Finance chief warns of ‘big challenge’ in meeting single status agreement costs
By NEIL RIDDELL
Shetland Islands Council has agreed to freeze council tax rates and has set a projected revenue spend of £104.3 million for the next financial year, though it looks set to dip into its oil reserves to the tune of four per cent of that budget to fund the single status pay agreement later in 2009.
Rent for council house tenants will rise by 3.72 per cent, taking the average rent from £54.93 to £56.98, which SIC head of finance Graham Johnston said was “at least tolerable” for tenants.
Mr Johnston said the £83.9 million funding settlement from the Scottish government was broadly in line with what had been anticipated. A further £9 million comes into the coffers from non-domestic rates and £7.9 million from council tax-payers, with an additional £256,000 from the government to finance freezing the council tax.
The Scottish government recently dropped its proposals to replace the council tax with a 3p local income tax after a plethora of problems with one of its flagship policies, but the SNP is expected to continue with a policy of asking local authorities to freeze the rate for the remainder of this parliament before looking at the issue afresh after the next election.
Members unanimously agreed at a meeting of the Full Council to approve the freeze, in line with COSLA’s concordat with the Holyrood administration, for the second year in succession.
It means there will be no change in the nine property bands in the coming year, which are as follows: band A £702 (or £585 for disabled taxpayers); band B £819; band C £936; band D £1,053; band E £1,287; band F £1,521; band G £1,755 and band H £2,106.
The band D figure in Shetland is slightly above the £1,037 set by Orkney Islands Council but substantially lower than the £1,230 level, the highest in Scotland, for Aberdeen City Council.
The SIC’s revenue budget as a whole requires a draw of £3 million on the council’s oil reserves, which it is trying to wean itself off at a rate of roughly £1 million a year with a view to eliminating any reserve spend on revenue entirely in three years’ time.
There is a further £6.7 million spend from the reserve fund – which receives its income directly from profits at Sullom Voe Oil Terminal and external investments – which largely goes on economic development and now includes the transfer of Shetland Development Trust’s activities on the balance sheet.
But contributions to the reserve fund from Sullom Voe will be well below the £4 million target due to the reduced level of harbour traffic at the terminal and Mr Johnston said restoration of profitability was a “crucial issue” which “will need to be the focus of attention in the coming year”.
So what are taxpayers getting for their hard-earned pounds? The wage bill, which at this stage does not include the single status agreement, totals £57.6 million while operating costs stand at £32.7 million.
In terms of departmental spends, the schools service will swallow up £35 million – by far the highest per head spend in the whole of Scotland – and £16.9 million goes on community care. Transport and roads account for budgets of £5.3 million and £8.9 million respectively, while the environment department’s activities come with a price tag of £7.3 million.
Spending on children’s services is projected to be £5.7 million and the education and social care directorate costs the taxpayer £3.2 million, while spending on the housing department totals £870,000. Only the community care budget comes in substantially above the amount spent in 2008/9, with an increase in budget of £600,000.
But Mr Johnston reminded councillors that they faced a “big challenge” in meeting the costs of implementing single status as protracted negotiations near a conclusion, with a £4 million annual cap on expenditure which does not include a lump sum payment to fund back pay for workers who have been underpaid for many months.
It is now being suggested that to finance the year-on-year burden the council should dip into its oil reserves to spend a sum equating to almost four per cent of its entire revenue budget. Mr Johnston said he would be coming back to councillors later in the year once full details of the package are known, which should be sometime in the spring.
One possible way out lies in a consistent recent pattern of underspending the annual budget, with a £3 million or more underspend in each of the three financial years to April 2008. Mr Johnston said there was “evidence that this pattern is continuing in the current year” and should do so next year too.
But, in the meantime, his report stated that “a temporary period of drawing more from reserves than policy allows is the best option for funding the implementation of single status” provided that “best endeavours” are made to minimise the extent and duration of the period during which reserves are overdrawn.
Councillor Jonathan Wills raised his concern at the prospect of dipping further into the reserves, which have taken a hammering on the stock market in the past 12 months, and said he would be opposing any such move when the time comes. “I didn’t get us into this mess,” he said.
Chief executive Morgan Goodlad, who has been involved in the pay negotiations, said that because there was no additional central government funding available to implement it, there would “have to be a look at how single status is done”.
Reiterating the “steady as she goes” approach which he has adopted throughout the global financial crisis, Mr Johnston told The Shetland Times that any notion of imposing across the board cuts of the order of four or five per cent of the entire revenue budget would in effect mean laying off 100 or more members of staff and he did not feel that would be a wise move, not least in a time of recession.
While he understood Dr Wills’ concerns about the state of the council’s finances in the years ahead, he said it was vital in the current economic climate to keep spending “as stable as possible” because of the SIC’s crucial importance to the local economy. “I’m aware that other councils [are laying off workers] but we’re not in the position of having to do so,” he added.