Not waving, but drowning – Council budgets and inflationary pressures

Posted on 28/03/2024 by Pandora Ellis.

 By Camilla de Bernhardt Lane

Water-based analogies are often applied to all things finance; cash flow, same storm, but different boats; keeping your head above water, liquidating assets, and so on. So I make no apology for my blatant use of maritime analogies throughout this blog, not least because it feels like hyperbolic rhetoric is needed when discussing the size of the challenge to local government finances.

For many years in local government the annual cycle of budget setting has been predictable and in-year costs have been stable. Whilst many of us have wished to see longer-term settlements to enable greater accuracy with medium term financial planning, the saving grace has been low and manageable inflation. Through austerity and repeated reductions in central government funding Councils have dried the pool of resources, but through prudent fiscal management most councils have built reasonable reserves. 

This pragmatic approach, however, does not allow for agile responses to external pressures, and is why we are seeing such difficulties in the local authority sphere. We all know that the impact of energy prices, inflation, the increase in National Living Wage pressures, and global events have all contributed to massive increases in the cost of running services. Added to this is the increase in demand in demand-led services often for older and younger people in need. In addition preventative services have been paired back year on year, compounding need.  

The County Council’s Network in association with the Society of County Treasurers predicted last year that Councils face £1.5 Billion in inflationary costs alone. The LGA has conducted further analysis and reached the astronomical figure of £3.6 billion as the unforeseen figure that local authorities will have to find this year because of inflation and rising costs. This is not a looming wave, hitting a well-resourced sector, well prepared to meet these challenges. Most local authorities are already at sea, struggling with rapidly rising complexity and demand after years of austerity. 

Scrutiny by local Councillors is essential in navigating the complexities of budgetary decision-making.  Their active involvement in scrutinising the allocation of funds and evaluating the efficiency of spending contributes to the democratic legitimacy of council decisions. This is even more necessary when scarcity demands difficult decisions. The democratic process requires that decisions impacting communities are subject to thorough examination and debate.  Councillors hold the check and balance, ensuring that budgetary decisions align with the priorities and values of the local population. Councils should actively involve residents in discussions about budget priorities, seeking input on the allocation of resources and understanding the specific needs of the community. This inclusive approach fosters a sense of ownership and transparency, reinforcing the democratic foundation of local governance. 

As councils confront the unforeseen financial pressures, the synergy between scrutiny, local democracy, and effective community engagement becomes a lynchpin for success. Councillors, as elected representatives, play a crucial role not only in examining budgetary decisions but also in articulating local concerns and aspirations. Their scrutiny functions as a mechanism for holding councils accountable, ensuring that decisions are made in the best interests of the residents they serve. Or at the very least that the connection between community aspiration, desire and need is considered alongside budget reductions.  

Here are some practical steps to help councillors engaged in the scrutiny process actively steer through the choppy waters: 

  1. Understand the context: Before delving into the details of the budget, councillors should have a comprehensive understanding of the broader economic context, including the impact of global trends, energy prices, inflation, and National Living Wage pressures. This contextual awareness provides a foundation for informed decision-making.  Think realism, and the situation that sets the tone. 
  2. Engage with constituents: Actively seek input from constituents to understand their priorities and concerns. Community engagement ensures that councillors are aware of the diverse needs of their residents, allowing them to advocate effectively for budget allocations that align with community expectations.  As part of this, honest conversations about the difficulty of decisions can help meaningful engagement.  
  3. Examine service priorities: Scrutinise the proposed budget with a focus on service priorities. Assess which services are essential to the well-being of the community and should be prioritised, especially in the face of unforeseen cost pressures. This involves evaluating the impact of proposed budgetary changes on service delivery. 
  4. Evaluate efficiency measures: Explore opportunities for operational efficiency within the council. Seek to understand proposed measures aimed at improving service delivery, reducing costs, and enhancing overall efficiency. Including assessing the feasibility and potential impact of such measures. 
  5. Consider revenue generation: What is your council’s strategy for revenue generation, including exploring alternative sources of income? Consider proposals for generating additional revenue through means such as partnerships, grants, or innovative financing mechanisms. Evaluate the sustainability and potential impact of these revenue streams, or the ability to divest funding to be replaced by different funding opportunities. 
  6. Question budget assumptions: Scrutinise the underlying assumptions and projections in the budget. Question the basis for revenue forecasts, expenditure estimates, and any assumptions made about the economic landscape. A critical examination of these elements ensures a more accurate and reliable budget. 
  7. Address inequality and fairness: Scrutinise the budget through the lens of equality and fairness.  How might proposed allocations impact different demographic groups within the community? Does your budget promote social justice – or at the very least not exacerbate disparities in service provision? 
  8. Advocate for community well-being: Keep the community’s well-being at the forefront of scrutiny efforts. Councillors should advocate for budget decisions that contribute positively to the overall quality of life for residents.  In addition, there are likely to be increasing numbers of household that are struggling to pay Council tax, what impact will this have on revenue generation? Consider unintended consequences in wellbeing.  
  9. Communicate transparently: Finally, communicating the scrutiny process transparently with constituents. Clearly articulate the rationale behind scrutiny, address community concerns, and keep residents informed about how their priorities are being considered in the budgetary process. 

By upholding these elements of challenge, Councils can navigate the fiscal seas with a transparent and inclusive approach, building trust within the community and fostering a resilient foundation for local governance. Local Councillors can contribute meaningfully to the scrutiny of council budgets, ensuring that financial decisions are well-informed, transparent, and aligned with the needs and expectations of the communities they serve. This approach not only enhances the democratic integrity of the process but also strengthens the foundation for effective local governance. 

As a final thought, we may not be completely lost at sea (sorry – not sorry), very early reports from the Bank of England are suggesting that inflation may well be coming down much sooner than expected, with three leading forecasters issued a surprise update suggesting the inflation rate will halve to 2% by April.  This is not likely to provide much relief for S151 Officers or Members looking to set their budgets in the next month.  


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