‘Big savings’ needed to plug Lancashire County Council’s predicted £160m black hole

Lancashire County Council will have to find what it has described as “significant savings” in the coming years in order to bridge a ballooning budget deficit.

The authority’s latest assessment of its finances has shown a marked deterioration in the space of just three months.

In June, County Hall was forecasting a funding shortfall of £30.5m at the end of 2023/24, but the new estimate puts that figure at £87m - a jump of £56.5m.

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Finance officers predict that - if no action were taken to plug the deepening black hole - it would increase to almost £160m by 2026/27, the end of the period covered by the current medium-term financial strategy.

County Hall has been confronted with a financial conundrum

That would put the county council 80 percent of the way back to the £200m deficit it had when the Conservatives retook control of the authority a decade earlier in 2017 - wiping out many of the gains made since.

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The growing gap has been caused by factors which, according to a report to cabinet members, are “outside [of] the council’s control” - namely, a challenging combination, common to all local authorities, of spiralling inflation, a higher than expected pay rise for local government workers and increasing demand for adult and children’s services.

Deputy county council leader Alan Vincent told a cabinet meeting - held just before the announcement of the Queen’s death - that the authority was exploring ways that it could both reduce its costs and increase its income. Details are expected to be considered at forthcoming cabinet gatherings, although one savings proposal - a move to introduce charges for the telecare support service for the elderly - has already been agreed.

Deputy Lancashire County Council leader Alan Vincent says he "will not allow" the Conservative-run authority's finances to deteriorate in the way that has been forecast

County Cllr Vincent, who is also the cabinet member for resources, said that the forecast financial figures were necessarily a “worst case scenario”.

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“If we didn’t make reductions in our outgoings, increase our income or get more funds in from the government, this is the likely direction we would travel in. We do not intend to let that happen,” he said.

Labour opposition group leader Azhar Ali noted that the report assumed minimal change to the amount of money the authority will receive from central government over the next two years and called for the county council to “lobby government to look at the difficulties and challenges that we have in Lancashire, in particular”.

County Cllr Vincent said that attempts would be made to secure additional funding, but that he was obliged to take the “gloomy view” and work on the assumption that it would not materialise.

Labour opposition group leader Azhar Ali wants the county council to lobby the government for more money
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The authority’s reserves remain healthy and are estimated to stand at £191m by next March, but they are now sufficient to cover only the gap during 2023/24 and part of the following year - a shorter-term safety net than they have been in recent times. The intention is for newly-identified savings to avert the need to drain the reserve pot in its entirety.

The chasm that has opened up in County Hall’s coffers is not entirely unexpected. The authority has long stressed the uncertainty shrouding its financial future as a result of repeated short-term funding settlements from the government - covering just one year at a time - along with unpredictability surrounding demand for adult and children’s services in the wake of the pandemic.

Long-promised reform of local government funding has also been interminably delayed - and the county council is not now expecting to see any overhaul until at least 2025.

All of those issues have now been compounded by double-digit inflation - although last week’s government announcement of support for households and businesses with their energy bills did indicate that councils would also receive some form of assistance.

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The pandemic has sent Lancashire County Council’s finances on a rollercoaster ride - with many initial costs initially being covered by one-off government grants, but set against the longstanding fear that Covid would create a level of pent-up demand for services that had gone unmet during the pandemic - as well as increased pressure as a result of lingering ill health in those who had been infected.

During 2021/22, the authority undershot its budget by £30m, but it is predicting a £17.7m overspend for the current financial year. It is also aiming to deliver around £20m in savings during the same timeframe, some of which have been carried over from previous years having been delayed during the earlier part of the pandemic.

A complex relationship has also developed between demand for services within different parts of the same department since the onset of the pandemic.. As the Local Democracy Reporting Service reported in July, there has been a continuation of the reduced call for residential and nursing home placements, but more need for home care services.

A report presented to the cabinet reveals expected pressure from increased demand for services totalling £50m through to 2024/25 - £23m more than had previously been predicted. Adult and children’s services account for more than 92 percent of the overall tally.

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Adult services are seeing pressures from the growing number of people requiring care and the increasing complexity of individual cases. Children’s services are being hit by the cost of placements and the need to send some young people to agency-run residential accommodation.

Meanwhile, inflation is forecast to add £140m to the county council’s bills by 2026/27 - a massive £92m more than previously forecast, with adult and children’s services once again being the source of the majority of the rise.

Staff pay and pension requirements will also cost £17m more than expected - £34m in total - if nationally negotiated pay award proposals are approved.

All of the county council’s financial forecasts assume that it will be permitted to increase its share of council tax bills by 2.99 percent each year up to 2026/27, including an annual one percent precept to help cover the cost of social care.

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Council tax makes up around 60 percent of the authority’s income, with approximately 20 percent coming from business rates and most of the from the remainder from a range of government grants.

Overall, the county council’s budget will cross the £1bn mark for the first time in 2024/25. This year, it stands at £948m.

COUNTING THE COST

£159.7m - forecast funding gap in 2026/27 if no action taken

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£56.5m - increase in the expected funding gap in 2023/24 alone

£24m - forecast increase in costs due to inflation (2023/24-2024/25)

£34m - new pay and pension costs (2023/24-2024/25)

£191m - expected level of reserves (March 2023)

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£20m – savings aimed to be delivered during 2022/23

£1bn - Lancashire County Council's estimated overall budget (2024/25)

Source: Lancashire County Council