District Matters

Budget for the new year

January 2023

It's 2023 already and as usual the first item on the agenda is the budget. Once again, we have only had a detailed settlement with numbers for one year. Although there are indications of the shape of the settlement in following years it would, I think, be unwise to 'count one's chickens', when there are very realistic estimates that the Government will need to borrow a mere £1.2 trillion over the next five years.

Although we have had a better settlement than we were anticipating, we can only remain within our minimum general fund reserve balance of £3 million in the final year of the Medium-Term Financial Strategy (MTFS) in 2027/28 by using reserves. The General Reserve will be reduced from £10.3 million in 2022/23 to £3.04 million in 2027/28 and we will have drawn on a further £2.8 million of earmarked reserves.

This means, I think, that some very difficult decisions will need to be made by the time of the MTFS commencing in 2024/25. It's not that far away.

Not every local Council in the country is in as relatively strong position as we are. Indeed, there is one Council that has reported debts of £650 million. Quite how they arrived in that position, I find difficult to comprehend. In part, I suspect, it is the result of decisions based on ultra-low interest rates when borrowing was cheap. In part, I suspect, it was the result of a lack of grasping the strategic reality of the cost of that much debt. In part, a far too optimistic a view of the returns that would receive on their investments coupled with a lack of realism in understanding the risks to which they were exposing their residents.

Having to manage that level of debt has very real implications for residents. Not least that the council will now be run by government appointed commissioners tasked with restoring financial soundness. What this means for residents is that the following actions will inevitably have to be taken:

• Cuts in services to reduce costs
• Sale of assets to reduce the debts. As these will be, in effect, 'fire sales' they will probably need to be sold at a discount
• Finally council tax will need to be increased far above the normal constraints that apply. This could be many 10's of percent.

The illustration to which I have referred is not the only Council in financial difficulties. There appears to be a steadily increasing number. In my view, this demonstrates very clearly the need for a high level of competence in councillors, coupled with a capability to undertake very careful risk assessments and to understand their Council's strategic position. There is too much short-term thinking and 'kicking the can down the road'. There also needs to be a clear understanding of the reality that resources are limited and massive borrowing to avoid taking difficult decisions usually results in a worse outcome.

It is stating the blindingly obvious that our residents will face a challenging time. Not only is the cost-of-living crisis biting everyone but, because it is food and energy prices that are increasing the most, it will bear most heavily on the poorer members of our society. As Stratford District has a population skewed to the elderly with over 25% of our population 65 or older, this cohort will also be heavily impacted by the crisis in the health care and social care systems. I fear that there will be no quick, easy or low-cost solutions. Given the scale of these issues, there is in reality not much a District Council can do to solve these problems.

As if this were not enough, higher interest rates have made buying a house unattainable for an increasing number of people. Those who have taken out mortgages in the last few years are likely to find finances stretched as they re-mortgage. Housebuilders are already seeing a marked reduction in sales which, given the level of housebuilding locally, will have a negative impact on both our local and the UK's economy.

The hospitality and tourism industry has been hard hit over the past two years. At the last WMCA Economic Impact Group I attended, it was reported that in Birmingham about 50% of hospitality businesses would struggle to pay their bills in the New Year.

In short, as a District Council, we face a list of massive and interconnected challenges. Indeed, Government at every level faces massive challenges without sufficient money, resources or arguably the capability to deal with them all. It really is going to be a time when competence, clear strategic thinking and a willingness to take tough decisions, including saying 'no' far more often, will be the order of the day both locally and nationally. This is not a time for simplistic, quick fix solutions or undeliverable promises peddled by the naïve and the gullible.

I don't think many people are prepared for this reality.

The Chinese curse 'may you live in interesting times' is applicable. We certainly do.