But it is projected to rise to £524.6m over the next five years. This will be financed only partly by grants and capital receipts. The rest must come by borrowing from the Public Works Loan Board (PWLB), which offers favourable rates. Such borrowing is common enough in funding solvent councils. Although many present loans will be paid back, ELC plans to take on net new debt of £245.8m to plug their fiscal hole. This seems both irresponsible and unsustainable
“Solvent” is the key word in the previous paragraph. Coming on top of existing debt of £273.3m means ELC can expect to be £518,1m—over half a billion—in debt by 2029. That’s more than £5,000 for every man, woman, and child in the county. Were all loans from the PWLB made at a generous rate of 1% below the present bank rate of 5.25%, that would mean an annual interest repayment of ~£22m on council finances. That’s one third of the entire year’s take in council tax. Put another way, it would take a 43% rise in council tax just to pay the interest.
But that’s not all that needs to be paid. All this half-billion debt needs to be repaid at some point. The Treasury Strategy Report projects this over 70 years…and presumes no further borrowing between 2034 and 2094. This must surely be fiscal fantasy.
Such fairy tales have no place in a public body and should shame both the officials who generated them and an administration that approved them. Such behaviour drove Birmingham City into bankruptcy and saddled Woking residents with £18,756 debts per head. And these figures presume all the cuts, strictures and economies agreed by council have been applied.
“We do not believe this to be a meaningful data analysis…Our borrowing is linked to delivery of the capital programme, which is largely driven by the need for infrastructure to support a growing population.”
—ELC Spokesperson
The council claims that deliberate short-changing by the Scottish Government and a growing service demands from 10,000 new homes are responsible for this crisis. In the former, they have a point, but in the latter, they ignore that 3 out of 4 of these new homes are 3-or-more-bedroom family homes, often paying the top band of council tax.
They are also rubbish at making the best of what they have. Each of the six towns has up to a dozen facilities, each run by different central departments, with little work done on joint staffing, or building consolidation. Add to that their execrable commercial nous (sports centres lose money; no out-of-hours use of superb school facilities; not even licence charge for ice cream or burger stands.
It is possible ELC’s administration is using this as a political showdown with the Scottish Government. More likely, they are a dozy lot of timeservers who should get their jotters. They seem to have no idea they are saddling three generations of residents with paying off debts they were too innumerate to handle.
“Councils are ultimately responsible for their own finances, but we are very clear they should not put taxpayers’ money at risk by taking on excessive debt.”
—Department for Levelling Up, Housing and Communities
#1091—938 words
davidsberry 