District Matters

Pressures are still with us

January 2022

We start 2022 with Covid still with us in a very significant way, although we may now be passed the worst of Omicron. Nevertheless, the Covid pandemic has had a significant impact on us all.

Indeed, that is one of the reasons why 2022 is shaping up to being a very challenging year. For us all there is the increasing challenge of rising inflation. The Consumer Price Index in November had risen by 5.1% in a year and the Retail Price Index by 7.1%. There appears to be no end to inflation in the near future. Energy prices will be a worry for many people. The latest projections I have seen indicate that the energy cap for 2023 will need to be £2,400 a year. This is about double the current level. This increase alone would add over 2% to the inflation measures. There is much speculation about how these increases can be offset. The very brutal truth is that the prices have to be paid and either consumers will pay or taxpayers will pay.

What is clear is that there will need to be a measure of protection for those on the lowest incomes, because, for them, increases of this magnitude are clearly unaffordable.

The final strand of pressures on people will be increasing interest rates. This has already commenced. There are projections by U.S. investment banks that the Federal Reserve, the USA equivalent of the Bank of England, will increase interest rates 3 or even 4 times during 2022, and there will be a further 5 increases in 2023. It would be unrealistic not to expect a similar pattern from the Bank of England. So, by the end of 2023 UK base rates could be 2-2.5%. In other words, that will be an increase of 2% or more from where they are now.

All these pressures will be very challenging for people, but it is likely to be the reality we face. Having said that, there is one big unknown. How are people going to react? It is many years since inflation has been at this level. It is now almost 15 years since interest rates dropped to low levels and then ultra-low levels. For a great many of our residents 2022 will be a whole new experience, and not a pleasant one. I have no crystal ball but we will be watching how things play out very closely.

All the above matters to us because we are in the throes of setting the Budget for 2022/23 and outlining the Medium Term Financial Strategy through to 2026/27. Once again the Government has only provided a one year settlement so the 5 year time horizon is uncertain. Our provisional Budget has been developed, therefore, against the backcloth of very considerable uncertainty. We are doing everything we can to protect services in the short term until we have greater clarity on the longer term picture. We approved the draft budget on Monday 17 January and it is now out for consultation.

To give you an idea of the scale of the uncertainty, for 2022/23 we will receive £3,803k in New Homes Bonus and £4,586k in business rate retention. Taken together these represent 45% of our base Budget. We know that New Homes Bonus will be cut to zero next year and we estimate that business rate retention will be reduced to £2,147k. We do expect there will be some compensation for these reductions but how much remains unknown.

There is, however, some good news to end on. We received £1.2m from the Government because we had spent 100% of our original allocation of grants to help businesses during the pandemic. Working very closely with the CWLEP Growth Hub, we targeted the money on businesses that had a post Covid growth plan, that were looking to diversify or expand their businesses and which were seeking to create local jobs for local people. By the time the scheme closes on 31 March, it is expected that in the region of 50 jobs will have been created and many more safeguarded as a result of this work.

This also demonstrates the advantages of close working relationships with other bodies. The Growth Hub provided knowledge and a level of expertise we do not have within the District Council. I am aware that many people wonder why we spend so much time and effort on external bodies. These results provide everyone with the clear answer.