Inflation "big worry" for council's budget black hole
Rising energy bills are also increasing financial pressures.
Inflation and rising interest rates have left Portsmouth City Council staring down a multi-million pound financial black hole this year.
The latest forecast shows the council overspending the budget it set at the start of the year by £6.8m, with a higher-than-expected pay rise for employees and increasing energy costs being the largest contributors.
Its leader, councillor Gerald Vernon-Jackson, said there was ‘significant financial pressure’ on all local authorities but despite this the government was likely to add further burdens to its budget.
‘Energy prices and inflation are the big two,’ he said. ‘We expected a level of increase but not to the extent we’ve seen and the recent economic problems have made that even more difficult.
‘We will work to make sure we can deliver a balanced budget over the coming months but I don’t see any government support coming our way, in fact my understanding is the opposite and that is considering passing more costs onto councils.’
A budget monitoring report shows the council’s overspend would be even higher had it not had almost £5m in contingency funds it will draw down from this year.
But even with this, the council’s cabinet has agreed to find £3m worth of ‘uncommitted’ capital projects to put on hold ‘as a precautionary measure’ until funding is found – this amounts to about one-third of those due to start next year.
‘This council – alongside other councils – is in a particularly financially-challenged position at this time,’ it director of finance, Chris Ward, said.
‘There are three key factors driving the challenge: inflationary impacts on the council, rising demand for services as a consequence of the cost of living crisis and the legacy impact of Covid.
‘At this stage, the council has sufficient financial resilience to be able to accommodate that overspend but it will be a stretch and at least £4.5m of that will continue into future years.’
The council’s pay award this year – a flat £1,925 increase – is expected to work out at an average pay rise of just over six per cent per employee and amounts to £3.8m more than the 2.5 per cent it budgeted this year.
Rising energy prices have added a further £1.8m.
And Mr Ward said the current economic issues facing the country were likely to hamper long-term cost-cutting measures.
‘Inflation is the big worry,’ he said. ‘If the response is to raise interest rates then the opportunities for any invest-to-save schemes are more difficult because the cost of borrowing is rising.’
Despite these concerns, Cllr Vernon-Jackson said the city council was better off than its neighbours with Southampton City Council facing a £9m overspend in its children’s social care budget alone while Hampshire County Council has forecast it will have an ‘unprecedented’ £200m deficit over the next three years.