With the new Government’s budget taking the headlines over the past week, you may have missed a financial statement put out slightly closer to home. Surrey Heath Borough Council put out a short (and in my view fairly vague) statement on its financial position and in particular the fact that the Council is overspending against the budget set by the Liberal Democrat leadership in February 2024. The statement confirms that “while an overspend is currently forecast, proactive measures are underway to address this”, but there is no information on what those are or why the Council is spending beyond its budget for 2024/25 (so much for transparency!). I will try to briefly set out here what I think is going on, why it matters and what should happen next?
For those who have not seen the Council's statement, it can be found here: https://www.surreyheath.gov.uk/news/2024/council-updates-financial-position-202425
Why did the Council’s leadership feel the need to put out this statement?
The Financial Monitoring Report for Quarter 2 was published looking at the Council’s financial performance, in particular against its budget for the year.
The report finds an “unfavourable variance” of £5.73 million against the Council's budget set in February this year. This includes £4 million more than budgeted being spent on debt interest and £1.4 million being overspent on services.
The debt interest gap is to a large extent due to assumptions within the Budget that interest rates would come down much more quickly than they actually have. The overspend on services is down to a variety of factors including, notably, a reduction in income from parking charges due to lower footfall in Camberley town centre despite (or perhaps because of?) the Council’s decision to increase charges across the Borough. Instances of “double counting” are also highlighted in the Monitoring Report.
The report also confirms that “a number of errors” have been identified in the Liberal Democrat administration’s Medium Term Financial Strategy. Put simply, it seems that the numbers in both the Council’s budget and in the Medium Term Financial Strategy do not add up.
What is the impact of this?
Financial decisions made by the Council rely on the numbers in the budget being correct. If the Council has under allocated funds in particular on debt interest and on the cost of services this makes it very difficult to accurately judge what the Council can and cannot afford to do.
Much like any business, if you fail to accurately and realistically budget for the year ahead, you are much more likely to run into financial problems as a result of overspending.
Why did these mistakes happen?
This is something that I and other councillors need to press to find out. Fundamentally, the democratic accountability for the Budget and the Medium Term Financial Strategy sit with the Council’s leader and Finance Portfolio Holder who will have led on the budget setting process and we need to understand:
1. Why the projected interest repayments were based on what have transpired to be overly optimistic expectations for interest rates.
2. Why were the costs of services under-projected in the budget. Is this as a result of errors/mistakes in the budget (and if so how did these arise?) or have decisions taken by the Council in the past year had an adverse impact of the financial position.
What happens next?
From what I can see, the Council is not in imminent danger of financial collapse. However, it is very concerning as a councillor that decisions the Council has made have been off the back of an inaccurate budget position.
Work on the Council’s budget for 2025/26 will already be underway and we need confidence that the Council has a Leader and Finance Portfolio Holder able to present an accurate budget.
