Significant increases in inflation, energy costs and fuel prices are placing unprecedented pressure on council budgets in County Durham.
These factors are being further compounded by interest rate rises, pressure from increased demand in children’s social care and continued uncertainty about future government funding.
A report to Durham County Council’s Cabinet outlines how these factors are making financial planning exceptionally difficult for 2023/24 and resulting in a deterioration of the authority’s previous forecasted financial position. This will make it more difficult to set a balanced budget next year.
The update on the council’s Medium Term Financial Plan (MTFP), sets out a requirement to identify additional savings of more than £52 million between 2023/24 and 2026/27.
More than 70 per cent of this savings figure – £37m – will need to be achieved during the next financial year (2023/24). This position could worsen if additional pressures arise or if the government’s funding for councils is reduced.
Cllr Richard Bell, deputy leader and Cabinet member for finance, said: “These are unprecedented times, and we are currently facing more uncertainty than we ever have done, which makes our budget planning very challenging.
“When our budget for the current financial year was approved in February, we were concerned about the ongoing impact of the pandemic and uncertainty about future local government finance settlements.
“While these issues remain of concern, they have been overshadowed by the forecast impact of high inflation, especially in relation to fuel and energy prices, and wage costs, which are already significantly above our original forecasts.
“We are also facing significantly increased demand on our social care budgets, particularly our budget for Looked After Children.
“The government recently announced some welcome changes – to scrap the increase in National Insurance and measures to cap energy costs for an initial period of six months, and, while this support is welcome, much more is needed.
“I have already written to the new Prime Minister and Chancellor to outline the challenges the council and the wider sector face and to call for additional resources. We will continue to lobby for this with partners regionally and nationally.”
These budget pressures are likely to be compounded by expected pay settlements; future National Living Wage increases, which will impact on the cost of adult social care; the outcome of the national Fair Cost of Care exercise in adult care services; and increased costs for Looked After Children stemming from additional demand and complexity of need.
Furthermore, the continued uncertainty about future financial settlements for local government is making it difficult for the authority to plan ahead.
Cllr Bell added: “Local authorities continue to be provided with one-year financial settlements, which provide little certainty or security. The fact these settlements are announced at the end of the year also allows us little time to plan and react.
“While we are in a strong financial position as a council, without significant additional government funding we will be placed in a challenging position and will need to make some very difficult decisions. We are planning for the worst while doing everything we can to get more support from government.”
The council has identified savings of £17.7m for the next four years, with £11.8m of these to be made in 2023/24.
Consultation on these proposals will be undertaken over the coming months, when work will also continue to identify other areas where savings can be achieved in advance of the budget-setting meeting in February.
The authority is also carrying out a review of all earmarked reserves, with programmes and projects funded from earmarked reserves currently paused.
At this stage, the council is faced with using £27m of reserves to balance its budgets next year, which is not a sustainable long-term position.
The update on the MTFP will be discussed by councillors on Wednesday, October 12, when they meet at County Hall.