Behind the Headlines - Council Sets its Budget

Orkney Islands Council has set its budget for 2022/23.

There was lot of information included in the report to today's Committee and at the meeting - and we thought it might be useful to explain a bit more behind those figures.

What’s been happening today?

The Council’s Policy and Resources Committee met today to discuss the Council’s budget for 2022/2023.  They looked at how much we need to spend this year in order to provide local services and how much funding we’re getting from the Scottish Government to do that. Elected Members also decided how much funding we needed to take from elsewhere to make up the difference  - for example taking money from our reserves or increasing Council tax.

Can I read the report or listen in to the meeting

You can access the papers for the meeting here and listen to a recording of the meeting here https://soundcloud.com/orkney-islands-council/oic-special-policy-and-resources-committee-22nd-february-2022

How much money does the Council spend on services each year?

The General Fund revenue budget for financial year 2022/23 has been set at £91,260,200.

Are there any specific additional costs that the Council is facing this year?

Yes.  We split these into recurring costs (i.e. costs that we’ll need to fund every year) and non-recurring costs (i.e. costs we’re only facing this year)

Recurring additional costs include school and public bus services, the re-opening of Flotta School, charges for replacement bins and additional costs on the back of a review of staffing capacity

Non-recurring includes nursery provision and the upcoming costs of local government and community council elections.

We’ve also set aside additional funding for the Picky Centre to help them deal with the impacts of Covid.

How much funding are we getting from the Scottish Government?

The provisional revenue grant funding to the Council from the Scottish Government is £84,715,000 including £15,528,000 of ring-fenced grants –

Where will the rest of money come from?

We’ll take £8,262,900 from the Strategic Reserve Fund, £3,864,100 from General Fund Balances .

What does it mean by ‘the floor’?

The Scottish Government’s floor mechanism is designed to ensure a consistent minimum increase or maximum decrease in funding across all councils. 

The calculation means that Orkney Islands Council, as the smallest Council (and the poorest funded) must pay into a pot that is then distributed to Councils who have funding cuts – usually the much bigger councils.  

In fact, for 2022/23, the Orkney’s overall funding has been reduced by a further £126,000 as a result of the Scottish Government’s requirement for the Council to make a contribution of £1.33million to the floor.   In contrast, Shetland and Western Isles Councils receive beneficial contributions from the floor to the value of £4.69million and £17.98million respectively.

What’s happening with funding for ferries?

The allocation includes £12,847,000 for provision of ferry services. This is £452,000 less funding than was requested from the Scottish Government and doesn’t account for the costs of ferry replacement

The Scottish Government has said that there’s actually been an increase in funding to local authorities – and you do seem to be getting additional funding this year - are they right?

We don’t agree with this assessment at all – and we’re not the only ones. COSLA – the umbrella body for local government say: “This settlement represents £100m cut to our core Settlement, before any other pressures such as National Insurance costs, pay or inflation are taken into account.
We wanted a Budget for Local Government that enables people to Live Well Locally – what we have is a budget that barely allows Local Government to survive. We are left in a position where we do not have adequate funding to provide our range of essential services and support recovery from COVID. Many essential services provided by Scottish Local Government are in a fairly precarious position as a result of cuts to Councils’ core budgets and direction on spend towards Scottish
Government priorities over the last few years”.

At a national level, the Scottish Government has presented the 2022/23 settlement as an increase in funding for Local Government of £791.4 million - however COSLA has identified that the new Scottish Government commitments “funded” within the settlement - the services they’re asking councils to provide with the ‘additional’ money - amounts to £891 million, meaning that actually there has been a cut of £100 million to budgets

The following pressures are not covered within the settlement for example:
• Pay award.
• Employer’s National Insurance contribution increase.
• Inflation.
• Demographic pressures.
• Investment for recovery.
• Increased demand due to the pandemic.
• Reduced income generation due to the pandemic.

Did the Scottish Government not add in another £120m of funding on the back of this criticism?

On 27 January 2022, Scottish Government announced an additional allocation of £120 million to local government as part of Stage 2 of their Budget Bill.

We’ve been notified that our allocation from this would be £807,000 - and have applied that amount to reduce the draw on reserves. Prior to this late addition our provisional revenue grant funding allocation for 2022/23 had reduced by £571,000 from last year.   

The Council has said their particular settlement is not fair – again the Scottish Government denies this – who is right?

We believe that the formula that the Scottish Government uses to establish the distribution of funding to Councils is unfair as it has locked in an inequality that results in significantly less funding for Orkney.

The figures speak for themselves.

To draw a comparison with Shetland - despite having just 450 more of a population, they have received £8 million more in their settlement than us

Per head of population, Orkney residents will in fact receive £367 (11.5%) less that Shetland and £692 (21.7%) less than Western Isles for 2022/23.

If Orkney was to be funded in the current financial year, on the same basis as Shetland and Western Isles, the Council would have received £8.2 million and £15.4 million more respectively for the delivery of our services.

What are you increasing Council Tax by?

The Council will increase Council tax by 3% and take an additional £11.826m from its reserves.

The Council tax increase is below inflation and will bring the level for Band D properties to £1244.73 – below the Scottish average.

The initial recommendation of the report was to increase Council tax by 7.7% - bringing it in line with the Scottish average.  

Instead of increasing Council tax, can you not make savings elsewhere – cut staff costs for example?

Services have not been asked to make cuts. The services that we provide are important to the local community and our focus is on providing these services in such a way that we maintain them to a level that local people expect, whilst also not stretching our resources – including our staff -  to breaking point.  Over the last ten years we’ve already delivered savings of £15,164,000 - we simply cannot keep cutting.

Can you not take more from the reserves?

The use of reserves to balance the budget can only be a solution if that contribution is at a sustainable level – which it is not at the moment. We therefore need to maximise income from all available sources and reduce the level of General Fund expenditure to bring it more into line with the financial support received.

Is there not a council tax freeze in place?

No, the Council are free to increase the level of Council Tax if they need to.

How is Council tax calculated?

The Council Tax is based upon the capital value of domestic properties which is determined by the Assessor. Once the capital value of properties is assessed, properties are allocated to one of eight bands (A – H). 

Some councils generate relatively high levels of income from Council Tax with, at the higher end, 19% of general income raised from Council Tax. In comparison, Orkney generates less than 10% of general income from Council Tax

For us to cover just the service pressures described above we’d need to increase council tax for Band D properties (with all other being adjusted accordingly) by 29.8% from £1,208.48 to £1,568.34 – taking it to 11.3% above the current highest Council Tax in the country. We know this not palatable on many fronts so that approach isn’t being recommended in the report

Instead, officers recommended that the Band D Council Tax level for financial year 2022/23 be set at £1,300.97, to bring it in line with the Scottish average – an increase of 7.7%. The Council however didn’t agree that recommendation and instead will increase Council tax by 3% for 2022/23.

Are you going to increase funding to the third sector?

Yes, we recognise how important these services are and we’re increasing what we spend on this by 10%

Do we know how much money we’ll get for the 2023/24 financial year?

No.  Councils across Scotland have asked the Scottish Government for a number of years now for the budgets to be set over a three-year period in order that we can plan in advance – but they haven’t agreed to this yet.