The impact on Eastleigh Borough Council’s medium term financial plan (MTFP) of recent events in the UK economy - including the government’s recent mini-budget, as well as wider international factors - was considered by Eastleigh Borough Council’s Cabinet last night.
The Council will now need to make higher than anticipated efficiency savings in 2023-24 - £3.5 million, rather than the anticipated £1.5 million – as well as significantly reducing spending over the next two years to continue delivering its services. The authority is also stepping up income generation plans to offset the effect on its finances of the recent dramatic rises in inflation and interest rates.
The Cabinet report highlights the key reasons the MTFP has needed to be revised, including: prolonged and higher than anticipated inflation – currently forecast to exceed 10.1 per cent - and its effect on the Council’s wage bill and other spending; higher energy and fuel costs resulting from the Russian invasion of Ukraine; rising interest rates on borrowing, and reduced income as a result of the Covid pandemic, particularly from parking charges and arts venues admissions.
Interest rates are now also much higher than forecast. Most of the Council’s borrowing for its commercial property portfolio, which generates millions a year in rental income, is at very low fixed rates and these loans are unaffected by interest rate rises; Eastleigh has always prudently maintained a ‘rainy day’ fund when borrowing so that, if interest rates do rise, it can still afford the repayments. However, with rates now forecast to reach 5% for a period of time, there will be additional costs to cover the Council’s shorter-term loans.
Leader of Eastleigh Borough Council, Councillor Keith House, said: “In common with households across the UK facing a cost-of-living crisis, local government is being hard hit by the current economic turmoil caused by the government’s mini-budget, and councils across the country are having to take tough decisions. At Eastleigh, through continued prudent financial management, we have managed to protect local services from the deep cuts seen elsewhere. Even with our strong commercial income we will now have to manage some expenditure down. We will work hard to offset the worst of these impacts and continue to deliver the high-quality services our residents expect.”