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Council / Council budget approved amid significant unease at draw on reserves

GRIM reading, a shocking situation, sobering, frightening.

These were some of the descriptions used by elected members about the SIC’s continued reliance on unsustainable draws from reserves before approving Shetland Islands Council’s 2024/25 budget earlier today (Wednesday).

The key concern was the near £23 million draw from reserves which is deemed to be “unsustainable”.

It led to repeated warnings that difficult decisions will need to be made in the future on making savings – but some councillors stressed the need to take action sooner rather than later.

Many elected members also said government was underfunding the council, with some taking aim at Westminster and some at Holyrood.

The council plans to spend a total of £168.8 million in the 2024/25 financial year to deliver public services.

The SIC anticipates receiving total income worth £146 million, comprised of core government funding, money from charges and council tax – as well as a “sustainable” draw from reserves.

But there is gap of nearly £23 million for the general fund which will also have to come from reserves. The SIC’s reserves are invested and are designed to make positive returns.

Elsewhere in the budget there is reduced income expected from the council’s harbour activities due to a predicted downturn in Sullom Voe tanker movements.

The SIC’s housing revenue account budget includes a five per cent rise in rent charges.

There stands to be £9.7 million investment in the council’s housing stock in 2024/25 thanks to a capital grant, revenue surplus and a second homes council tax.

Meanwhile planned capital investment for 2024/25 stands at nearly £27 million, but more than half relates to maintenance of existing assets.

Referring to the overall budget, a report from finance manager Paul Fraser said: “There is still work to be done to reduce reliance on reserves, or other unsustainable sources, in order to achieve financial balance each year.

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“Thus the council is not yet able to demonstrate it is in a financially sustainable position and has more to do in achieving financial sustainability.”

Unlike last year the budget does not include the “vacancy factor”, where unfilled posts were included in the budget and generally created underspends on staffing.

Speaking at a meeting of the full council on Wednesday, Fraser said it would be “remiss” of him not to mention his “unease” at the draw on reserves, and said it was an “increasingly worsening situation”.

One plan for the SIC in 2024/25 is to look at the many charges it applies for services it provides and whether more income can be achieved.

Shetland Central councillor Davie Sandison. Photo: Shetland News

Shetland Central councillor Davie Sandison noted that 37 pence in every pound the SIC expects to spend over the next year will come from reserves.

He said it is “quite a shocking situation we are in”.

But the councillor said it is not the SIC’s fault because the local authority is being underfunded by government.

Lerwick councillor Neil Pearson said the level of planned unsustainable draw is “frightening” and said it is the “tip of a very big iceberg” if changes are not made.

Allison Duncan, who represents Shetland South, said the figures made for “grim reading” and said the SIC was in a “dire position” with unsustainable draws.

He said it was paramount that the council comes forward with a financial plan for future years.

Meanwhile Lerwick councillor John Fraser encouraged his colleagues to look at Shetland as a whole and “not be parochialised into either their specific wards or their own pet projects”.

Shetland Central councillor Moraig Lyall. Photo: Shetland News

Shetland Central member Moraig Lyall noted how other councils down south without reserves are having to make “heartbreaking decisions” about closing facilities.

“I think that that is what we will be looking at in a few years’ time if things don’t fundamentally change,” she warned.

Lyall added that her dad was a tailor who said to cut coats according to the cloth – and she said at the moment the SIC is failing to do that.

SIC leader Emma Macdonald added: “We do need to change and that scale of change is really, really significant.”

She appreciated that some of it will take time and also encouraged the SIC not to lose focus on the role of local government, which is to provide key services to the community.

Lerwick councillor Cecil Smith said he has seen many budgets go in front of him during his lengthy stint as an elected member, and suggested folk now need to “come together” on making changes – changes that “need to start now”.

Shetland South councillor Alex Armitage.

He said auditors and the Accounts Commission may ask questions of the SIC’s use of reserves, but the local authority should be in a position to clearly explain that it is not getting enough money from the Scottish Government.

Meanwhile Shetland South’s Alex Armitage, who represents the Greens, said the Scottish Government was “strapped for cash” and noted how it receives funding from Westminster.

He said decisions at Westminster about distribution of wealth are “really critical”.

But Macdonald said the Scottish Government chose to fund a council tax freeze when that money could have been spent on local government.

Armitage also pointed north to Faroe, which has more control over its own affairs, and said the budget challenges should perhaps encourage Shetland to look again at more autonomy.

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