Financial Outlook

The 2010-11 financial settlement represents the most challenging finance settlement for a number of years. Looking forward to 2011-12 and 2012-13 the expectation is one of significant constraint in funding for local government. This arises from the overall need to contain public sector expenditure and reduce public sector borrowing to stabilise the national economy. Local government including Argyll & Bute Council will need to play a part in this. Without doubt this will present a number of substantial challenges for the council, the people of Argyll & Bute, our partners, our staff and service users.

Given the scale of these challenges, a more corporate and strategic approach to the budget was required and a three year programme of service reviews has been established. This programme will see a radical review of each service of the Council over the next three years. An initial target for services to identify options to reduce costs by 15% was set. The Council recognised that this might be difficult to achieve in the first year of the reviews and quick win savings have been identified from the services that will not be reviewed in the first year of the review programme.

The total funding from revenue support grant and council tax for 2010-11 is estimated at £264.7m. The draft budget amounts to £264.4m assuming all cost pressures, demand pressures, service review and quick win savings are approved. This leaves a surplus balance of £0.4m to be dealt with as part of the budget process.

The funding gap for 2011-12 and 2012-13 has been estimated at £10.948m and £11.257m. The 2011-12 and 2012-13 forecast allows no increase in funding. An allowance has been included for demand growth of 2%, based on a general national assumption around potential future growth in demand for local
government services over the next few years. This is mainly influenced by demographic change. The assumption around a constant level of funding may be too optimistic in the light of projections of a real cut in spending power of 12% over 3 years.

Allowing for a 1% cash reduction in funding would increase the funding gap by a further £2.650m each year. This may be offset by lower assumptions around inflation and demand growth.

However it is probably reasonable to assume that the funding gap will be in the order of £9m to £13m for 2011-12 and 2012-13.

The three year service review programme should identify savings options of around £10-£11m per annum which together with the savings remaining from the Year 1 reviews of £6m should be sufficient to address the funding gap.