Highland Council needs huge government bailout
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Highland Council will lay out a dire assessment of its financial situation tomorrow.
A report for councillors shows details of a potential budget gap of almost £100 million due to Covid-19 – revealed last week – can only be plugged by a Scottish Government bailout.
The corporate resources committee will hear that the council has been left with an almost £800,000 bill for childcare for key workers while a second lockdown has also been factored into the planning.
Official papers reveal a huge fall in income has been blamed for the budget gap and previously leading councillors said they would have to rewrite the local authority’s budget. But councillors believe it is now no longer possible to present a balanced budget.
Two tentative scenarios have been mapped out, the first more has a budget gap this year of £67 million if the lockdown ends this month, followed by a second lockdown between October and December leading to a slow recovery.
The second, is a “worst case scenario” where the lockdown becomes the new normal with Covid-19 response activities required to increase and continue throughout the rest of the year – this would lead to a projected cost of at least £97 million.
To balance the budget the local authority is planning to lobby the Scottish Government for more funds but even that avenue may not be possible.
Edward Foster, head of corporate finances, said: “The only real way for income to increase significantly is if additional funding is provided by government.
“While some income has already been provided, some specific to meet new expenditure costs and others for more general purposes, it is expected that significant further government funding may be needed to balance the council’s budget.
“Given the impact of Covid-19 on the national economy it is unclear at this stage whether the government will be able to afford to inject further funds into local government.”
Adding to the financial woes is an estimated £38,000 per week bill to provide childcare for key workers with £185,000 spent already.
If there is no government support to pay for the places that have already been commissioned until the end of the summer holidays, the total minimum cost is estimated at £799,235.
Budget leader Alister Mackinnon said there was huge uncertainty over how Covid-19 will impact on the rest of the year.
He added: “What is extremely challenging and very risky is the income from council tax fees and our charges income.”
Council deputy leader Alasdair Christie, who is heading up a recovery board designed to look at the impact of the pandemic, said: “We cannot rewrite the budget. We do not have the wherewithal or resources to present a balanced budget in June due to the pandemic.”
Mr Foster added: “At this time the level of risk the council faces is greater than perhaps ever before.
“The risks cover those to our staff and their health and wellbeing, to the health, safety and wellbeing of our communities and risks to the provision of essential council services.”
He warned ways of managing demands will need to be found.
"Certain areas of the council are already seeing an increasing demand for the services they provide, such as the welfare service. In some cases, increased service demands have been met by the use of volunteers deployed from their normal roles.
"As those volunteers return to their normal roles, ways of managing extra service demands will need to be found. Other services areas, in particular social work, are expecting to see service demands increase over time as the longer-term societal impacts of lockdown and job losses begin to be felt."
Mr Foster expects the pandemic to result in fewer new properties being built and more business failure and unemployment leading to less council tax income.
He also said the virus would impact capital budgets including projects which have started and those yet to get under way.
"The lockdown period brought about by Covid-19 has seen all on-site work on capital projects cease," he said. "The impact on external contractors is significant as they have had to de-mobilise and will have to remobilise their project staff. This process will add time and cost to capital projects and contractors will also see increased costs from extending equipment contracts or sub-contractors.
"The cost and availability of construction materials may also be adversely impacted and there is likely to be supply chain disruption. Social distancing on construction sites is also likely to add cost and time to capital projects.
"There are likely to be many other factors that will also affect a project’s ability to be delivered on time and on budget and in many cases the risk of additional contract costs will sit with the council.
"In terms of contracts not yet committed it is expected that contractual prices will rise, in part from some of the factors listed, but also due to a likely contraction in the construction sector as businesses fail due to the impact of Covid-19. The failure of a contractor on a live project would also bring significant extra cost."
