Essex budget gap set to widen by £35m due to inflation

Inflation is set to widen Essex County Council’s budget gap by another £35 million above the £119 million gap it had already said was coming.

Essex County Council (ECC) has said its focus now needs to move to the “extremely challenging period ahead” – with the Government now ceasing to underwrite the majority of risk through specific grants, inflation at unprecedented levels, growing interest rates and the Bank of England expecting GDP growth to slow sharply.

It calculates that it is highly probable that there will continue to be volatility in the financial position across revenue and capital throughout 2022/23 and into 2023/24. Inflation risk alone of £35 million above that budgeted is estimated for 2022/23.

This is above its position earlier in the year when it said there will be “renewed focus” on finding ways to transform the council as it faces a budget gap of more than £100 million within three years.

Figures indicate the difference between expected expenditure and income to be £24 million in 2023/24, which will then increase to £59 million the year after and then to £119 million in 2025/26.

The warning comes after the announcement that council tax for the county council is set to increase by an average of more than £60 a year in 2022/23.

Councillor Chris Whitbread, ECC’s cabinet member for finance, resources and corporate affairs, said the effect of the pandemic has and continues to make financial forecasting “uncertain and volatile” – a provisional out-turn position for 2021/2022 shows a 1.7 per cent under spend against its total budget.

That £15.6million will be appropriated into earmarked reserves to mitigate future risks.

He said: “However, this underspend must be viewed within the context of the current economic situation, which is unprecedented.

“With inflation nearly at 10 per cent nationally, the short, medium and long-term outlook remains incredibly challenging – not just in Essex but across the country.

“As a result, I am proactively moving forward with plans to use last year’s underspend to create a new General Risk Reserve, which will allow us to mitigate risk of further inflation in the future.

“The money generated by increasing council tax for 2022/2023 is not enough to cover increasing costs alone.

“We must therefore ensure that this and last year’s under spend are used to achieve maximum benefit over the coming years, whilst also ensuring we allocate resources carefully, so we can continue to deliver key services and support the people of Essex.

“Where we have seen an underspend in some of our key services, such as highways, due to delays in work and supplies caused by the pandemic, we will be carrying this money forward to support delivery of this work in the future.

“I am confident that our strong track record of financial management will continue to serve us well. We remain as committed as ever to delivering the strategic priorities we set out in ‘Everyone’s Essex’ and achieving our vision of a county where everyone can thrive.”

Councillor Kevin Bentley, leader of ECC, said that an autumn statement will clarify the council’s financial position in October, the challenges ahead and how it intends to tackle them.

“That is the most important thing that people will want to know,” added Cllr Bentley.

“And of course I’m very clear that no council or Government has money – it has the people’s money. It’s how we then spend and invest, that [is] then how they make their decisions at the ballot box.”

ECC has said that given the uncertainty at the time when the budget was set in February 2021, the overall outcome is deemed as a positive position, although the risk now highlighted is that a level of pent up demand will filter through during 2022/23, “further exacerbating the impact of escalating inflation”.


Piers Meyler

Local Democracy Reporter