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R4GV Update 29 January 2022
We’re devoting this month’s Update to the Guildford Borough Council budget as we want to explain what’s happening, especially because there will undoubtedly be cynical attempts to create self-serving political capital out of a short-term financial situation that we have all been dealt.
Guildford Borough Council’s essential budget briefing
This short insight will give you all the facts regarding the budgetary challenges facing our borough right now. It will also provide you with a full understanding of the measures we are taking to ensure continued delivery of services to you whilst we seek to balance the budget.
In a nutshell: with reduced income and increased costs (as a result of the pandemic and inflation), and less funding from Government each year, Guildford Borough Council (GBC) has a budget gap to close. And it’s a gap that is likely to impact not just 2021/22, but also future years. However, we’re working hard to successfully resolve it so we can get back to our main goal: making Guildford a great place to live, work and visit.
How did this gap come about?
GBC was traditionally relatively wealthy. Finances were strong and the council could be more generous than many, providing funding and grants to causes and organisations that it chose to support, rather than only fund activities that were required by law.
Sadly, the council’s circumstances have long since changed with costs rising and revenues significantly down. The last two years have dramatically reduced them further as Covid-19 hit our borough’s economy, whilst simultaneously increasing residents’ need for our support.
How did the pandemic affect GBC’s income?
Our loss of income has been dramatic as GBC battled with the effects of the pandemic.
A good example concerns car parks. Normally, Guildford’s car parks generate £1m per month in income (£12m per year). During the pandemic’s first wave, to encourage retail, GBC made Guildford’s car parks free. 2021/22 was showing a significant rebound to 2020/21 with an expectation that – over the whole year – car parks were going to hit 90% capacity. Then in November came the Government’s Plan B, urging everyone who could work from home to do so. This impacted that projection with little hope of the Government compensating this important loss of income.
The Government fully compensated GBC for direct spending on Covid-related expenditure (such as food hubs). But it only partly remunerated GBC for lost income incurred by the closure of facilities like The Spectrum and G-Live. Maintaining these assets while they were closed cost GBC £6.5m last year – which the council had to meet from reserves.
Did GBC incur extra costs as a result of Covid 19?
The loss of income has been compounded by extra costs incurred due to Covid 19.
Take just one example: during the first wave of the pandemic many people confined to home passed the time in drawing up housing extension plans resulting in a flood of planning applications. As GBC’s planning department couldn’t cope with the volume, temporary extra staff were deployed, along with other measures, resulting in close to £1m extra expense for the year.
Didn’t GBC get support funding from central Government?
The impact of increased costs this year exacerbated the existing progressive reduction in Government support funding in the years running up to the pandemic. In 2013/14 Guildford received £4m in Revenue Support Grant; in 2017/18 Guildford got zero.
Although GBC collects all council and business taxes for the Government, the council is only allowed to retain just 9% of the council tax residents pay (an average of just under £200 per household), and under 5% of the business tax organisations pay.
Guildford has a four-year budgetary cycle. Previously this was matched by a financial settlement from Government. However, in the current and previous two years, the Government only awarded single year settlements, making medium term budgeting almost impossible.
What was this year’s local government finance settlement?
The annual finance settlement from Government determines how local government will be funded, so it directly impacts GBC’s income.
This year’s settlement was underwhelming but better than feared. However, as it arrived less than a week before Christmas, this made our job very difficult – the budget is due to be considered by full council in early February.
The permission to increase council tax by 2.75% (previous limit was 2%) will generate an additional £86,000. The New Home Bonus will provide another £766,000. Both will help us tackle the £1.5m projected deficit.
What is expected of councils when it comes to budgets?
Councils are required, by law, to achieve a balanced budget. We may not forecast or deliver an overspend (deficit) and may not borrow to fund a deficit on day-to-day spending. (We can borrow to fund investment or ‘capital’ projects such as housing). Councils which become technically bankrupt – ie have a deficit on day-to-day spending – risk being taken over and run by Government commissioners.
How is GBC planning to restore our borough’s financial reserves?
There’s some good news on how we plan to rebuild our reserves and invest in the borough.
GBC is permitted to invest excess cash in investment funds as long as they are appropriate to our risk framework. Income from these funds is another important way for Guildford to overcome the loss of funding from Westminster.
One fund – managed by M&G – achieved a remarkable return of £1.5m on £2m of capital. In December we used this gain to rebuild our reserves and reinvested the original £2m.
Another income stream is GBC’s rental income from investment properties. This portfolio is dominated by industrial units, such as those in the Midleton Estate (100% of which the council owns and is finishing rebuilding, significantly increasing their yield); a large part of Slyfield; as well as units elsewhere. The council also has a modest exposure to offices, retail and restaurants. We only invest in property within the borough boundary so GBC avoided the huge losses incurred by Surrey County Council in their ill-fated forays into west country shopping centres – at a £50m cost to taxpayers.
Why did we impose a freeze on discretionary spending?
In response to facing a significant projected budget overspend this year (and, potentially, future years) we decided on prudent action now to try and avoid an unbalanced budget. In November, we decided to impose a freeze on discretionary spending. It is too soon to quantify the precise impact, but the early indicators are positive that it should have a material impact on our budgetary position this year.
What is our savings strategy?
We will not stop seeking innovative ways to maximise the services we provide from your hard-earned council tax.
We have carried out a comprehensive spending review to examine all discretionary expenditure across the borough from public toilets to community services. We have carefully considered how to make savings without unfairly or disproportionately impacting good causes, evaluating each case individually.
Our decision to centralise procurement has achieved savings of £282,000 this year and we are on track to save £1.2m over four years.
A corporate restructure, Future Guildford, has yielded almost £7m in savings. We hope that collaborating with Waverly Borough Council will save another £1m over the coming years.
We are reducing the £300,000 received annually by the borough’s two Citizens Advice Bureaux to £275,000 in 2022-23 (an 8% reduction) and £250,000 in the following year.
We are also reducing the £310,220 we usually give annually to the Yvonne Arnaud Theatre over the next three years to £200,000. Whilst not a popular move, GBC has to be steered by our borough-wide consultation in which residents placed the arts at the bottom of their priority list (see table below).
GBC Fiscal Year 2021/22 Budget Consultation Results
Both of these proposals will need approval at full council in February to be implemented.
What additional pressures are there?
We are being forewarned that, due to recent inflation figures, Unison (the public sector union) are preparing to request greater pay increases – on top of their original demands for 10% over three years. A 1% pay increase for our hardworking officers costs £300k, so an increase to match inflation at 5% would cost around £1.5m. Last year, staff received no pay increase.
Additionally, new National Insurance employers’ contributions for local Government will cost £343,000. Again, this is in the budget but has increased the pressure.
How are we investing in the borough’s future?
We remain determined to invest in the future of Guildford – despite the challenges of ensuring a balanced budget.
GBC urgently needs to compensate for years of underspending (which has left our housing stock in poor condition) and meet costs incurred by increased standards required by central Government (in the wake of the Grenfell Towers tragedy).
We are proposing to dramatically increase the budget for refurbishment of Guildford’s council owned housing for 2022-23 to a record breaking £24.5m, up from £15m in the current year. A large percentage of the budget will be spent on new kitchens and bathrooms. We will also be addressing improved insulation and heating systems, and tackling damp.
GBC’s Capital and Investment Strategy 2022-23 to 2025 is an ambitious programme which includes a £218m budget for Weyside Urban Village. It requires that we borrow £298m between 2021-22 and 2026-27.
What does the future hold for GBC’s finances?
Given the huge uncertainty in the UK’s economic outlook, with inflation seemingly out of control and the lingering effects of the pandemic, it is very difficult to accurately model our financial position. As we go to print, the most likely and unavoidable outcome this year looks to be an overspend (deficit).
Looking forward, the only certainty is uncertainty. It is unclear how long Covid and its mutations will continue to affect our economy, working patterns and shopping habits. And there are no guarantees of Government help.
We have had no assurance from Government that they will partially fund any income losses under the Sales Fees and Charges compensation scheme – which was in place through the pandemic up to the end of June 2021.
But our mission is clear!
Covid has posed massive challenges for our borough, and we have worked tirelessly to support the residents, organisations and businesses through it. However, there are no easy answers. At the same time, we are fully braced for unhelpful and unnecessary controversy as others seek to make cynical self-serving political capital out of the short-lived financial position that we have all been dealt.
We, by contrast, will be spending all our energy and time constructively, working hard to resolve our borough’s finances whilst delivering the best services for you and balancing GBC’s budget.
If you have thoughts, concerns and questions, we really want to hear from you.
Please email us at: info@r4gv.org.uk
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