Highland Council Pre-Budget Statement

20th October 2016

The Highland Council is anticipating it may have to make savings of £47 million to £72 million over the next 3 years, with a budget gap of some £26 million next year (2017-18)

The financial environment is very challenging, with an unprecedented degree of uncertainty which makes planning very difficult. There will be a very short timescale to react and provide options for budget savings once the Scottish Government settlement is made known on 15 December. It is expected that the budget will be for only one year.

If the grant settlement is a cut of around 4% again, this would result in recurring real reductions in funding and the Council will need to reduce or stop doing functions. Our choices of where to make savings are very much restricted by the Scottish Government. For example, a quarter of our budget is in teachers' salaries and we have been required to maintain teacher numbers.

Every 1% reduction in grant equates to approximately £4.4m less funding. Taking into account anticipated levels of funding, budget pressures and a council tax rise of 3%, savings required are forecast to be between £47m to £72m over the next 3 years.

Budget pressures include inflation, pay and pension uplifts, additional legislative costs, or the inability to deliver all of the previously agreed savings. Budget pressures are estimated to be around £14 million next year and around £10 million in subsequent years.

The Council will be allowed to increase Council Tax by up to 3% from 2017-18 without incurring penalties. However, the Scottish Government plans to change the Council Tax multiplier. The changes to properties in Bands E to H will affect 27% of properties in Highland. It is anticipated that this will raise around an additional £5 million in Highland which could be redistributed across Scotland to reduce the attainment gap. This could mean a net outflow of resource of a potential £2.4 million of Highland taxes going to other areas in Scotland if this approach is decided by the Scottish Government.

The Council took action earlier this year in setting up the Redesign Board and this is delivering a programme of redesign with cross party and staff involvement. This approach is intended to achieve efficiencies, and generate additional income.

Leader of the Council, Margaret Davidson said: "This is really is the most worrying financial situation. Local Government is undoubtedly shrinking. £10m came out of our revenue budget in February 2016 and we expect to be 25% smaller in 3 years' time.

"Our hands are very tied by the constrictions imposed by the Scottish Government. This will mean that budget reductions will be much higher for services which are not ring-fenced or protected by Scottish Government policy. Unprotected services could have to find 23% savings. We will need to discuss options with communities and we want to offer communities the opportunity to help themselves to provide some services locally, where the council can no longer do so."

She added: "The scenario which I find most unpalatable is that taxes raised locally in Highland may be taken from us to be spent elsewhere in Scotland. This would be the first time any government in Scotland has raised taxes locally and taken them away for national purposes and I will be bringing a motion to council to challenge this proposal.

“The current budget situation and future scenarios is an issue for all political groups and all 80 members have a responsibility to balance the budget. The Administration will be continuing to work together across the chamber to find consensus on the way forward in what is the most dire financial situation the Council has ever faced.

Budget Leader Cllr Bill Fernie added:“The next three years are likely to be the most challenging ever faced by Highland council. Never in past years has there been such a sustained period of reductions from central government to local councils. The last few years have already been difficult and the next years come with reductions that will mean some very difficult decisions for all councillors.

“Myself and the budget team will discuss options and try to suggest the places that will let us retain as many of our frontline services as possible, but this will inevitably mean that non frontline services will bear the biggest impact of not just cuts, but total cessation. This is not a position we would ever like to be in but we must balance the budget or the consequences will be even worse. Wherever possible we will try to give notice to allow changes to happen."