Council weighs difficult options to tackle 2025/26 budget gap

Chelmsford City Council has identified an ongoing financial shortfall of such significance that, without permanently and significantly increased support from central government, difficult choices will be inevitable to balance its budget.

The council’s Annual Financial Review for 2024/25, being presented to Cabinet on 8 October, identifies a £4 million budget gap for the coming year and forecasts a total shortfall of £13 million over the next five years, unless major changes are made.

Report identifies key problems

The report underlines that Chelmsford is not alone. Councils up and down the country have faced a huge increase in demand for services like housing, and big increases in prices over the last four years, despite facing funding that has fallen dramatically in real terms. The review therefore addresses key problems that must be tackled to help develop a robust budget proposal for 2025/26.

Costs up: homelessness, inflation and interest rates

Homelessness

The housing crisis is identified as a key contributor to Chelmsford’s continuing deficit, as it is for many councils. This year, the council expects to spend around £2.7 million more than it budgeted for last year on temporary accommodation. This figure is expected to increase next year, and providing emergency housing for almost 500 homeless households remains a critical cause of the unsustainable gap in council finances. District councils, like Chelmsford, which do not have their own stock of council houses and where private rents are high, are particularly exposed. This month, Chelmsford was listed as one of the most expensive British cities to rent in outside of London.

Inflation

A prolonged period of high inflation has made delivering many frontline services more expensive and council funding has not kept pace with these extra costs. Wage inflation is acknowledged as a specific challenge for councils, and although local authority pay awards are lower than much of the public sector, pay increases aren’t funded by central government, but must be met by councils themselves. This includes government decisions to increase the National Living Wage by around 10% for the last two years.

Interest rates

Interest rate rises and the need to spend on investment delayed during Covid is also recognised as a problem in the report. Like any business, the council must maintain and renew assets like its vehicle fleet and properties and invest in the city. Some spending cannot be put off and the financing of capital expenditure, which falls on the revenue budget, is more expensive because of rising prices and higher interest rates.

Less cash: rainy day fund limited and ‘lost’ government funding

Rainy day fund limited

There is also less cash available for the coming year, with limited scope to use rainy day reserves. The 2024/25 budget was bolstered by £1.1m from the council’s general reserves, but earlier this year, the council warned that future contributions from its contingency fund would be limited to avoid reserves dropping below an acceptable level.

Falling government funding

Government support for local councils has also been falling since 2010/11. After allowing for inflation, Chelmsford City Council estimates that it has ‘lost’ government funding of around £11m a year. As government grant funding has been cut, district councils depend more and more on income they can raise locally. Without additional and ongoing support from central government, the report predicts that difficult local decisions are inevitable.

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“In many ways, the financial challenge being faced by district councils is as bad as, if not worse than, during the pandemic. To give an idea of the scale of the task ahead, a £4 million gap is around a quarter of the council tax collected for the city council.

“District councils everywhere are dealing with the fallout of prolonged inflation, a vast increase in homelessness and a huge fall in spending power. We will do whatever we can to put the city council on a sustainable footing, but unless there is more help from the Government to address the eye-watering cost increases we are soaking up, we’ll have little choice but to make changes to some of the services we deliver.

“We will be watching the Government’s Budget on 30 October with great interest, hoping for an indication of some substantial and transformative assistance from the Chancellor. However, experience has taught us that it is likely that we must look to ourselves for the most part.”

Cllr Chris Davidson, Cabinet Member for Finance

Recommendations for the 2025/26 budget

The report being presented to Cabinet isn’t a budget report, but it does give an understanding of the council’s finances for the coming year and makes broad recommendations for the 2025/26 budget process. The report advises that the council should continue to lobby the Government to recognise the dire financial position of local authorities nationally and to provide additional, ongoing funding.

A mix of savings and charges

In the meantime, it urges a review of service provision and possible savings, including initiatives to try to reduce the cost of temporary accommodation. The council’s capital programme should also be weighed up to ensure any spending and financing costs are essential. Without additional government support, however, savings alone are not predicted to be enough, and the report suggests a review of fees and charges is inevitable.

Opt-in garden waste collections suggested

This includes a proposal to consider the introduction of an opt-in subscription service for garden waste collections, a charge already implemented by most Essex councils and around 65% of councils across the country. It predicts that an annual charge for this discretionary service, similar to that of neighbouring authorities of around £60, could generate between £1.3m and £1.7m a year. Although only a suggestion at this stage, the report warns that a change of this magnitude will be needed to balance the budget. However, a decision on this should only be taken once the council knows whether sufficient additional funding will be available from the Government.

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“We have a good track record of finding savings and I will present a balanced budget to Full Council early next year. But the shortfalls caused by the pressures we are facing are just too big to be filled by efficiencies alone. No council wants to put forward suggestions like new charges for garden waste collections, but we’ve now reached the point where, without extra government help, we must give this serious consideration.

“We are proud to be one of the few remaining Essex councils currently providing this service at no extra charge to our residents, but we have reached the point where reluctantly, this may no longer be possible. Not everybody uses our garden waste collections, and it is one of the few council services where people genuinely have a choice whether to pay or to use a free alternative like home composting.

“I do understand that people will be disappointed that the report puts this forward, but the alternative would mean permanent cuts to services all residents rely on, so this seems like the least bad option at this stage. Unfortunately, the easy decisions have already been taken; unless we receive more funding from Government, only hard choices remain.”

Cllr Chris Davidson, Cabinet Member for Finance

Annual Financial Review presented on 8 October

The Annual Financial Review 2024/25 will be presented to Cabinet on 8 October, and the council’s budget for 2025/26 will be prepared over the coming months. An update on the Government’s core local authority funding settlement for 2025/26 is expected at the end of the year.

The council’s budget proposals will be brought to Cabinet in January and Full Council, the main budget-setting body, in February.

You can watch all of these meetings on our YouTube channel and we’ll have regular updates on the council’s budget position on City Life.