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Cabinet to consider plans for a balanced 2024/25 budget

09 February 2024

Plymouth City Council will be in a position to set a balanced budget for the next year subject to an outstanding issue over a transaction made in 2019 being resolved, a report to Cabinet says.

Despite facing ongoing increases in costs and demand pressures in social care and homelessness services, the Council has managed to propose a 2024/25 budget that offsets costs increases with additional resources, contingencies and savings, avoiding the need for reductions in critical services or the introduction of new charges for services.

The report to Cabinet on Monday (12 February) says the proposed budget would enable the Council to deliver its objectives for the city and ensure that services to children and vulnerable adults, the provision of affordable housing and help for those affected by homelessness continue to be key priorities.

It says the budget also aims to acknowledge the ongoing impact of the cost of living crisis on the people of Plymouth and does not propose reductions to critical services or introduce any new charges for services. It also ensures there is adequate funding to repair potholes and allocates additional funding to the grass cutting service, both ensuring a better living environment for the city.

However, the report says that in order to set the budget for next year an issue related to a transaction made by the Council in 2019 to significantly reduce the cost of a pension deficit needs to be resolved.

The transaction involved capital borrowing to reduce the ongoing costs of the pension deficit to the Council’s revenue budget. After taking legal advice, the Council became a shareholder in an investment company to enable it to borrow the money to pay the deficit.

This enabled the Council to make savings to its revenue budget of more than £3 million a year because paying the interest on the loan is cheaper than paying the deficit every year. So far, this has enabled savings of more than £9 million. These savings have supported the delivery of critical services, such as the recruitment of an additional 43 social workers needed to support vulnerable children in the city.

A review by the Council’s auditors showed that while the transaction had not been ‘detrimental to the public purse’, it was unusual and there were concerns regarding the process the Council went through. A governance review was carried out by auditors and the Council accepted the finding and made the appropriate improvements in 2021.

The Council has requested a Capitalisation Direction from the Department for Levelling Up, Housing and Communities (DLUHC) which would allow a retrospective accounting adjustment enabling the revenue costs of the 2019 transaction to be treated as a capital transaction. This would ensure the Council can close the 2019/20 accounts and set a budget for 2024/5 and future years.

Without a Direction, the Council would be required to account for the cost of the transaction as part of next year’s budget.

Councillor Mark Lowry, Cabinet member for Finance, said: “We have worked hard manage the huge challenges posed by increasing costs and demand, particularly in the social care and homelessness services, which make up more than 70 per cent of our total budget.

“The draft budget would enable us to continue delivering the priorities for the city, including tackling homelessness, supporting the elderly, care for vulnerable children, tackling potholes and keeping streets clean.

“However, we are reliant on the Government allowing us to resolve the outstanding issue caused by the 2019 transaction, which, while we made it in the spirit of reducing ongoing costs to our revenue budget to the benefit of local taxpayers, it was not standard practice. We have worked with our auditors to review our governance arrangements and made all the necessary changes in 2021. We are now hopeful that DLUHC will support a Capitalisation Direction.” 

The Government usually issues Capitalisation Directions to councils in the first week of March, after the business of the final Local Government Settlement is concluded and before of the start of the next financial year. Like other authorities currently awaiting Capitalisation Directions, Plymouth is moving its budget setting council meeting to reflect this. The Full Council meeting will now take place on 8 March.