SIC to overhaul budget and reserves policies amid warnings of huge overspend
Shetland Islands Council is to radically overhaul the way it sets annual budgets, including drawing money from its diminishing oil reserves, after a warning from its outgoing head of finance that spending is currently “well in excess of what is affordable and sustainable”.
The newly established executive committee, designed to set the council’s main priorities, today agreed to four key policies that it is hoped will narrow the gap between income and expenditure, which it is estimated will be £25 million for the next financial year and £26 million in 2013/14. The proposals will go before the Full Council on Wednesday.
The council’s draft accounts reveal that to close the gap this year (2010/11) the council had to draw down £34.416 million, less than the £44.666 million originally envisaged for a variety of reasons, including finding savings of almost £10 million, but still enough to breach official policy of maintaining reserves at a “floor” of £250 million.
“Failure to learn from the historical financial performance in planning for the future may result in a risk that the council’s financial policies [are] not achieved, with the reserves being utilised now to support the current models of service delivery and not retained for enjoyment by future generations,” Hazel Sutherland, who is to leave the authority later this year, said in one of three reports on finances before committee members.
Failure to act and take difficult decisions now might also mean the council would not be in a position to adapt to growing and changing service needs, potentially face further challenges from the Accounts Commission and suffer damage to its reputation in the community.
Yet cuts could result in job losses, disruption to services, dissatisfaction and disagreement in the community, the perceived alienation of some communities and staff and union unrest.
Councillors accepted Ms Sutherland’s recommendations to:
(i) Set a baseline for reserves in the capital, renewals and repairs and reserve funds of £258.6 million, with a separate policy framework and budget for each. This excludes just over £15 million set aside for specific functions such as housing repairs.
(ii) Develop a charging policy for council services which “presumes that the council will charge for services, where it is appropriate to do so, based upon an open and transparent level of subsidy for services provided”.
(iii) Re-establish a general fund revenue balance in common with most other councils, of around two per cent of the overall spend.
(iv) Agree to develop spend-to-save budgets on the capital and revenue accounts.
Councillors also agreed to a timetable under which the changes are introduced in time for a programme of community discussions between October and January next year and the finalisation of the budget in February next year.
Ms Sutherland said the proposals would lead to better control of decisions. The saving of £25 million would be a three-year piece of work, which she described as a “challenging exercise”. Good progress was being made this year, she said, and described it as “work in progress”, although additional costs such as fuel costs on ferries had not been factored in yet.
Chief executive Alistair Buchan said the proposals would lead to “much better planning and prioritisation”.
Councillor Allison Duncan called for a defined report about statutory and non-statutory obligations, and Mr Buchan said this was something the council was identifying. He said: “It’s not a straightforward as it appears.”
Councillor Betty Fullerton said this was an area that could be very complicated for recipients of services who could complain about being charged.
Head of legal Jan Riise agreed it was “complex”, and said responsibility for designating statutory and discretionary services rested with the chair of the committee involved. He mentioned that south of the border some councils are being challenged on this subject.
· Vacancies within the council should be closely monitored as a means of saving money, the meeting also heard.
Head of organisational development John Smith said the council’s first consideration would be to deliver services, and it would seek to redeploy staff as necessary.
Mr Smith said there would be a “presumption against recruitment” but this was not an easy policy as there was often a fixed need. This could mean a change in the way the service was delivered, he said. His department would also monitor sickness absence.
Mr Buchan said vacancy monitoring was “vital” but was not a solution in its own right, as “scenario planning” and prioritising services also had to be used.
He said that some areas were more operationally pressing than others, and although all jobs would go through the vacancy monitoring system it would be “an uneasy balance”.
Councillors supported the recommendation, which Mr Smith described as a “huge task”.