Highland Council £9m in the red with £1.1bn in loans – but says it can weather the storm


Highland Council has forecast a £9m overspending in its revenue budget, the latest financial documents have revealed.

The impact of price inflation and staff pay disputes has been laid bare by the latest documents, but the administration says it is in a strong position to weather the storm.

Paying this bill will halve the council’s financial reserves. At the same time, the board can no longer afford the members of the capital plan agreed in December.

Staff pay dispute creates pressure

The Highland Council’s Business Revenue Report outlines overspending across several departments, including the economy and infrastructure, housing and communities.

The council expects a spending overrun of £9.6m at the end of the year.

There are two main budget pressures.

First, staff pay disputes. The board had originally budgeted for a 2% wage increase, but that was before the recent strike. COSLA rejected its last 5% offer, so the final wage bill keeps rising.

Then there is the broader economic climate and rising inflation. It should be noted that the departments of the Highland Council affected by the materials are those whose budgets are increasing.

For example, community leadership is struggling with the rising cost of fuel and vehicles. In the economy and infrastructure, it is bus contracts. And housing services are facing spiraling bidding prices and supply chain issues.

The good news is that the board has healthy unrestricted reserves, which are currently at the recommended level of 3%. However, half of those reserves will be eaten up by the expected overrun of £9.6m.

This leaves the board with depleted funds to cover future losses.

The Council remains in a “position of considerable strength”

Perhaps surprisingly, board leaders were upbeat at today’s meeting of the corporate resources committee.

Finance boss Ed Foster said Highland Council was tackling budgetary challenges from “a position of considerable strength”.

New president Derek Louden agreed, paying tribute to some of the big hitters from the previous administration. These included Alasdair Christie, former budget chief and now leader of the opposition; former corporate resources president Jimmy Gray; and host Bill Lobban, who leads the council’s redesign council.

Mr Louden said the SNP had worked collaboratively over the last political term because it was “the right approach” in difficult times. Now, he said, the board must maintain that spirit.

“We had Brexit, we had Covid, and now, just as the sun came out, we have runaway inflation,” Mr Louden said. “Some of us barely remember the 1970s, which was the last time inflation was this high.

“It is very difficult for the council, but we need to think as much as possible about the people, businesses and charities who have to deal with this. We must help as much as we can.

Mr Louden said the administration will report to the September meeting of the full Highland Council. This will explore how best to support the Highlands through the cost of living crisis.

Shots fired through the room

The debate may have started off mild, but the mood turned sour fairly quickly.

While thanking Mr Louden for his praise, Opposition Leader Alasdair Christie went into detail about the financial documents.

“We need to do something quickly to get more up-to-date information,” he said. “We need better financial data to enable us to make decisions. Talking about the first quarter in September is not acceptable.

His comments prompted council leader Raymond Bremner to stand up, with a sarcastic remark.

“Step back in time five years to when I said we needed to review our reports for more up-to-date information. Councilor Louden too. Councilor Christie was in administration then, so I’m not not surprised he’s asking that now too.

Mr Christie later clarified that he had duly amended the reports, but that they had since reverted to the old approach.

Are jobs at risk?

But while the members were busy arguing over who started it, the bigger question was how to end it.

Louden said the council needs to maximize its revenue and better manage its assets. The ongoing redesign process will focus on streamlining properties and workforce planning, adopting new ways of working.

“We need to come together and work together to do our best to get Highland out of this very serious crisis,” he said.

Mr Christie agreed with the approach but observed that much of this work had been underway for years, pressing council leaders for a detailed timetable.

“Halving our reserves is drastic,” he added.

Mr Christie asked the chief executive to share her concerns, including any plans to cut vacancies and “reduce the size of the establishment”.

Donna Manson pivoted, saying “collaboration is the answer” to Highland Council’s budget problems. He will use his strong professional connections to find a way out.

Host Bill Lobban also gave a positive note.

“No one could have ever imagined the situation we find ourselves in today,” he said. “But thanks to careful financial management in the past, we are in a better position than many and we will weather the storm for the people of Highland and for our staff.”

The board should exercise prudence in borrowing

Not all councilors were convinced that council finances were “prudent”. New member Angus MacDonald said his ‘jaw dropped’ when he realized Highland Council’s borrowing exceeded £1.1billion, with borrowing costs of £80million.

Mr MacDonald pointed to the risk posed by rising interest rates coupled with a decline in central Scottish government funding.

The chairman offered assurances, pointing out that the board had more than £2billion in assets. Ed Foster also clarified that capital budgets are usually based on grants and loans, and – unlike the private sector – this is weighed against future revenue streams.

However, Mr. Foster took stock of interest rates. He said some of the council’s old debt was at historic rates as high as 11%, but any future borrowing is vulnerable to increases.

Therefore, the board’s medium-term capital plan needs to factor in a higher repayment rate in new borrowing.

This means that the medium-term budget – which was only approved in December 2021 – now looks unaffordable.

At the time, the plan prompted the vice president of corporate resources, Matthew Reiss, to resign from his position, accusing the board of not being honest about the state of its finances.

Now members are working behind closed doors on a new draft of the plan. Several projects, including new schools funded under the Scottish Government’s Learning Estate Investment Plan (LEIP) look fragile.

Mr. Louden said that a more detailed report on the capital plan will be provided to members later this year.


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