Answers to commonly asked questions

A report to a meeting of the council’s Cabinet in September estimated the overspend for 2023/24 financial year would be £7.7m.

We have been working on measures to mitigate the £7.7m shortfall and we anticipate these will reduce the budget gap by £2.1m to £5.6m.

Despite all this hard work, this remains a significant shortfall and, as a responsible council, we must act to ensure we remain financially sound both in this financial year and in the coming years.

Work will continue to address this year’s shortfall, and it is possible that we may need to use our reserves, which are held to support the council in unforeseen circumstances, to balance this year’s budget.

However, these will be depleted very quickly and we cannot rely on reserves to make up any shortfall in future years.

We must also focus on achieving a balanced budget for next year.

By law, councils must do this each year and the initial proposals for how we will live within our financial means for 2024/25 financial year will be considered by the Cabinet in December.

We do not anticipate the acute pressures on our budget easing in the short term and expect a shortfall similar to – or larger than – this year’s deficit.

Therefore, we must look at all aspects of how our council works to identify any possible efficiencies to balance next year’s budget.

The starting principle for this will be to minimise the effect on both our staff and services to the public.

We must get the balance right between maintaining our services and ensuring our council is financially stable and we are looking at everything we spend.

The main factors are:

Very high inflation and the increased cost of essentials, such as fuel and energy;

A significant increased demand for our services, particularly for support for vulnerable children.

The high rate of inflation has meant the council has been forced to spend millions extra in the past year on services we are legally required to provide.

When the Government assessed the funding requirements of councils across the country in 2021, the rate of inflation was forecast to peak at 4% in 2022.

However, inflation peaked at 11.1% in October 2022 and currently stands at 6.7%.

This means that everything the council spends, buys or commissions is significantly more expensive.

To counter high inflation the Bank of England interest rate has risen significantly and rapidly and now stands at 5.25%. As with households, the council’s borrowing costs are much higher, adding to the pressure on the budget.

Another factor is the increased cost of fuel and energy which the council cannot avoid.

Since its assessment in 2021, the Government has not provided any extra money to cover the costs of high inflation, other increased costs and higher borrowing costs, meaning your council – like many others around the country – has a multi-million pound shortfall.

Other pressures on the budget include increased home to school transport costs, use of agency workers due to recruitment difficulties in children’s social work and increased fleet hire and waste costs.

There is a steep rise in need for most of our services, and, primarily, those which support vulnerable children and adults.

The main reason for the overspend in the council budget is an increase in the number of children coming into our care and, more specifically, the complex needs of some of these children.

Children with complex needs sometimes require specialist care in residential accommodation, which is very expensive,

The average cost of these types of placements is £366,000 per year for each child, and there were 39 children from Redcar and Cleveland in this type of care provision at the end of June 2023.

The budget for residential places for children in our care is currently forecast to overspend by £5.9m this year.

Nationally, there are not enough residential care placements to support the number of children coming into care and this has driven up the price of each placement.

The cost and availability of placements in residential accommodation is a national issue and many councils across the country face the same issues.

We are working closely with some local suppliers to identify opportunities to increase the provision of locally-based placements to bring down the cost of caring for vulnerable children.

However, we will continue to be there for people in need of help and will provide the appropriate care for children to keep them safe and provide them with the best possible start in life.

As mentioned above, we may need to use reserves to make up the shortfall in this year’s budget.

However, reserves are like savings in a bank – once the money is spent, it can’t be used again.

We must keep some reserves for unforeseen or emergency circumstances, such as severe damage caused by extreme weather.

By next year, our reserves will be at a level where using them to balance the budget will not be possible.

Specific grants, which make up the largest proportion of your council’s funding, are granted for use for a specific service or purpose. Often, these are for building or regeneration projects.

However, by law, these grants cannot be used for anything other than the purpose they were intended – we cannot use them to fund our day-to-day services or to reduce Council Tax.

Examples of grant-funded projects are those funded through the Redcar Town Deal, the Future High Streets Fund in Loftus and the Levelling Up Fund in Guisborough and Eston.

Details of the projects which are currently under way are available at:

Redcar Town Deal – https://www.redcar-cleveland.gov.uk/developing-the-borough/redcar-town-deal

Future High Streets Fund – https://loftusmasterplan.co.uk/

The council receives funding from five sources:

• Government grant
• Council Tax
• Business Rates
• Sales, fees and charges for council services
• Specific grants

This is the amount the Government judges is available to councils through its five areas of funding – Government grant, Council Tax, Business Rates, sales, fees and charges for council services and specific grants.

However, in calculating how much money the Council needs, the Government assumes that Council Tax will be increased each year to by the maximum legally allowed. Any decision not to do that adds to existing budget pressures and potential cuts to services.

The maximum legally allowed last year was a total of 5% – 3% Council Tax and 2% Adult Social Care precept.

Each year, councillors decide whether to increase Council Tax and the Adult Social Care precept.

Last year, Redcar and Cleveland councillors voted to increase by a total of 4%, rather than the maximum allowable to limit the burden on residents. This reduced the core spending power assumed by the Government.

Even with the level of core spending power assumed by the Government, the cost of providing council services has risen much faster than the council’s core spending power.

Councils can’t technically go bankrupt, but they can issue what is called a section 114 notice, which effectively means they do not have enough money to meet its expenditure commitments.

The notice means the council in question cannot commit to any new spending and must come back within 21 days with a new budget which balances the books.

This often means severe cuts to frontline services, which has a serious effect on residents. Councils can also be forced to sell off assets, such as buildings, to address their financial deficits.

In some cases, the Government appoints commissioners to run a council.

Between 2000 and 2018, only one section 114 notice was issued, but there have been 12 since 2018.

Some were caused by specific reasons, but more councils nationally are now in financial difficulties caused by the cost of providing services.

To be clear, your council is not in a position where a section 114 notice is necessary and, instead, is focused on balancing the budget and ensuring financial stability in the years to come.

The Council has a number of financial support schemes, such as reductions in Council Tax payments and assistance towards rent payments.

This could include a reduction in Council tax of up to 100% for eligible residents of state pension age and a reduction of up to 82.5% for eligible working age residents.

Residents may also be entitled to Household Support Fund assistance of up to £300, dependent on circumstances.

To find out more about Council Tax support, advice about rent payments, the Household Support Fund and other help with the cost of living, go to Cost of living support | Redcar and Cleveland (redcar-cleveland.gov.uk)