SHETLAND Islands Council (SIC) will be required to undertake a net sustainable draw from its reserves of over £8.5 million over the coming financial year to balance the books.
The budget for the year ahead was approved at a meeting of the full council on Wednesday.
It includes a shortfall of around £5 million for running inter-island ferries after the SIC’s request for £9.49 million was not met by the Scottish Government.
Finance manager Jamie Manson described the budget as one which is “affordable in 2020/21 but not sustainable for the future”.
He wrote in a report to councillors that the council would “need to consider significant reductions to internal ferry services in the near future in order to avoid significant reductions across other council services”.
Manson reiterated that using the council’s reserves – which are valued at well over £300 million – to cover deficits every year is unsustainable.
“The council has a track record of using its reserves to supplement the funding received from the Scottish Government and council tax receipts,” he wrote.
“However, the one-off use of reserves to meet a recurrent deficit is unsustainable and exceeds the levels that this council considers to be sustainable in the longer-term, without eroding the investment base.”
The council expects to receive a Scottish Government grant of £81.761 million plus ring fenced grants of £8.241 million.
It has already raised council tax by nearly five per cent to bring in extra income.
The report highlighted that the council has faced growth in both the cost of delivering services and in demand for services, particularly in areas like social care, children’s and infrastructure services.
In addition, there is the “additional burden” of pay awards that have not been funded by the government’s settlement.
Manson warned at Wednesday’s meeting that the council’s reserves could be eroded by the end of the decade if no action was taken.
“I think it’s important for the council to recognise that every decision that comes before you invariably has a financial consequence,” he said.
Lerwick councillor Amanda Hawick questioned how the SIC can achieve a sustainable budget in the future if services are to avoid being cut.
Manson said the council’s approach is to “change and adapt”, with redesigning services without affecting delivery a key component of its thinking.
After questioning from Shetland Central member Davie Sandison, the finance manager also predicted that auditors could raise red flags if the council does not move towards a decreased reliance on its reserves in the next couple of years.
Lerwick member John Fraser questioned if the Scottish Government had been “flying in the face of constitutional law” by failing to provide full ferry funding in view of the Scottish Parliament clubbing together in 2017 to call on the SNP to honour its pledge.
“We will be considering all options,” SIC leader Steven Coutts said.
Hawick commented that the council’s “finances is in a continual decline”.
“I’m seriously concerned at our current situation, that we have ended up in this place in the first instance,” she said.
Coutts, meanwhile, called on elected members to “show leadership going forward”.
South mainland member George Smith told a meeting of the policy and resources committee earlier in the day that there has “never been a more important time for councillors and officers to pull together and work together”.
He added that he has been involved in the council as an officer or elected member since 1982 and that this year’s budget had been the most difficult to set so far.
The Scottish Government’s budget, which informs the council’s one, had been delayed after Westminster’s finances were postponed until today (11 March).
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