It’s budget time again and we are being treated to a stream of seminars and consultations, together with mind-numbing quantities of financial management-speak including funding gaps, service pressures, budget modelling tools and aggregate external finance (AEF).
Having spent the past thirty years as a journalist and councillor trying to get my head round this stuff, I can understand why members of the public might find it all a bit confusing.
AEF, for the uninitiated, is the money handed to the council each year by the Welsh Government. It makes up between 70% and 80% of the council’s net budget – the rest being financed by council tax, council tax premiums and, as a last resort, dipping into the reserves.
As the report to members helpfully explains: “The Projected Funding Gap is the difference between the estimated increased cost of providing Council Services (Pressures) and the estimated increase in funding to be received from Welsh Government in Aggregate External Finance (AEF) settlement.”
The word to keep in mind here is “estimated” because what we are talking about is the amount the council thinks it would like to spend given various assumptions regarding inflation, service pressures and other unfunded cost increases such as pension contributions and pay increases. The problem is that what are contestable assumptions soon take on the mantle of hard facts and become the basis for all subsequent discussions and calculations.
As the report to members says:
“The projected funding gap for 2025-25 based on the ‘most likely’ AEF scenario discussed in Appendix B is £34.1m as summarised in table C1 below. This is an increase from the projected funding gap reported in the Q2 2024-25 Budget Monitoring report due to a more robust Social Care demand modelling offset by improved AEF assumptions.
As detailed in Appendix C the projected funding gap for 2025-26 is £34.1m, the most significant funding gap the Council has experienced to date.
The Council has a statutory duty to agree a balanced budget for 2025-26 by 11 March 2025. This will involve some difficult decisions as a funding gap of this size cannot be easily met.” [My emphasis in bold.]
So far, so good – one man’s guess is as good as another – but after that the council resorts to what I consider to be some very dodgy mathematics when it asserts:
“Over the past 11 years a cumulative [my emphasis] funding gap of £174.8m has been funded through a combination of budget savings, increases in Council Tax, use of Council Tax premiums and use of reserves.”
The report then goes on to detail how this 174.8m “cumulative funding gap” has been bridged:
“• £110.2m (63.0%) has been achieved through base budget reductions as a result of budget savings.
• £43.3m (24.8%) has been funded though Council Tax increases
• £11.7m (6.7%) has been funded from the use of Council Tax premiums
• £9.6m (5.5%) has been funded by one off use of reserve funding.”
I raised this issue during last year’s budget seminars because I believe the use of the term “cumulative” (defined as: increasing by successive additions) is highly misleading.
I thought my point had been taken, but it has reappeared again this year. Clearly, had the council borrowed £16 million on each of these 11 years to make up this shortfall it would now have a cumulative debt of £171 m, but this cumulative funding gap is an altogether different animal.
PCC balances its budget every year, so there is nothing to carry forward from year to year. There may be a cumulative withdrawal from reserves, and council tax increases are baked into future increases, so there is a cumulative aspect to that, too, but there is no mathematical justification for accumulating any budget savings.
If it was business as usual (BAU) and the council hadn’t made these “cumulative” budget savings over the past 11 years it would now be spending an extra £110m, which, assuming 70% on salaries, would enable it to employ an extra 2,000 staff at £40,000 a shot. So what would they all be doing?
Another way to approach this is to look at Council Tax over the years in that the present administration has been in control.question. In 2017/18 the amount raised from council tax was £48 m compared to the figure of £84.6 m in the current year. That is an increase of £36.6 m (76%) when, according to the Bank of England’s inflation calculator, prices went up by just under 35%. So, on the face of it, we have a strange situation where the council has increased its council tax income by more than twice the rate of inflation, while, at the same time, making budget cuts of £110m, or more than 33% of its net budget.
Alternatively, adding these accumulated budget cuts back in to the council’s spending, would increase the amount needed to be raised from council tax from £84.6m to £194.6 m (£84.6m + £110m) compared to the original £40.5m in 2014 – an almost 500% increase over the 11 year period. And that would have taken the council way above its Standard Spending Assessment (SSA) – the amount Welsh Government calculates PCC should spend to provide an acceptable level of services to its resident population.
And, as has been pointed out, if the authority has been able to shave £110m off its spending over the past 11 years without the roof falling in, it can’t have been very cost-efficient to start with.
As I’ve said on more than one occasion, these “cumulative” budget cuts are just an exercise in pitch-rolling designed to soften-up an unsuspecting public for the planned hikes in council tax.
One of the mysteries of local government finance is what happens to the huge sums in grant monies that the council receives each year. Something tells me that therein lies the explanation for these mysterious “cumulative” budget cuts. Enquiries are ongoing – I will report further when I have more information.