Warning of 'Severe' Financial Situation for East Riding Council

Higher than expected inflation, wage increases and spiralling adult social care costs have led to East Riding Council officials warning it faces severe pressure on its finances.

East Riding Council’s Cabinet is set to meet next week to decide how to deal with a forecast overspend of £9.4m by the end of the current financial year.

An internal email sent to staff seen by LDRS told them all non-essential spending should end and recruitment to vacant posts is going to be halted.

Finance Portfolio Holder Cllr Nigel Wilkinson said costs would need to be contained while continuing to provide services pressured by inflation amid the cost of living crisis.

It comes as concerns are continuing to mount about the state of council’s finances, with Birmingham City Council becoming the latest to effectively declare insolvency last week.

Birmingham City Council issued a Section 114 notice and warned it would be tighten its spending as it faces a budget black hole of £87m.

A Section 114 notice stops council spending on all but essential services until budgets are balanced.

Councils are legally required to set balanced budgets, unlike the Government which can run deficits.

A report set to go before East Riding Council’s Cabinet on Tuesday (September 19) stated that the issuing of Section 114 notices is becoming increasingly common.

The Special Interest Group of Municipal Authorities has warned 26 of their 47 members could issue the notices in the next two years.

Five are currently deciding whether to do so, according to the report.

There is no suggestion that East Riding Council is considering issuing a Section 114 notice at this stage.

But the report warned the budgets of adult social care and health and children, families and schools will have to be looked at as part of efforts to reign in spending.

The report stated:

“Pressures that impacted on the 2022-3 General Fund budget are continuing to grow and severely impact the 2023-4 budget.

“Local government finances are stretched beyond capacity, reserves are being depleted and once scarce Section 114 notices have become a more regular occurrence, with frequent warnings of more to come in the coming months.”

The Cabinet will consider whether to use £4.7m from council reserves to help plug the gap in spending this year.

Officials would also look at eliminating all non-essential spending in council services and requiring executive directors approve any recruitment to vacant posts under the plans.

A £.62m gap in the council’s adult social care budget has been fuelled by rising demand as well as packages for those being helped becoming more complex.

Inflation is also pushing up costs within the adult social care market.

Spending on the council’s capital programme, building on new roads, infrastructure, buildings and other projects, would be cut by £2.8m to a forecast yearly spend of £152.2m.

The report stated that a key concern for schools was a forecast £6.6m spending over budget on high needs, children with special educational needs and disabilities (SEND).

The council’s schools budget, which is funded by the Department for Education, is forecast to overspend by £8.9m this year.

It also stated that robust controls will be needed to deal with a projected £4.2m overspend on the council’s housing stock.

The council had already approved £19.3m in cuts when its budget was set in February after then leader Cllr Jonathan Owen warned of a looming £36m financial black hole by 2027.

The report to Cabinet stated only around 68 per cent of those savings, £13.2m, will be made, leaving a £6.2m gap.

In the Communities and Environment Directorate, which includes streetscene services like grass cutters and cleaners, there is set to be £700,000 spent under budget.

But the report stated this is partly because the council is struggling to recruit and retain staff.

In the email sent to staff, they were told to take measures which could help bring budgets as close to balanced as possible.

It stated:

“We are asking all managers to consider carefully their expenditure to reduce costs and underspend their budgets where possible, by ensuring that all non-essential expenditure is suspended and recruitment to vacant posts is paused unless absolutely essential.

“These measures will support us to reduce our overspend and ensure that the council’s overall budget is brought back into balance.”

Finance Portfolio Holder Cllr Wilkinson said the East Riding’s position was not unlike those of other councils.

Cllr Wilkinson said:

“We now need to take steps to contain costs within our budget for this financial year, whilst continuing to provide good quality services to residents.

“We are also looking to the future where we expect demand for social care in both children’s services and adult services to continue to increase.

“We will continue with our work in order to move towards a balanced budget.”