Mid Suffolk Council to run £785,000 over budget due to energy costs and inflation

A forecasted £785k overspend by Mid Suffolk District Council has been blamed largely on inflation, but an inflationary pressure reserve is ready to offset much of this.

By the end of the financial year in April 2023, Mid Suffolk council’s net spend is expected to be £785k higher than budgeted in February 2022.

The council plans to use the £500k inflationary pressure reserve, set up in 2021–22, to offset part of the overspend. The rest would be funded through the growth and efficiency fund, which would decrease from £3.351m to £3.065m as a result.

The forecast is laid out in a quarter one report, to be noted by the council next Monday.

A Mid Suffolk District Council spokesperson said: “Like everyone else, we are facing increasing costs due to inflationary pressures.

“However, we are carefully monitoring any potential overspend through regular quarterly reporting to cabinet and will take action if necessary.

“Thankfully, the council is in a better position than many, and has sufficient reserves – including a £500k Inflationary Pressure Reserve set up in 2021/22 – to ensure we can continue to support our residents, communities, and staff through the financial challenges ahead.”

The area expected to create the highest additional financial burden is employee costs, with the 2.2% increase budgeted by the council in February overshadowed by the national pay award offer tabled in July, which is nearer to 8%. If this goes through, it will result in an additional cost of £638k. This pay increase will impact salaries at all local authorities in the UK.

The second highest extra cost is expected to result from the price of electricity, expected to cost £438k more than budgeted in February due to a 244% forecasted inflation rate.

£368k for electricity at leisure centres is due to be repaid by the leisure centre providers. So, the estimated additional cost to the council for electricity is £70k. However, the report accepts there is ‘significant risk’ providers will ask for additional support from the council to cover this. Leisure centre buildings are owned by the council, but run by separate providers.

The other areas in which inflation is expected to cause overspends are: petrol, diesel and HVO; repairs; equipment, tools and materials; professional and consultancy fees; contracted services; software licences; and fees associated with wastegates, which are used in engines.

The report also lists risks produced by the changed financial position. Importantly, it describes the likelihood of savings and efficiencies not being delivered as ‘probable’. It states this would be detrimental to the resources available to the council, which enable it to deliver services and strategic priorities. Should this happen, the impact would be ‘noticeable’, according to the report.

To mitigate this risk, the report states monitoring by finance teams, corporate managers, assistant directors and the senior leadership team will take place throughout the year.

Inflation hit 10.1% in July, up from 9.4% in June, and a senior economist at the Resolution Foundation has suggested this could increase to 15% in early 2022. The Bank of England’s target inflation rate is 2%.