The council is facing a “daunting” budget shortfall of up to £17 million next year as the national financial crisis bites, which means jobs will have to be cut and the quality of service provision will suffer, according to a stark report by depute chief executive Hazel Sutherland.
With a likely reduction of between £3 million and £4 million in the Scottish government’s revenue support grant, upward spending pressures on specific areas like community care and savings from yet-to-be-implemented reforms to ports and harbours already banked, some extremely tough decisions lie ahead for the islands’ beleaguered councillors.
The 2011-12 shortfall comes on top of the £18.3 million funding “gap” this year, which was bridged by saving almost £10 million through cutbacks and efficiency savings and the introduction or raising of fees while stopping short of redundancies.
Ms Sutherland is asking members at tomorrow’s Full Council meeting to approve the establishment of a dedicated executive team to begin work with councillors now on identifying savings and areas where income can be increased from fees and charges. One possibility she moots is a freeze in wages, which would save £0.9 million.
Failure to close the funding gap will result in the council having to draw further on its oil reserves, which currently sit at around £275 million.
Ms Sutherland writes: “Using certain assumptions, the funding gap for next financial year could be from £15-£17m … There is a potential £3-£4 million cut in Scottish government revenue support, the council needs to find £8-£9m to meet the overall draw on reserves policy and there are real growth items to consider, at £3-£4m. This scenario assumes that the £9.9m savings required in the current year will be met and that inflation and wage awards will be around 1 per cent.
“It is my opinion, therefore, that the council must tackle at a fundamental level the cost structures and quality of some services in order to live within its means and secure the reserves for future generations to enjoy.
“On current information, it will not be possible to make savings of the extent required to meet the current financial policy framework without impacting on the current level and quality of service and without impacting on staffing levels.”
Ms Sutherland suggests that the schools service, already embarked on identifying longer-term savings through controversial school closures, and ports and harbours, which is conducting its own efficiency exercise, should be exempt from further cuts.
But she offers councillors the opportunity to leave community care alone, with a likely annual increase in spending of £2 million, or restrict growth to, say, £1 million per annum or subject it to cuts along with other services.
Ms Sutherland is also proposing a “spend to save” budget, from the underspend on last year’s accounts, to help service heads target early retirement and voluntary redundancies. “I consider that this might give managers security that where they can identify ongoing net staffing reductions, through management reviews or changing the way current services are provided; any one-off costs could met from this corporate budget. This might encourage staff to pro-actively seek economies and efficiencies.”
Citing criticisms made of the council in Audit Scotland’s recent report, which highlighted a lack of clear, strategic direction and consistent decision making as well as trouble ahead in sustaining current service levels while maintaining the reserves at above £250 million, Ms Sutherland says failure to balance the budget next year could:
• Force the council to breach policy and use the reserves to pay for services, denying future generations the benefit of that money;
• Mean those in the community most at need of services could have to go without;
• Result in the council having difficulty demonstrating its statutory duty of demonstrating value for money;
• Lead to councillors facing challenges from Audit Scotland and other public bodies;
• Damage the reputation of council among service users and the community generally.
However, she recognises the tough action required could result in job cuts at a time of recession; disruption to services; dissatisfaction in the community; disagreement in the community about what should and should not be cut; and staff and union unrest.