The economic turmoil unleashed since the Government’s mini-budget last week could pose a “massive risk” to council services in Newcastle, politicians fear.
Newcastle City Council and other authorities across the region were already warning of a dire financial situation, with inflation and the energy crisis sending civic centre bills spiralling by tens of millions of pounds. And there are now concerns that the market chaos of recent days, since Chancellor Kwasi Kwarteng announced a raft of huge cuts and borrowing last Friday, will make the predicament even worse.
The Local Democracy Reporting Service revealed last week that the city council was predicting that its costs would rise by more than £30m next year and that it would be left with a budget deficit of £22.2m. At a cabinet meeting on Thursday evening, councillors were told that the authority is currently projecting a £6.2m overspend in the current financial year – due to factors including a larger than expected pay rise for staff and inflated contract costs.
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Liberal Democrat Gareth Kane cautioned that this week’s mayhem, which saw the Bank of England intervene on Wednesday to avert a “material risk to UK financial stability”, could spell more trouble for the foreseeable future. He said: “Given the financial turmoil of the last six days, that nobody could quite have predicted, and given that we already have an overspend due to rising inflation, this strikes me as a massive risk to the council for years to come.”
Asked if the current crisis would require civic centre bosses to take a more “in depth” look at the risk to the council coffers, Labour’s deputy council leader Karen Kilgour replied: “I would anticipate so, yes. Clearly the risk has increased, for all local authorities. Our funding remains uncertain because we are only getting one-year settlements and we still don’t know what is happening there.”
Coun Kilgour had earlier said that Newcastle was “not alone in that we are in the same position as many local authorities who are projecting overspends at the moment” and that cash reserves could be used to cover the current shortfall. A report to the cabinet cites a series of increased pressures on the council budget – including £5.3m from awarding staff an average 6.5% pay rise, £1.2m extra for gas and electricity bills, and inflated payments for PFI contracts for services including waste disposal, libraries, and street lighting.
Northumberland County Council had offered all of its staff the chance to apply for voluntary redundancy, with the authority currently predicting that it will overspend its budget for this year by £12m. Durham County Council has warned it will need to dip into its cash reserves to help cover an overspend of £19.2m, while North Tyneside Council faces an in-year deficit of almost £11m.
Mr Kwarteng and Liz Truss have shown no sign of U-turning on the new government’s financial plans. In her first public comments since the pound hit a record low on Monday, the Prime Minister said during a round of interviews on BBC local radio that her administration “had to take urgent action to get our economy growing”.
She added: “Of course that means taking controversial and difficult decisions but I am prepared to do that."
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