ESCC draws on reserves, while HBC has to find savings

While HBC has heeded warnings not to try and balance its  books by continuing to draw on reserves, East Sussex County Council is going to do just that to produce a balanced 2024/25 budget. However, it is a one-off solution, it warns. Report by Nick Terdre, research and graphics by Russell Hall.

If the proposals in a Cabinet report ahead of a crucial budget meeting on Tuesday 23 January are accepted, ESCC will draw down £14m from its reserves to help fill the funding gap in its £538m net draft budget for 2024/25, following government advice that “authorities should […] draw on their reserves to make ends meet.”

The advice is no good to Hastings Borough Council, which has been relying on its reserves to balance the books for several years, and now has to heed warnings to bite the bullet and make savings.

In the four years since Covid hit, ESCC's spend has increased by 39% to just over £1bn. The big ticket items are children's services (£385.6m) and adult social care (£378.3m), which together account for three quarters of the spend.

While chancellor Jeremy Hunt is hinting at tax cuts to come in the spring statement, and possibly in autumn too if a general election is still pending, at local government level it's a question of tax increases. ESCC, though not planning any spending cuts, will increase council tax by the maximum permitted 4.99%, equivalent to an additional £1.62 per week on a Band D property.

Where HBC is faced with the statutory requirement to tackle homelessness, ESCC is battling with the burden of children’s and adults’ social care, where “Inflation, market pressures and high profit margins by some providers in children’s services,” according to the report have significantly increased costs and obliged it to add £50m to the coming year’s budget.

The chief executive Becky Shaw warned the Cabinet that “…the budget presented for the year ahead relies on using our reserves to balance the books, significantly depleting this safety net for the future. This is an unsustainable position.”

Resorting to reserves in the future will not be an option, though the deficit is expected to grow to £45m in 2025/26 and £61m in 2026/27.

ESCC has received good reports for its financial management from independent assessments. Last summer a peer review by the Local Government Association found that it was well run and well managed, and financially prudent with a good record of financial stability and on the delivery of savings.

And more recently, a value-for-money report by external auditor Grant Thornton identified no significant weaknesses in the council’s arrangements, making only two purely advisory improvement recommendations.

As a member of the County Councils Network, ESCC was party to a collective letter sent in December to the Levelling Up Minister, Michael Gove, and copied to the chancellor, by 33 county councils lamenting the fact that the autumn statement contained no help for the network’s members despite their submission of detailed evidence that they would overspend their budgets by a collective £639m, rising to a £4bn deficit over the next three years.

“The results of CCN’s post-Autumn Statement budget survey therefore show that our councils’ financial position is significantly worse than before the Statement,” the letter stated.

A final decision on the county council's 2024/25 budget will be made by Full Council on Tuesday 6 February.

After years of restricting local government funding, now that a general election is looming, Whitehall has announced an increase in funding, with councils' “core spending power” due to rise by 6.5% this year.

Meanwhile, HBC has heeded warnings from both its external auditor, Grant Thornton, and last year’s LGA peer review, of an “over-reliance” on reserves to balance the books. Under a new policy adopted in November, reserves will be maintained at £4m, and its 2024/25 accounts will be balanced by savings.

Like ESCC, HBC faces a growing deficit in coming years, with the budget gap increasing from £4m in 2024/25 to £5.3m the following year and £6.1m in 2026/27 - a rise of more than 50% in two years.

While some savings have already been identified, others still need to be found: £59,280 in 2024/25, £774,430 in the following year and £1.3m in 2026/27.

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