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Finance letter to government, 2023

On 24 October 2023, City Mayor Peter Soulsby wrote to the Secretary of State for Levelling Up, Housing and Communities to inform him of the serious budgetary pressures facing the council. The full letter is below.

Dear Secretary of State,
I am writing to bring our severe budgetary problems to your attention.

We are a responsible Council. In their recent report our external auditor writes that Leicester City Council has “a strong record of financial and budgetary management” and that they have “not identified any significant weaknesses in arrangements to secure financial sustainability”.

We have always been prudent in our management of financial affairs. We have none of the attributes the Government ascribes to “failing” authorities. In particular:
  • We have taken difficult decisions to balance our budgets enabling us to build up reserve balances. We have used these balances to smooth the implementation of subsequent savings decisions - avoiding crisis cuts.
  • We successfully managed real terms cost reductions of 50% in services other than social care, between 2010 and 2020.
  • We have controlled our spending well - without habitual overspends.
  • We have never adopted creative policies for the redemption of debt and have followed good practice on minimum revenue provision.
  • We have not bought property outside the city boundaries, nor have we borrowed money to invest purely for return.
  • Our external debt is less than half of our net budget.
  • We have been prudent in our approach to treasury investment.

Whilst we can probably avoid receiving a section 114 report in 2024/25, a 114 report is becoming almost inevitable before we set the 2025/26 budget.

As of 31st March 2023, our reserve to support the budget stood at £66m. The 2023/24 budget commits £34m to support spending. In 2024/25, in common with many others, we face substantial cost pressures. Savings are increasingly difficult to find. Without substantial cuts we face a near impossible cliff edge in 2025/26. The remainder of the reserve faces exhaustion in 2024/25. The key problems, which are common to the sector are:
  • Growth in the costs of adult social care due to both demand and cost inflation. We estimate this will cost the Council an additional £14m in 2024/25 over and above the 2023/24 budget, rising to £30m by 25/26.
  • Increasing costs of placements for children, estimated at £17m above the 2023/24 budget in 2024/25 rising to £21m by 25/26.
  • Whilst not of the same magnitude, increasing costs of providing accommodation for homeless people are exacerbated by the Government’s policies in respect of recent asylum seekers.
  • The effects of the high inflation, particularly in respect of pay awards.

We will continue to seek savings which will help mitigate these costs. We will also continue to make spending cuts to non-statutory service provision, but we know these efforts cannot be enough when a single additional child in a high-cost placement can cost as much as it does to run our flagship museum.

Providing in full for the growth in statutory service demand will lead to the dismemberment of discretionary and preventative services. At risk are services such as parks, sports, libraries, museums, cultural and community centres – indeed all those universal services that make Leicester and similar cities attractive places in which to live and work.

The solution has to come down to central government. Despite the problems being common to the sector, I do not feel the Government understands the consequences of the storm breaking across the country. What we in Leicester and local councils in general would ask is:
  • Proper recognition of the financial pressures we are facing, particularly in respect of statutory services, and an allocation of grant to meet these costs. The use of the council tax precept as an inadequate alternative to grant - which disadvantages deprived areas - needs to cease. Updating of national spending review provision set out in autumn 2021 for actual inflation.
  • A commitment to medium term funding allocations, which would enable us to make sensible plans.
  • An end to ringfencing - which leads to sub-optimal decision making.
  • Implementation of the fair funding review - properly to reflect population increases.
Without a dramatic shift in the Government’s position on funding Local Government, I fear for the future of vital local services in Leicester and throughout the country.

Yours sincerely,

Peter Soulsby
City Mayor