Inflation busting council tax rise on the cards?

by OUR LOCAL GOVERNMENT EDITOR

The prospect of a 10 per cent increase in council tax bills for Scottish Borders householders next year has been flagged up by the local council's head of finance, a move which would yield an extra £7 million for front-line services.

Suzy Douglas, director of finance at Scottish Borders Council warns in a budget planning report for 2025/26 that the authority faces a £50 million funding gap over the next ten years, according to the latest forecasts.

The director points out that the Borders currently has a Band D charge for Council Tax of £1,356 per annum. This represents the seventh lowest Council Tax charge in Scotland and the fifth lowest on the mainland.

"This relatively low level of Council Tax reduces the Council’s spending power compared to other Scottish Local Authorities with higher Council Tax rates. For comparative purposes, a neighbouring authority’s current Council Tax charge is 12% higher than that in Scottish Borders. 

"If our Council tax had been set at this rate during 2024/25 it would have equated to additional income of £8.4 million to spend on local services. The indicative budget approved in February 2024 assumed that from 2025/26 the Council will increase Council Tax by 10%. This increase will allow the Council to protect important front line services which otherwise may be impacted by service reductions in order to balance the budget. Each one per cent increase in Council Tax provides circa £700,000 to the Council to support delivery of Council services."

A 10 per cent uplift in council tax would be equivalent to 5.8 times the current rate of inflation which stands at 1.7%. 

Ms Douglas's report updates the financial challenge facing the Council and sets out an approach to balancing the budget. 

She says the longer term corporate approach which has been adopted over the past decade has delivered significant cost reductions and increased income of over £84 million. These significant reductions have ensured the Council has balanced its budget and delivered a small underspend in each of the last ten years. 

But the report warns: "The forthcoming budget round will be very challenging for the Council given significant cost pressures including pay, inflation and ongoing service demand pressures. Consequently, continuing the robust corporate approach to the budget focussed on transforming Council services, investment in new technology to reduce costs, greater operational efficiency, new ways of working and the prioritisation of core Council services will be essential.  All opportunities for increased income must also be progressed including Council Tax increases."

Ms Douglas adds that the Council has an ambitious Capital Plan in place, currently delivering key infrastructure projects to improve community facilities including roads and bridges maintenance, completion of the £90 million Hawick Flood Protection Scheme, two new primary schools, three new Secondary schools and two new care villages. 

"These projects are all funded within the current financial plan, following completion of these new builds the Council will refocus the Capital Plan from years 5-10 on prioritising refurbishment works and energy efficiency works to support the Council’s response to the climate emergency."

Councillors are told the forthcoming budget round will be very challenging for the Council given significant cost pressures including pay, inflation and ongoing service demand pressures.

As Ms Douglas explains, the indicative budget for 2025/26, published in February 2024, made assumptions including an assumed level of Scottish Government grant, increases in Council Tax levels, inflationary increases and savings required to balance the budget. As such the budget for 2025/26 at that point was balanced, however as the financial and economic landscape has changed since February 2024 a number of these assumptions will require to be updated. This will increase the challenge facing the Council. 

The director's report continues: "The finance circular detailing individual funding allocations for Councils in 2025/26 is planned for issue on 12 December 2024 following the Scottish Government’s budget announcement on 4 December. 

"The Council is currently assuming a flat cash revenue settlement for 2025/26; this means inflationary increases experienced by the Council are not funded within the grant. A reduction of one per cent in revenue support grant would equate to reduced funding of around £2.3m. 

"The Capital grant provides a lower percentage funding of the capital plan with the remaining capital investment mainly funded from external grant and Council borrowing. The Capital grant for 2025/26 is forecast to remain flat which again means inflationary increases are not funded and means there is limited capital flexibility. Any reduction in grant would impact on capital investment in the Borders."