Exeter City Council spent £3.2 million more than it received in income during the 2023-23 financial year, according to a budget review report that describes “an untenable position that the council cannot afford to reoccur”.
A combination of wider factors including high inflation, high energy prices and a national council workers pay settlement all impacted on its finances at the same time as local income streams are not meeting budget expectations.
Council finance director Dave Hodgson said in his report that the council’s 2023-24 budget had addressed some of the issues it faced, but there remained “areas of concern around income targets” for business rates, car parking and trade waste among other things.
Leisure services cost the council £3.3 million last year against a budget of £2.3 million, resulting in a £1 million overspend, by far the largest on the year-end balance sheet.
While income from leisure memberships have “exceeded expectations”, business rates and energy costs were both higher than predicted. Net annual service costs have been reduced to £2.2 million by closing the St Sidwell’s Point crèche, reduced staffing levels and accordingly reducing opening hours and increasing prices.
All six of the council’s leisure centres will continue to require subsidies, with the possible exception of St Sidwell’s Point which, according to the report, “has the potential to become cost neutral at year five”. An accompanying risk assessment shows leisure services presenting the highest risk to the council’s medium term financial plan projections.
A £900,000 budget to demolish the old bus station has not been spent this year due to difficulties in finding contractors with sufficiently large concrete crushing equipment. £100,000 has been added to this budget to explore “wider site options” in 2023-24.
Council car parks income was also significantly below budget after a reduction in demand and an increase in charges resulting from drivers switching to paying with apps and cards instead of cash, leading to a shortfall of £600,000 against a target net income of nearly £6 million.
Waterways spending was double its £375,000 budget due to the costs of cleaning up and disposing of a sunken ship among other cost increases and budgeting errors.
At the same time the Guildhall shopping centre generated a £1.4 million surplus for the council following its £44 million leasehold purchase. Most of this budget surplus, which resulted from income uncertainties, is to be transferred to reserves.
In February last year the council anticipated a four-year funding gap of £6.6 million. This has increased to nearly £10 million as a result of inflationary pressure on interest rates, energy costs and wages.
It now expects its reserves to be reduced to the required minimum level of £3 million by 2024-25, with any further adverse impacts entailing additional spending cuts to balance its budget beyond the £2.236 million cost reductions it has agreed for 2023-24. It has just begun work on identifying cost reductions for 2024-25.
While its net borrowing costs were lower than expected this year, at £660,000 against a budget of a little over £1 million, this was mainly the result of significantly higher than expected rates of return on council investments.
Against this was a net loss of interest income resulting from not having to finance an additional £15.6 million loan to the council’s property development company Exeter City Living, which presents a medium-level risk to the council as rising interest rates could have a negative impact on income resulting from such loans.
Its long-term borrowing already stands at just over £166 million (of which £72 million is being used to finance the council’s housing stock), it did not undertake any additional borrowing in 2022-23 because of uncertainty about interest rates, and it expected to borrow another £35 million between now and 2026-27 when the finance director’s report was written.
The council Executive nevertheless decided this week to approve another £22 million of capital expenditure to enable Exeter City Living to deliver the second and third phases of its overdue Vaughan Road development after already committing £14.2 million to the first phase of a scheme that will provide a total of 91 flats on the site at a development cost of nearly £400,000 each.
